U.S. & International Allocation

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abuss368
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U.S. & International Allocation

Post by abuss368 » Sat Nov 04, 2017 8:10 pm

Hi Bogleheads -

In the spirt of the endless debate over how much of the equity portfolio should be allocated to international, I have been reflecting on the overall trend of the past many years. Vanguard investment experts recommended a 20% of equity allocation to Total International Index. This recommended allocation was increased to 30% of equity. Eventually the allocation reached the present recommendation of 40% of equity.

My thoughts are centered on at what point is Vanguard investment experts going to recommend a simple allocation of 50% equity to Total Stock and 50% equity to Total International?

To take it one step forward, could anyone foresee the Target and LifeStrategy funds replace Total Stock and Total International with Total World? Never say never, however if Vanguard made this change, I would suspect this would have tax impact to investors who held these funds in a taxable account. Further, this change would probably result in higher expense ratios for Total Stock and Total International.

To the original point however, a 50% Total Stock and 50% Total International has to be a "sweat spot" for Bogleheads in terms of simplicity and not speculating on the future direction of the domestic and international markets.

Please provide your thoughts and views!
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Re: U.S. & International Allocation

Post by lostdog » Sat Nov 04, 2017 10:25 pm

I need to find the video to prove this. In a Vanguard video the advisor did say their end result is market weight. The 40% was the number they came up with based on investor comfort. I agree that at some point they will slowly inch their way to market weight.
"Time in the market is better than timing the market" -Toons | 60/40 US/International -Vanguard Recommendation

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Re: U.S. & International Allocation

Post by aj76er » Sun Nov 05, 2017 1:32 am

I just got finished reading this series:

https://finpage.blog/2017/03/18/investi ... ld-part-1/
https://finpage.blog/2017/03/25/investi ... ld-part-2/
https://finpage.blog/2017/03/25/investi ... ld-part-3/

Based on the data, equities split as 75% World + 25% Domestic held up nicely across developed economies. It seems like a balanced way to hedge against both global macro trends and domestic inflationary trends.

Currently, the market weight is:
52% U.S.
48% xU.S.

A 75% World +25% Domestic equity split would yield:

U.S. = 52% x 0.75 + 25% = 64%
xU.S. = 48% x 0.75 = 36%

This is close to Vanguard's 40% xUS recommendation. Furthermore, it correlates well to a Vanguard previous paper stating that 30% of equities in xUS achieved nearly 99% of the diversification benefits (in back-tested data)

In a classic 60/40 stock/bond AA, the %xUS would be 36% x 0.6 = 21.6% of total portfolio.
In Swenson's book "Unconventional Success", he cites research that xUS of about 25% of total portfolio has yielded the best risk adjusted performance (above which the currency risk outweighs the diversification benefit).

At any rate, it is nice when multiple sources cross-correlate well with each other :).
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: U.S. & International Allocation

Post by Noobvestor » Sun Nov 05, 2017 1:54 am

Total World is a great fund in theory, and if it became a core fund in TD and LS funds I assume that would justify lowering its expense ratio and adding cheaper admiral shares, which would further bolster its popularity (I, for one, would recommend it to everyone!). And yes, I do think it's the natural end state of this progression, though I also wouldn't be surprised if they instead just went to 50/50 US/Intl as 'close enough.'
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Re: U.S. & International Allocation

Post by z3r0c00l » Sun Nov 05, 2017 7:01 am

Market cap works on every other scale for diversification and ease of passive indexing, why anyone would want to stop at international is beyond me. The common answer, that international companies do business in the US and vice versa falls flat. As if one would eschew Nestle, Samsung, or Toyota because they sell things here too? US companies do a great deal of business elsewhere too. The currency issue is another strange one, it strikes me as solid protection against US inflation since we have clearly seen in the past 10 years that inflation and interest rates can vary widely from one country to the next. In any event, even if one sees real problems with international, few make the case that it isn't worth owning some amount. And given that position, I see only arbitrary numbers until one gets to market cap.

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Re: U.S. & International Allocation

Post by abuss368 » Sun Nov 05, 2017 7:17 am

I had also wanted to mention that the recommended allocation of fixed income for Total International Bond has also increased in terms of Vanguard investment experts. I believe this was 20% of fixed income and is now 30%.

The trend appears to be in one direction.
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Re: U.S. & International Allocation

Post by harvestbook » Sun Nov 05, 2017 8:02 am

Let's face it, we are all active managers making active investment decisions, even when we think we're using a three-fund portfolio to "capture what the market gives us." I doubt anyone in the entire world has an exact global weight allocation.

