Global Market Portfolio as a single ETF?

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thomaspinckney3
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Global Market Portfolio as a single ETF?

Post by thomaspinckney3 »

Does anyone know of a single ETF that I can buy to approximately replicate the Global Market Portfolio? I realize I can buy 10-20 individual ETFs to replicate this myself, but it would be much easier if I could buy a single ETF. Alternatively, what is the smallest number of ETFs I can buy to replicate 95% of the return and risk of the universe of all investable securities in the world?

Note, I'm not asking if I should invest in this portfolio. Assume I've already decided I want to and am now looking for options at implementing it.

FYI, background reading on this topic:

https://www.forbes.com/sites/phildemuth ... d63d1d70d1
https://papers.ssrn.com/sol3/papers.cfm ... id=2978509
https://www.folioinvesting.com/folioinv ... l%20Market
asif408
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Re: Global Market Portfolio as a single ETF?

Post by asif408 »

This is the closest one I can find: http://www.cambriafunds.com/Data/Sites/ ... tSheet.pdf
lyrictulip
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Re: Global Market Portfolio as a single ETF?

Post by lyrictulip »

I'd refer you to viewtopic.php?f=10&t=225619&p=3491337#p3491337 -- aj76er has done a fair amount of work on implementing what you're asking for with 4 funds (total us, total intl, total us bond, total intl bond). You might also want to read some of the discussion on here about the "Sharpe Portfolio"
bangkokphuket
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Re: Global Market Portfolio as a single ETF?

Post by bangkokphuket »

Vanguard Total World Stock ETF (VT)
azanon
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Re: Global Market Portfolio as a single ETF?

Post by azanon »

asif408 wrote: Tue Oct 31, 2017 8:51 am This is the closest one I can find: http://www.cambriafunds.com/Data/Sites/ ... tSheet.pdf
I agree, this is probably the closest one available in an all-in-one package.

I think it's better to just use the global market portfolio as an initial frame of reference, then make a selection that's more suited to an individual investor. In my case, for example, I'm about to invest in the newly formed Vanguard Global Wellesley; which is 35% stocks, 65% bonds, and will have approximately global weightings, and will include both government and corporate bonds. Does it perfectly match a GMP? No, but I think it's close enough and it also slices out those investments which aren't as ideal for an individual investor, such as private equity or commodities.

I like your idea of seeking out something more related to a global market portfolio. I find it interesting that the asset class, stocks, gets overweighted in most recommend portfolios, presumably because that asset class has a higher expected return than other asset classes. In practice, most risk analysis I've seen performed show that stocks have exactly as much expected return as they should have for their given level of risk. So to me it seems more logical to not try to make your portfolio produce more than a typical expected return. I'd rather just save more if I need more money, instead of raising my portfolio risk level higher than the world's portfolio. Said another way, portfolios should be judged by how much return per unit of risk does it produce, not just how much return.
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Re: Global Market Portfolio as a single ETF?

Post by Grasshopper »

GAA, 27 stocks, VT, 7,974 stocks, like comparing the Dow 40 to the S&P 500.
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Re: Global Market Portfolio as a single ETF?

Post by psteinx »

Thomas (OP):

You can kind of go down this rabbit hole pretty deep.

Depends what you mean by "investable securities"...

Do you include bank CDs? Gold, silver, platinum, diamonds, rubies? Old master paintings and coins? Most houses aren't readily investable (i.e. the housing stock of Missouri or Montenegro), but what if you could find some small investable entity that holds 1% of the housing stock of Montenegro - should you buy that and scale it up to 100X market cap, to capture the proportionate share of the whole market?

It's an interesting thought exercise, but I don't think it's a particularly practical or good idea for the typical investor. Most truly investable, liquid securities capturing an equity interest in a business or income producing asset will have some degree of correlation, in a financial crisis. And for more purely interest paying assets (bonds and the like), how much value is really added by being exposed to the 100th, 1000th, 10,000th, or 1 millionth different bond, paying, say, 3% interest in USD?
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Re: Global Market Portfolio as a single ETF?