This is one of my favorite blog posts showing the true market weight of various sectors:
https://pensionpartners.com/searching-f ... portfolio/
I'm not smart enough to know, and I can't afford to guess.

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Re: U.S. & International Allocation

Post by siamond » Sun Nov 05, 2017 1:06 pm

abuss368 wrote:
Sat Nov 04, 2017 8:10 pm
To take it one step forward, could anyone foresee the Target and LifeStrategy funds replace Total Stock and Total International with Total World? [...]

To the original point however, a 50% Total Stock and 50% Total International has to be a "sweat spot" for Bogleheads in terms of simplicity and not speculating on the future direction of the domestic and international markets.
50/50 has been my equity split since I became a Bogleheads, so yes, sweet spot indeed -- and no sweat about it! :wink:

And yes, I can see Vanguard slowly moving to market weights. But dynamic ones, not a static split like the one I use (which is deliberate, as I strongly suspect that the US will lose some market weight in the coming decades against emerging countries, which will create a domestic skew for my portfolio as I grow older, which would be fine with me -- while keeping things simple).

As a reminder, the current market weight is indeed close to 50/50, but those things can vary remarkably fast...

Image

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Re: U.S. & International Allocation

Post by abuss368 » Sun Nov 05, 2017 9:26 pm

Thank you for sharing that chart of global capitalization.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: U.S. & International Allocation

Post by Sandtrap » Sun Nov 05, 2017 9:42 pm

Noobvestor wrote:
Sun Nov 05, 2017 1:54 am
Total World is a great fund in theory, and if it became a core fund in TD and LS funds I assume that would justify lowering its expense ratio and adding cheaper admiral shares, which would further bolster its popularity (I, for one, would recommend it to everyone!). And yes, I do think it's the natural end state of this progression, though I also wouldn't be surprised if they instead just went to 50/50 US/Intl as 'close enough.'
Yes. It would be more attractive if Total World were offered in Admiral shares and comparable ER to Total Stock at .04
I notice the core holdings of both Total World VTWSX (ER .21) and Total Stock Market VTSAX (ER.04) are similar. Perhaps not as "Total" as the name might suggest?
Do the advantages (perhaps) of international diversification in VTWSX over Total Stock VTSAX outweigh the higher expense ratios?

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Re: U.S. & International Allocation

Post by tetractys » Sun Nov 05, 2017 11:23 pm

Two points, one of them already alluded to here. All World funds carry definite tax consequences in taxable accounts. And because of Vanguard’s huge size, it has no choice but to economize by steering as many investors as possible into stringent market capitalization. — Tet

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Re: U.S. & International Allocation

Post by siamond » Sun Nov 05, 2017 11:34 pm

aj76er wrote:
Sun Nov 05, 2017 1:32 am
I just got finished reading this series:

https://finpage.blog/2017/03/18/investi ... ld-part-1/
https://finpage.blog/2017/03/25/investi ... ld-part-2/
https://finpage.blog/2017/03/25/investi ... ld-part-3/

Based on the data, equities split as 75% World + 25% Domestic held up nicely across developed economies. It seems like a balanced way to hedge against both global macro trends and domestic inflationary trends.
I'm glad this study captured your interest. I recently ran the numbers again, and looked a bit more closely. In all fairness, my statement about 75% World + 25% Domestic being a sweet spot was maybe a little hasty. I think it would be more fair to say that it was in-between 75/25 and 50/50, without trying to be more precise than that (it depends which risk metric you focus on).

It is unfortunate that we only have the 1970-2016 time period though, it would be really interesting to figure out what happened at a time where interest rates evolved in a different manner than they did in the past few decades.

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Re: U.S. & International Allocation

Post by midareff » Mon Nov 06, 2017 8:27 am

abuss368 wrote:
Sun Nov 05, 2017 7:17 am
I had also wanted to mention that the recommended allocation of fixed income for Total International Bond has also increased in terms of Vanguard investment experts. I believe this was 20% of fixed income and is now 30%.

The trend appears to be in one direction.
I was at 30% international but just increased that to 40% based on current US valuations and am contemplating increasing that to 45%. I lived through 2007-8 and 1999 and remember them both all too well, and that they started with historically high valuations, as we have now. In both cases the preamble read it's different this time, and it wasn't, it was just a matter of when.

FWIW, I'll be 70 next month and start RMD. At 55% FI I',m relatively well liability matched and my need, willingness and desire to take risk is vanishing by the week.

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Re: U.S. & International Allocation

Post by triceratop » Mon Nov 06, 2017 8:38 am

tetractys wrote:
Sun Nov 05, 2017 11:23 pm
Two points, one of them already alluded to here. All World funds carry definite tax consequences in taxable accounts. And because of Vanguard’s huge size, it has no choice but to economize by steering as many investors as possible into stringent market capitalization. — Tet
What tax consequences, other than a mixing of domestic (no FTC) with foreign (with FTC)? There shouldn't be tax consequences such as capital gains because there is no rebalancing needed to keep at global market weight.

As for steering investors into stringent market capitalization: I wouldn't view it quite so suspiciously. Using market capitalization is the default passive choice, using the market wisdom for what to hold.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: U.S. & International Allocation

Post by stemikger » Mon Nov 06, 2017 8:43 am

Great post!! It seems like Vanguard changed their views on this over the years, but Jack still feels that international is not necessary. I will keep it simple and stay with my all U.S. portfolio because as we know we get built in diversification with the Total Stock or S&P with less risk. Why add more?
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Re: U.S. & International Allocation

Post by lostdog » Mon Nov 06, 2017 9:11 am

Sandtrap wrote:
Sun Nov 05, 2017 9:42 pm
Noobvestor wrote:
Sun Nov 05, 2017 1:54 am
Total World is a great fund in theory, and if it became a core fund in TD and LS funds I assume that would justify lowering its expense ratio and adding cheaper admiral shares, which would further bolster its popularity (I, for one, would recommend it to everyone!). And yes, I do think it's the natural end state of this progression, though I also wouldn't be surprised if they instead just went to 50/50 US/Intl as 'close enough.'
Yes. It would be more attractive if Total World were offered in Admiral shares and comparable ER to Total Stock at .04
I notice the core holdings of both Total World VTWSX (ER .21) and Total Stock Market VTSAX (ER.04) are similar. Perhaps not as "Total" as the name might suggest?
Do the advantages (perhaps) of international diversification in VTWSX over Total Stock VTSAX outweigh the higher expense ratios?
For me the simplicity is worth the extra price.
"Time in the market is better than timing the market" -Toons | 60/40 US/International -Vanguard Recommendation

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Re: U.S. & International Allocation

Post by Tamalak » Mon Nov 06, 2017 9:35 am

abuss368 wrote:
Sat Nov 04, 2017 8:10 pm
To the original point however, a 50% Total Stock and 50% Total International has to be a "sweat spot" for Bogleheads in terms of simplicity and not speculating on the future direction of the domestic and international markets.
I really think this, and any other 'static percentage' allocations (including the one Vanguard offers now), are an illusionary sweet spot to be avoided.

Domestic vs. International is not the same as stocks vs. bonds. Thinking of it as "asset allocation" doesn't make sense because domestic vs. international are part of the same whole, and the composition of that whole shifts over time. Right NOW it's approximately 50-50 but that could change significantly in a handful of years, and that serene 50-50 advice turns into advice to tilt.

If you want to invest "in the haystack" you invest in World Market. If you want to 'tilt' domestic as Bogle does for some reason, then that tilt should be expressed as the difference in your ratio vs. capitalization, not your ratios as an absolute.

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Re: U.S. & International Allocation

Post by aj76er » Mon Nov 06, 2017 3:50 pm

siamond wrote:
Sun Nov 05, 2017 11:34 pm
aj76er wrote:
Sun Nov 05, 2017 1:32 am
I just got finished reading this series:

https://finpage.blog/2017/03/18/investi ... ld-part-1/
https://finpage.blog/2017/03/25/investi ... ld-part-2/
https://finpage.blog/2017/03/25/investi ... ld-part-3/

Based on the data, equities split as 75% World + 25% Domestic held up nicely across developed economies. It seems like a balanced way to hedge against both global macro trends and domestic inflationary trends.
I'm glad this study captured your interest. I recently ran the numbers again, and looked a bit more closely. In all fairness, my statement about 75% World + 25% Domestic being a sweet spot was maybe a little hasty. I think it would be more fair to say that it was in-between 75/25 and 50/50, without trying to be more precise than that (it depends which risk metric you focus on).

It is unfortunate that we only have the 1970-2016 time period though, it would be really interesting to figure out what happened at a time where interest rates evolved in a different manner than they did in the past few decades.
Thanks Saimond. Really great articles. I read them twice over the weekend :)
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: U.S. & International Allocation

Post by gks » Mon Nov 06, 2017 5:30 pm

I know I will be hammered for these observations...