Post by nisiprius »

Grasshopper wrote: Tue Oct 31, 2017 11:29 amGAA, 27 stocks, VT, 7,974 stocks, like comparing the Dow 40 to the S&P 500.
Not fair. (Even I'm not a fan of Mebane Faber, and I think people planning to buy this ETF should take a good hard look at his earlier ETF, Global Tactical Asset Allocation GTAA).

GAA doesn't hold 27 stocks, it holds 27 ETFs which, in turn, each hold hundreds of assets. And, VT only hold the global market portfolio of stocks, while GAA says that it aims to reflect the "global universe of assets."

[Scratching head: what is a "global universe?" Is that bigger or smaller than "the universe?" Is there a "universal universe?")

Latest annual report, http://www.cambriafunds.com/Data/Sites/ ... _Final.pdf shows the composition as of April 2017:

Image

Their web page for the fund describes it:
The Cambria Global Asset Allocation ETF uses a buy and hold strategy that aims to reflect the market portfolio of investable assets.

The Cambria Global Asset Allocation ETF targets investing in approximately 29 ETFs that reflect the global universe of assets consisting of domestic and foreign stocks, bonds, real estate, commodities and currencies.
In other words, on the face of it this appears to be a candidate for what the original poster wants: a single ETF that reflects the "global universe of assets."
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Re: Global Market Portfolio as a single ETF?

Post by Grasshopper »

My bad. :oops:
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Re: Global Market Portfolio as a single ETF?

Post by thomaspinckney3 »

You can kind of go down this rabbit hole pretty deep.

Depends what you mean by "investable securities"...

Do you include bank CDs? Gold, silver, platinum, diamonds, rubies? Old master paintings and coins? Most houses aren't readily investable (i.e. the housing stock of Missouri or Montenegro), but what if you could find some small investable entity that holds 1% of the housing stock of Montenegro - should you buy that and scale it up to 100X market cap, to capture the proportionate share of the whole market?
It's a good question. For a mix of practical reasons the definition of what I consider an "investable security" is:

1) Fungible and trades via a standardized form
2) It must be liquid and frequently traded on public markets
3) It must represent the right to receive an expected positive future cash-flow from profits or interest (this is tricky, but trying to separate out speculation on future price changes or hedges from things that we inherently believe should produce a positive return).

#1 and #2 rules out things like old master paintings, private housing etc.
#3 rules out commodities, currencies, swaps, futures, options etc

So we're left with loans/bonds and equities. But there are many many types of loans/bonds and equities around the world and that is the problem I'm focused on.
Last edited by thomaspinckney3 on Tue Oct 31, 2017 1:13 pm, edited 1 time in total.
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Re: Global Market Portfolio as a single ETF?

Post by KyleAAA »

Grasshopper wrote: Tue Oct 31, 2017 11:29 am GAA, 27 stocks, VT, 7,974 stocks, like comparing the Dow 40 to the S&P 500.
GAA is a fund of funds. It owns VTI and several other broad-market Vanguard ETFs among its holdings. It's likely significantly more diversified than VT.

Edit: looks like nisiprius beat me to it.
Last edited by KyleAAA on Tue Oct 31, 2017 12:24 pm, edited 2 times in total.
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Re: Global Market Portfolio as a single ETF?

Post by azanon »

"3) It must represent the right to receive an expected positive future cash-flow from profits or interest (this is tricky, but trying to separate out speculation on future price changes or hedges from things that we inherently believe should produce a positive return).

..........
#3 rules out commodities, currencies, swaps, futures, options etc"

I would say that's not so easy to conclude. If you have an asset class that can at least be expected to match inflation and, on top of that, or perhaps I should say in addition to that, it is uncorrelated with the other portions of your portfolio, then it could add some value to a portfolio. What's valuable about a portfolio? Well, we want it to have return of course in the form of income or capital gains. But we also want stability of both principle and interest, to the extent that we can get it. We care about that right, not losing our money? ;-) Also, if possible, we might even want a asset that is not vulnerable to the same kinds of risks as other pieces of a portfolio because, again, we like to have the best odds of our principle being safe.