First, I realize that past performance is no guarantee of future returns. Guarantee is the operative word, but how about as an alternative, maybe a guide.

Second, I don't really have all that much longer to worry about the US/World asset allocations. After all, the Roman Empire lasted a thousand years and I may have 20.

Third, Total Stock Market-VTSAX, has stomped all over Total International-VTIAX since 04-29-96, almost 22 years, by $60,179 to $29,013. The dates are not cherry picked. April 96 was the inaugural of TI at Vanguard, and the figures are courtesy of MorningStar as of 11-05-17.

Say what you will, but there was an old saying that when the US got a head cold, the world got pneumonia. Look at MorningStar's comparison chart between VTSAX an VTIAX. They don't go in lockstep, but they do seem to mimic.

For further edification:

V Balanced Index 48,922 Allocation 60/40
V Wellesley 53,146 35/65 A good argument for active management


Yes, yes, yes, all that past performance stuff. It does not guarantee, but from what I can see, it rhymes.

Greg

stemigker, I'm with you. However, my wife has a small Roth with LS Moderate Growth, just to hedge the bet. Sorry.

G
Last edited by gks on Tue Nov 07, 2017 8:34 am, edited 2 times in total.

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Re: U.S. & International Allocation

Post by wesgreen » Mon Nov 06, 2017 6:23 pm

I don't think I'll ever recover what I lost by going 30% international. I shouldn't have listened to people who think they're smarter than John Bogle.

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Re: U.S. & International Allocation

Post by Noobvestor » Mon Nov 06, 2017 9:59 pm

wesgreen wrote:
Mon Nov 06, 2017 6:23 pm
I don't think I'll ever recover what I lost by going 30% international. I shouldn't have listened to people who think they're smarter than John Bogle.
Now go back in time and imagine you started investing in the year 2000. Ten years later, you find yourself lamenting the fact that the US stock market has actually lost money while international is up 25%. And you write on the forum: I never should have listened to Jack Bogle.

I too have 'lost' money from being internationally diversified, but I try not to confuse strategy with outcome. And I'm staying the course.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: U.S. & International Allocation

Post by wesgreen » Mon Nov 06, 2017 11:44 pm

I've been investing a little longer than that, and those 10 years hardly bothered me. Maybe if I got really drunk I might be able to get your point?

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Re: U.S. & International Allocation

Post by saltycaper » Mon Nov 06, 2017 11:48 pm

wesgreen wrote:
Mon Nov 06, 2017 6:23 pm
I don't think I'll ever recover what I lost by going 30% international. I shouldn't have listened to people who think they're smarter than John Bogle.
If you mean you don't think your returns on your international stocks ever will be greater than 0%, that's unlikely. Unless you sold them at a loss, but I don't recall many international investors on this forum recommending that. If by loss you mean the gains you missed had you invested in something else, there are an infinite number of portfolios that did better than Total US Stock Market, so I'd get used to that feeling no matter what you invest in.
Quod vitae sectabor iter?

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Re: U.S. & International Allocation

Post by TheBogleWay » Tue Nov 07, 2017 2:31 am

This is just a gut feeling, which I know counts for completely nothing, but I like my current split which is closer to 75% US and 25% INTL. I think I'll keep it roughly that. It's all speculation but I imagine the US will continue to do well like one of the other posters said above.

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Re: U.S. & International Allocation

Post by jhfenton » Tue Nov 07, 2017 8:08 am

Tamalak wrote:
Mon Nov 06, 2017 9:35 am
abuss368 wrote:
Sat Nov 04, 2017 8:10 pm
To the original point however, a 50% Total Stock and 50% Total International has to be a "sweat spot" for Bogleheads in terms of simplicity and not speculating on the future direction of the domestic and international markets.
I really think this, and any other 'static percentage' allocations (including the one Vanguard offers now), are an illusionary sweet spot to be avoided.

Domestic vs. International is not the same as stocks vs. bonds. Thinking of it as "asset allocation" doesn't make sense because domestic vs. international are part of the same whole, and the composition of that whole shifts over time. Right NOW it's approximately 50-50 but that could change significantly in a handful of years, and that serene 50-50 advice turns into advice to tilt.

If you want to invest "in the haystack" you invest in World Market. If you want to 'tilt' domestic as Bogle does for some reason, then that tilt should be expressed as the difference in your ratio vs. capitalization, not your ratios as an absolute.
Sure the global equity portfolio will shift over time, but I don't see where that makes 50/50 an allocation to be avoided. Whether you're using 50/50 as a convenient approximation of the current global market portfolio or whether you're using it as an international "tilt" (due to current valuations) relative to the 30-40% that Vanguard's recommends based on back-tested risk-adjusted returns, it is a reasonable allocation that is easy to track. The difference in 50/50 versus 47/53 or 53/47 or 61/39 or 39/61 or any global weighting that we are likely to see in the next decade is trivial.

And frankly, if ex-US markets outperform to the point that we see 35/65 in the global portfolio, I'll probably be happy to be overweight the U.S. at that point. And vice versa.

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Re: U.S. & International Allocation

Post by Valuethinker » Tue Nov 07, 2017 10:14 am

jhfenton wrote:
Tue Nov 07, 2017 8:08 am
Tamalak wrote:
Mon Nov 06, 2017 9:35 am
abuss368 wrote:
Sat Nov 04, 2017 8:10 pm
To the original point however, a 50% Total Stock and 50% Total International has to be a "sweat spot" for Bogleheads in terms of simplicity and not speculating on the future direction of the domestic and international markets.
I really think this, and any other 'static percentage' allocations (including the one Vanguard offers now), are an illusionary sweet spot to be avoided.

Domestic vs. International is not the same as stocks vs. bonds. Thinking of it as "asset allocation" doesn't make sense because domestic vs. international are part of the same whole, and the composition of that whole shifts over time. Right NOW it's approximately 50-50 but that could change significantly in a handful of years, and that serene 50-50 advice turns into advice to tilt.

If you want to invest "in the haystack" you invest in World Market. If you want to 'tilt' domestic as Bogle does for some reason, then that tilt should be expressed as the difference in your ratio vs. capitalization, not your ratios as an absolute.
Sure the global equity portfolio will shift over time, but I don't see where that makes 50/50 an allocation to be avoided. Whether you're using 50/50 as a convenient approximation of the current global market portfolio or whether you're using it as an international "tilt" (due to current valuations) relative to the 30-40% that Vanguard's recommends based on back-tested risk-adjusted returns, it is a reasonable allocation that is easy to track. The difference in 50/50 versus 47/53 or 53/47 or 61/39 or 39/61 or any global weighting that we are likely to see in the next decade is trivial.

And frankly, if ex-US markets outperform to the point that we see 35/65 in the global portfolio, I'll probably be happy to be overweight the U.S. at that point. And vice versa.
As you note 50/50 is close enough to what the global actual weighting is to be OK for simplicity.

This assumes US bonds. Which I think for a US investor, either US bonds or international bonds, currency hedged into USD, is the way to go.

Thus something like as a bond minimum 80% equities (40 US/ 40 international) and 20% US Treasuries (Intermediate Term) is amply simple and will get a "near enough" to the optimal income.

As Bond weighting rises from that equity weighting falls, but still 50/50.

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Re: U.S. & International Allocation

Post by Valuethinker » Tue Nov 07, 2017 10:17 am

gks wrote:
Mon Nov 06, 2017 5:30 pm

Third, Total Stock Market-VTSAX, has stomped all over Total International-VTIAX since 04-29-96, almost 22 years, by $60,179 to $29,013. The dates are not cherry picked. April 96 was the inaugural of TI at Vanguard, and the figures are courtesy of MorningStar as of 11-05-17.
I suspect there's 2 things going on there, primarily:

- Japan, which was c. 50% of world stock markets when it peaked in 1989 and is now 10%

- the US tech sector which has outperformed everything. Most of the world's big tech companies are American, and companies like Nokia have fallen by the wayside (you have Tencent and Alibaba now, also Softbank in Japan, TSMC in Taiwan, Samsung in Korea).

That said the subs period from 2000-06 saw ROW outperformance I believe (the dot com crash).

But as long as US tech companies keep doing better than the world as a whole this may continue. Apple certainly saw some stonking numbers last week.

Not sure whether the currency effect has been pro US or just neutral over this time period.

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Re: U.S. & International Allocation

Post by wesgreen » Tue Nov 07, 2017 12:17 pm

saltycaper wrote:
Mon Nov 06, 2017 11:48 pm
wesgreen wrote:
Mon Nov 06, 2017 6:23 pm
I don't think I'll ever recover what I lost by going 30% international. I shouldn't have listened to people who think they're smarter than John Bogle.
If you mean you don't think your returns on your international stocks ever will be greater than 0%, that's unlikely. Unless you sold them at a loss, but I don't recall many international investors on this forum recommending that. If by loss you mean the gains you missed had you invested in something else, there are an infinite number of portfolios that did better than Total US Stock Market, so I'd get used to that feeling no matter what you invest in.