An asset that can at least 1. match inflation and either a. has essentially no volatility and/or risk (ultra short tbills? or short-term TIPS funds which is paying negative interest atm) or b. has volatility but not in correlation with the portfolio, could add value to a portfolio in terms of reducing portfolio risk, but provide the same or higher risk-adjusted return measured by, say, Sharpe or Sortino ratio.

In short, measuring a portfolio, as well as its asset classes, by return only is myopic
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Re: Global Market Portfolio as a single ETF?

Post by thomaspinckney3 »

@azanon - I agree that my rule #3 is somewhat arbitrary and many will disagree with me.

Personally, I view buying commodities as speculation/trading as opposed to investment since they inherently generate no or even negative income (cost to store physical). The only way to make money is to hope that someone in the future will pay more for exactly the same asset. In the mean time, it just sits there unproductively. Now I'm not arguing that it hasn't been a profitable trade many times, but mentally I just can't get there to think of it as an investment like an equity stake or loan to an economically productive entity.

As a pragmatic matter, the only way to realistically invest in commodities as an individual is through futures. They have a pretty mixed record which many believe is intrinsic to lower future prices compared to spot prices. DBC's 10 year chart is pretty disheartening. This is also an interesting read https://www.kiplinger.com/article/inves ... ments.html

(edited to add Kiplinger article)
Last edited by thomaspinckney3 on Tue Oct 31, 2017 1:14 pm, edited 1 time in total.
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Re: Global Market Portfolio as a single ETF?

Post by lack_ey »

thomaspinckney3 wrote: Tue Oct 31, 2017 11:55 am 1) Fungible and traceable via a standardized form
2) It must be liquid and frequently traded on public markets
3) It must represent the right to receive an expected positive future cash-flow from profits or interest (this is tricky, but trying to separate out speculation on future price changes or hedges from things that we inherently believe should produce a positive return).
These definitions would seem to include commercial paper, short-term CDs, repos, and other kinds of assets held by money market funds and ultrashort bond funds, which is an area difficult to broadly access or index, but actually make a substantial part of the debt market. The total bond market type of indexes generally cover > 1 yr maturity.

That said, you don't need to own this directly to largely access and replicate its risk and return.

These definitions would also effectively screen out a decent portion of bonds for not being liquid and frequently traded.
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Re: Global Market Portfolio as a single ETF?

Post by thomaspinckney3 »

@lack_ey - Agreed. Thoughts on a better way to define things?
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Re: Global Market Portfolio as a single ETF?

Post by columbia »

Out of curiosity, I compared the above discussed fund with the 60/40 LifeStrategy fund. Returns since 01/01/2015 (rough start date of GAA):

GAA: $1,747
VSMGX: $1,955

Per Morningstar, VSMGX is 16 basis points cheaper.
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Re: Global Market Portfolio as a single ETF?

Post by RNJ »

50% VT
25% BND
25% BNDX

Not a perfect match, but not too shabby.
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Re: Global Market Portfolio as a single ETF?

Post by nisiprius »

columbia wrote: Tue Oct 31, 2017 1:20 pm Out of curiosity, I compared the above discussed fund with the 60/40 LifeStrategy fund. Returns since 01/01/2015 (rough start date of GAA):

GAA: $1,747
VSMGX: $1,955

Per Morningstar, VSMGX is 16 basis points cheaper.
Beat me to it. One issue is that according to Morningstar, GAA is 48.51% stocks and the rest "cash, bonds, other." Call it 50/50. And VSMGX is 60/40. I compared GAA to a mix of half VSMGX, VSCGX which would, together, give about 50/50 stocks/bonds. In this case, the total return is almost identical, but the standard deviation of the "traditional" Vanguard portfolio is lower, giving a higher Sharpe ratio. But, hey, with only 2.5 years of history, it doesn't mean anything.