In the long run, the way I invest, apparently there aren't.

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Re: U.S. & International Allocation

Post by Valuethinker » Tue Nov 07, 2017 12:22 pm

wesgreen wrote:
Mon Nov 06, 2017 6:23 pm
I don't think I'll ever recover what I lost by going 30% international. I shouldn't have listened to people who think they're smarter than John Bogle.
You can't navigate by a rear view mirror.

Many of us could say the same thing about owning bonds, which has been detrimental against owning stocks.

Your conclusion is very dependent on sub period.

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Re: U.S. & International Allocation

Post by wesgreen » Tue Nov 07, 2017 3:33 pm

Time will tell. So far it 's been ttelling us that Bogle is right. I don't feel great about going against Vanguard's advice; it's hard to imagine they could be so wrong.

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Re: U.S. & International Allocation

Post by saltycaper » Tue Nov 07, 2017 4:22 pm

wesgreen wrote:
Tue Nov 07, 2017 3:33 pm
Time will tell. So far it 's been ttelling us that Bogle is right. I don't feel great about going against Vanguard's advice; it's hard to imagine they could be so wrong.
If you use performance figures to determine which investment was "right" and which investment was "wrong", you always will be wrong, because there always will be an investment that outperformed your investment.
Quod vitae sectabor iter?

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Re: U.S. & International Allocation

Post by triceratop » Tue Nov 07, 2017 4:26 pm

wesgreen wrote:
Tue Nov 07, 2017 3:33 pm
Time will tell. So far it 's been ttelling us that Bogle is right. I don't feel great about going against Vanguard's advice; it's hard to imagine they could be so wrong.
Vanguard recommends a significant allocation to international: 30-40% of equities.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: U.S. & International Allocation

Post by wesgreen » Tue Nov 07, 2017 5:03 pm

saltycaper wrote:
Tue Nov 07, 2017 4:22 pm
wesgreen wrote:
Tue Nov 07, 2017 3:33 pm
Time will tell. So far it 's been ttelling us that Bogle is right. I don't feel great about going against Vanguard's advice; it's hard to imagine they could be so wrong.
If you use performance figures to determine which investment was "right" and which investment was "wrong", you always will be wrong, because there always will be an investment that outperformed your investment.
You're right, I'm overdramatizing the issue somewhat. As Nisiprius always says, it's unlikely to make a big difference. But it has been significant in the long run.

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Re: U.S. & International Allocation

Post by tetractys » Wed Nov 08, 2017 11:19 am

triceratop wrote:
Mon Nov 06, 2017 8:38 am
tetractys wrote:
Sun Nov 05, 2017 11:23 pm
Two points, one of them already alluded to here. All World funds carry definite tax consequences in taxable accounts. And because of Vanguard’s huge size, it has no choice but to economize by steering as many investors as possible into stringent market capitalization. — Tet
What tax consequences, other than a mixing of domestic (no FTC) with foreign (with FTC)? There shouldn't be tax consequences such as capital gains because there is no rebalancing needed to keep at global market weight.

As for steering investors into stringent market capitalization: I wouldn't view it quite so suspiciously. Using market capitalization is the default passive choice, using the market wisdom for what to hold.
Triceratop,

Mixed funds don’t receive the ‘foreign tax credit,’ so US owners of such funds pay double taxes.

On the second point, this is not suspicion, just fact. Standards of index selection have to be lowered to accommodate the potentially unlimited investor base. — Tet

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Re: U.S. & International Allocation

Post by triceratop » Wed Nov 08, 2017 11:44 am

tetractys wrote:
Wed Nov 08, 2017 11:19 am
triceratop wrote:
Mon Nov 06, 2017 8:38 am
tetractys wrote:
Sun Nov 05, 2017 11:23 pm
Two points, one of them already alluded to here. All World funds carry definite tax consequences in taxable accounts. And because of Vanguard’s huge size, it has no choice but to economize by steering as many investors as possible into stringent market capitalization. — Tet
What tax consequences, other than a mixing of domestic (no FTC) with foreign (with FTC)? There shouldn't be tax consequences such as capital gains because there is no rebalancing needed to keep at global market weight.

As for steering investors into stringent market capitalization: I wouldn't view it quite so suspiciously. Using market capitalization is the default passive choice, using the market wisdom for what to hold.
Triceratop,

Mixed funds don’t receive the ‘foreign tax credit,’ so US owners of such funds pay double taxes.

On the second point, this is not suspicion, just fact. Standards of index selection have to be lowered to accommodate the potentially unlimited investor base. — Tet
What's your source for that? Here's my evidence: Foreign Tax Credit Information for Vanguard Total World Stock Index Fund
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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tetractys
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Re: U.S. & International Allocation

Post by tetractys » Wed Nov 08, 2017 11:52 am

triceratop wrote:
Wed Nov 08, 2017 11:44 am
What's your source for that? Here's my evidence: Foreign Tax Credit Information for Vanguard Total World Stock Index Fund
Triceratops,

Oh yes you’re right! I was thinking of the old fund-of-funds. My gosh! — Tet

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Re: U.S. & International Allocation

Post by oneleaf » Wed Nov 08, 2017 2:33 pm

One interesting thing I discovered is that the Oregon 529 plan (run by TIAA-CREF) has a 50/50 domestic/international split among all of their portfolios.

An aggressive portfolio would have 40/32/8 in Domestic/Developed/Emerging. A conservative portfolio would have 10/8/2.

The underlying funds are broad-market TIAA index funds equivalent to VTI/VEA/VWO.

To me, 50/50 makes the most sense, and I am glad that TIAA is doing it. Not sure if Vanguard will inch towards 50%, but at 40%, I think they have hit a good enough spot.

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Re: U.S. & International Allocation

Post by Finance Doc » Mon Feb 12, 2018 12:22 pm

tetractys wrote:
Wed Nov 08, 2017 11:19 am
triceratop wrote:
Mon Nov 06, 2017 8:38 am
tetractys wrote:
Sun Nov 05, 2017 11:23 pm
Two points, one of them already alluded to here. All World funds carry definite tax consequences in taxable accounts. And because of Vanguard’s huge size, it has no choice but to economize by steering as many investors as possible into stringent market capitalization. — Tet
What tax consequences, other than a mixing of domestic (no FTC) with foreign (with FTC)? There shouldn't be tax consequences such as capital gains because there is no rebalancing needed to keep at global market weight.

As for steering investors into stringent market capitalization: I wouldn't view it quite so suspiciously. Using market capitalization is the default passive choice, using the market wisdom for what to hold.
Triceratop,

Mixed funds don’t receive the ‘foreign tax credit,’ so US owners of such funds pay double taxes.

On the second point, this is not suspicion, just fact. Standards of index selection have to be lowered to accommodate the potentially unlimited investor base. — Tet
Interesting; never looked into the mixed funds tax treatment. I would have assumed the funds segregated the taxes paid so they could be deductible, but I guess not? My VTMGX is deductible?

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Re: U.S. & International Allocation

Post by statman » Mon Feb 12, 2018 3:00 pm

I'm at 50-50 US/foreign equities. Had a recent conversation with a Vanguard CPA, apparently a senior manager because I was considering moving a mid-seven-digit sum to VPAS. He not only suggested 60-40, but said they "would" move to that if I went with VPAS (over time because of tax considerations). That's a strong statement.

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Re: U.S. & International Allocation

Post by RRAAYY3 » Mon Feb 12, 2018 3:03 pm

statman wrote:
Mon Feb 12, 2018 3:00 pm
I'm at 50-50 US/foreign equities. Had a recent conversation with a Vanguard CPA, apparently a senior manager because I was considering moving a mid-seven-digit sum to VPAS. He not only suggested 60-40, but said they "would" move to that if I went with VPAS (over time because of tax considerations). That's a strong statement.
You staying 50/50 or shifting 60/40 ?

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Re: U.S. & International Allocation

Post by saltycaper » Mon Feb 12, 2018 3:06 pm

statman wrote:
Mon Feb 12, 2018 3:00 pm

That's a strong statement.
I'm not so sure. From what others have reported, they seem to take an "our way or go away" approach. If you had a 61/39 allocation and they insisted on moving to 60/40, I hardly think they are trying to make a strong statement that there would be any meaningful difference between the two allocations. They just seem to keep advice and portfolios similar. That's going to result in a lot of people having allocations that differ from their preferences, but Vanguard seems to have determined that "on average" one allocation is better than the alternatives. That doesn't mean it's better for everyone.
Quod vitae sectabor iter?