Blue, portfolio 1, GAA.
Red, portfolio 2, 50% each Vanguard LifeStrategy Moderate Growth and Vanguard LifeStrategy Conservative Growth.
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Re: Global Market Portfolio as a single ETF?

Post by nisiprius »

After 2-1/2 years, Morningstar is showing GAA as only having $48.52 mil in assets under management. That doesn't seem like very much. I don't know enough about ETFs to know if that's cause for concern.
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Re: Global Market Portfolio as a single ETF?

Post by lack_ey »

nisiprius wrote: Tue Oct 31, 2017 6:03 pm After 2-1/2 years, Morningstar is showing GAA as only having $48.52 mil in assets under management. That doesn't seem like very much. I don't know enough about ETFs to know if that's cause for concern.
It might say something, but context is a bit different here as this is a fund-of-funds that charges 0 management fees. The ER is all acquired fund fees, and the majority of holdings are non-Cambria ETFs.

This is kind of just something Meb Faber runs out of principle.

edit: with respect to performance since inception, I'm not really interested enough to dig deeper and try to do a full breakdown or attribution, but the commodities exposure certainly hasn't helped (negative return, high vol, somewhat high correlation with equities over the period, at least looking at multi-month trends) yet is something not really out of the mainstream. The slight tilt to value has detracted as well, and again is not really that controversial and may be long-term net positive. It's a short window, in any case, as stated earlier.
Last edited by lack_ey on Tue Oct 31, 2017 7:44 pm, edited 2 times in total.
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Re: Global Market Portfolio as a single ETF?

Post by columbia »

I'd say he isn't harvesting any magic beans, but it's a perfectly fine fund - just not particularly noteworthy.
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Re: Global Market Portfolio as a single ETF?

Post by thomaspinckney3 »

I’m less concerned about historical performance and more interested in a simple low cost way to invest in the “theoretically optimum” truly passive portfolio. This is a portfolio that truly assumes I have no unique information about asset prices, which is probably a correct assessment of my knowledge :)

Now whether GAA vs something else is a good approximation of that goal is less clear. GAA seems like a reasonable start though the low liquidity is concerning.
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Re: Global Market Portfolio as a single ETF?

Post by nisiprius »

As long as we are talking theory: there is a theory that says that the market portfolio (the sum total of assets held within a market) is mean-variance optimum. However, I think this theory assumes that it really is a single market, in which investors have total freedom to exchange any combination of assets for any other combination, frictionlessly, and I think it assumes that the market is being conducted in a single currency.

In other words: the actual United States stock market seems to meet the assumptions reasonably well. But I have considerable skepticism that it really applies to a loose collection of national markets traded in different currencies, and including less liquid assets. Perhaps some academician has produced a modified theory for the case of multiple currencies and a multi-compartmented market.

And then, too, the theory makes other assumptions that have been challenged. In the early editions of Stocks for the Long Run, Jeremy Siegel endorsed this theory, but about the time he became an advisor to WisdomTree and its "fundamentally indexed" products, he amended his statement in the book to say that the assumptions behind cap-weighting were unrealistic, and that fundamental indexing was better.

That doesn't mean it's bad. If lack_ey is correct that GAA in particular is being operated at cost as a public service, and is just a convenient way of assembling a portfolio that is mostly fairly-traditional ETFs, my instincts are that you cannot prove that it is either better than or worse than the Vanguard Balanced Index Fund (60% Total Stock, 40% Total Bond, U.S.-only), and that thirty years from now (if they all survive for thirty years) you will know which one did best over that particular time period, but you will still not know which one was "really" best.
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Re: Global Market Portfolio as a single ETF?

Post by lostdog »

RNJ wrote: Tue Oct 31, 2017 1:51 pm 50% VT
25% BND
25% BNDX

Not a perfect match, but not too shabby.
+1. Maybe someday Vanguard will come out with a total world bond index?
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Re: Global Market Portfolio as a single ETF?

Post by Phil DeMuth »

I believe that I was the first kid on the block to offer the global market portfolio as a one-click purchase option:

https://www.folioinvesting.com/folioinv ... bal+Market
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Re: Global Market Portfolio as a single ETF?

Post by azanon »

nisiprius wrote: Tue Oct 31, 2017 6:03 pm After 2-1/2 years, Morningstar is showing GAA as only having $48.52 mil in assets under management. That doesn't seem like very much. I don't know enough about ETFs to know if that's cause for concern.
I would say that it is. I had a fund close up on me that was around that size. So if it were me and I was going to pick one fund/etf for my entire portfolio, I'd want it to be so large that there's very little chance it'd close. In today's amounts that's probably closer to 200 mil+, really rough ballpark guess.
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Re: Global Market Portfolio as a single ETF?

Post by azanon »

lack_ey wrote: Tue Oct 31, 2017 6:42 pm
nisiprius wrote: Tue Oct 31, 2017 6:03 pm After 2-1/2 years, Morningstar is showing GAA as only having $48.52 mil in assets under management. That doesn't seem like very much. I don't know enough about ETFs to know if that's cause for concern.
It might say something, but context is a bit different here as this is a fund-of-funds that charges 0 management fees. The ER is all acquired fund fees, and the majority of holdings are non-Cambria ETFs.

This is kind of just something Meb Faber runs out of principle.
I'd say this is all a little misleading; yeah this is what Meb says. Now the reality. The reality is that all of Vanguard's balanced funds are zero management fees in the same sense that Meb's taking. As you say, the fees for both (Vanguard balanced and GAA) are there, but they're just to be found in the underlying funds. If Meb layered a management fee on top of that for GAA, i'd make it worse than Vanguard's alternatives.

And the lion's share of the composite fee IS going to Cambria. If you look at the holdings of GAA closely there's generally two types; dirt cheap non-cambria ETFs, and very expensive Cambria ones - and there are several Cambria ETFs, and he intends to add more over time.

But yeah at only 48 million, it's likely not profitable. Meb said/claimed that ETFs don't really get profitable until they pass ~ 100 mil mark.
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Re: Global Market Portfolio as a single ETF?

Post by columbia »

What would be the US Market Portfolio?
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Re: Global Market Portfolio as a single ETF?

Post by lack_ey »

columbia wrote: Wed Nov 01, 2017 11:52 am What would be the US Market Portfolio?
...define market.

US equity market to bond market in 2016 was 42:58 according to SIFMA. Maybe higher on stocks now, given the recent gains.
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Re: Global Market Portfolio as a single ETF?

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 8:36 pm, edited 1 time in total.
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Re: Global Market Portfolio as a single ETF?

Post by spdoublebass »

Register44 wrote: Tue Oct 20, 2020 8:16 pm Just curious if anyone is still in GAA. The rest of the Cambria funds returns do not look too hot. But GAA expense ratio seems fair and carries vanguard funds. I would imagine this is why it is the only one that has done well.

As mentioned before I think this is the closest we get to Sharpe's model portfolio. The Vanguard VSMGX is the next closest with better fees, but completely misses commodities and currencies.
I personally am not.
I do think it's a nice ETF. I'm still a little confused when I look under the hood in morningstar Xray. 20% US and 20% International stock. Seems odd since VT is slightly tilted to US at the moment. I think a lot of this has to do with what else GAA holds besides stocks and Bonds.
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Re: Global Market Portfolio as a single ETF?

Post by Random Musings »

I believe the global look is not diversified enough, so I have my computers index-linked to the Galactic stock-market. Even that makes me feel very depressed at times.

RM
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Re: Global Market Portfolio as a single ETF?

Post by cos »

lostdog wrote: Wed Nov 01, 2017 8:25 am
RNJ wrote: Tue Oct 31, 2017 1:51 pm 50% VT
25% BND
25% BNDX

Not a perfect match, but not too shabby.
+1. Maybe someday Vanguard will come out with a total world bond index?
You mean BNDW?
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Re: Global Market Portfolio as a single ETF?

Post by chem »

original poster, check out the ishares allocation ETFs, for example:

ticker AOR, expense ratio 0.25%
https://www.ishares.com/us/products/239 ... cation-etf

holdings:
IVV ISHARES CORE S&P ETF Corporates Equity $467,186,957.35 32.40
IUSB ISHARES CORE TOTAL USD BOND MARKET Corporates Fixed Income $432,434,321.00 29.99
IDEV ISHARES CORE MSCI INT DEVEL ETF Corporates Equity $314,280,572.61 21.80
IEMG ISHARES CORE MSCI EMERGING MARKETS Corporates Equity $107,635,720.50
IAGG iShares Core Intl Aggregate Bnd ET Corporates Fixed Income $76,495,695.51 5.31
IJH ISHARES CORE S&P MID-CAP ETF Corporates Equity $29,479,367.97 2.04
IJR ISHARES CORE S&P SMALL-CAP ETF Corporates Equity $12,113,616.24 0.84
XTSLA BLK CSH FND TREASURY SL AGENCY Cash and/or Derivatives Money Market $2,262,999.99 0.16

all-world stocks and bonds in one wrapper
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Re: Global Market Portfolio as a single ETF?

Post by nestorius »

Random Musings wrote: Tue Oct 20, 2020 9:25 pm I believe the global look is not diversified enough, so I have my computers index-linked to the Galactic stock-market. Even that makes me feel very depressed at times.

RM
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Re: Global Market Portfolio as a single ETF?

Post by lostdog »

cos wrote: Wed Oct 21, 2020 12:05 am
lostdog wrote: Wed Nov 01, 2017 8:25 am
RNJ wrote: Tue Oct 31, 2017 1:51 pm 50% VT
25% BND
25% BNDX

Not a perfect match, but not too shabby.
+1. Maybe someday Vanguard will come out with a total world bond index?
You mean BNDW?
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Re: Global Market Portfolio as a single ETF?

Post by Steadfast »

You can use VT & BNDW.

That's how I would do it.
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Re: Global Market Portfolio as a single ETF?

Post by Steadfast »

RNJ wrote: Tue Oct 31, 2017 1:51 pm 50% VT
25% BND
25% BNDX

Not a perfect match, but not too shabby.
Why split the bond funds when there is BNDW available?
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Re: Global Market Portfolio as a single ETF?

Post by KyleAAA »

Just GAA, that I'm aware of. But you pay the ER for GAA plus the ER of the underlying ETFs it holds. Some of the underlying holdings are Vanguard ETFs while others are Cambria ETFs charging 0.5-0.6%. You'd have to do the math, but the overall weighted ER is probably something like 0.6-to-0.7%, which I guess isn't horrible for the convenience of it.
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Re: Global Market Portfolio as a single ETF?

Post by JamalJones »

asif408 wrote: Tue Oct 31, 2017 8:51 am This is the closest one I can find: http://www.cambriafunds.com/Data/Sites/ ... tSheet.pdf
Above link is no longer valid. Updated link: https://www.cambriafunds.com/assets/doc ... tSheet.pdf
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Re: Global Market Portfolio as a single ETF?

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 8:35 pm, edited 1 time in total.
Register44
Posts: 237
Joined: Sun Feb 09, 2020 12:30 pm

Re: Global Market Portfolio as a single ETF?

Post by Register44 »

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Last edited by Register44 on Mon Jan 11, 2021 8:35 pm, edited 1 time in total.
RNJ
Posts: 853
Joined: Mon Apr 08, 2013 9:06 am

Re: Global Market Portfolio as a single ETF?

Post by RNJ »

Steadfast wrote: Wed Oct 21, 2020 11:00 am
RNJ wrote: Tue Oct 31, 2017 1:51 pm 50% VT
25% BND
25% BNDX

Not a perfect match, but not too shabby.
Why split the bond funds when there is BNDW available?
Well, now you don't have to! My post (quoted above) pre-dated the advent of BNDW. :wink:
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