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Re: U.S. & International Allocation

Post by triceratop » Mon Feb 12, 2018 3:24 pm

Finance Doc wrote:
Mon Feb 12, 2018 12:22 pm
tetractys wrote:
Wed Nov 08, 2017 11:19 am
triceratop wrote:
Mon Nov 06, 2017 8:38 am
tetractys wrote:
Sun Nov 05, 2017 11:23 pm
Two points, one of them already alluded to here. All World funds carry definite tax consequences in taxable accounts. And because of Vanguard’s huge size, it has no choice but to economize by steering as many investors as possible into stringent market capitalization. — Tet
What tax consequences, other than a mixing of domestic (no FTC) with foreign (with FTC)? There shouldn't be tax consequences such as capital gains because there is no rebalancing needed to keep at global market weight.

As for steering investors into stringent market capitalization: I wouldn't view it quite so suspiciously. Using market capitalization is the default passive choice, using the market wisdom for what to hold.
Triceratop,

Mixed funds don’t receive the ‘foreign tax credit,’ so US owners of such funds pay double taxes.

On the second point, this is not suspicion, just fact. Standards of index selection have to be lowered to accommodate the potentially unlimited investor base. — Tet
Interesting; never looked into the mixed funds tax treatment. I would have assumed the funds segregated the taxes paid so they could be deductible, but I guess not? My VTMGX is deductible?
The statement is false, as tetractys acknowledged.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: U.S. & International Allocation

Post by lostdog » Mon Feb 12, 2018 4:53 pm

RRAAYY3 wrote:
Mon Feb 12, 2018 3:03 pm
statman wrote:
Mon Feb 12, 2018 3:00 pm
I'm at 50-50 US/foreign equities. Had a recent conversation with a Vanguard CPA, apparently a senior manager because I was considering moving a mid-seven-digit sum to VPAS. He not only suggested 60-40, but said they "would" move to that if I went with VPAS (over time because of tax considerations). That's a strong statement.
You staying 50/50 or shifting 60/40 ?
We decided to go with Vanguard's recommendation of 60/40 and stay the course until they change the recommendation to 50/50.

https://investor.vanguard.com/investing ... -investing
"Time in the market is better than timing the market" -Toons | 60/40 US/International -Vanguard Recommendation

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Re: U.S. & International Allocation

Post by BlackHat » Mon Feb 12, 2018 5:10 pm

I'm just genuinely curious.

Does Vanguard have any incentive to shuttle people into international funds?
“Life is really simple, but we insist on making it complicated.” -- Confucius

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Re: U.S. & International Allocation

Post by RRAAYY3 » Mon Feb 12, 2018 6:32 pm

BlackHat wrote:
Mon Feb 12, 2018 5:10 pm
I'm just genuinely curious.

Does Vanguard have any incentive to shuttle people into international funds?
Higher ER?

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Re: U.S. & International Allocation

Post by triceratop » Mon Feb 12, 2018 6:45 pm

RRAAYY3 wrote:
Mon Feb 12, 2018 6:32 pm
BlackHat wrote:
Mon Feb 12, 2018 5:10 pm
I'm just genuinely curious.

Does Vanguard have any incentive to shuttle people into international funds?
Higher ER?
This is not a reason since their funds operate at-cost.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: U.S. & International Allocation

Post by RRAAYY3 » Mon Feb 12, 2018 6:48 pm

triceratop wrote:
Mon Feb 12, 2018 6:45 pm
RRAAYY3 wrote:
Mon Feb 12, 2018 6:32 pm
BlackHat wrote:
Mon Feb 12, 2018 5:10 pm
I'm just genuinely curious.

Does Vanguard have any incentive to shuttle people into international funds?
Higher ER?
This is not a reason since their funds operate at-cost.
Welp, then I guess Vanguard is just looking out for us. Lovely! (I’m 50/50 regardless)

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Re: U.S. & International Allocation

Post by BlackHat » Mon Feb 12, 2018 9:00 pm

RRAAYY3 wrote:
Mon Feb 12, 2018 6:48 pm
triceratop wrote:
Mon Feb 12, 2018 6:45 pm
RRAAYY3 wrote:
Mon Feb 12, 2018 6:32 pm
BlackHat wrote:
Mon Feb 12, 2018 5:10 pm
I'm just genuinely curious.

Does Vanguard have any incentive to shuttle people into international funds?
Higher ER?
This is not a reason since their funds operate at-cost.
Welp, then I guess Vanguard is just looking out for us. Lovely! (I’m 50/50 regardless)
That's supposedly how Jack Bogle set Vanguard up. I'm still not sold on international. Lots of the people who are selling you a product recommend international. Most people who offer free advice say you don't need international. Makes me wonder is all. :confused
“Life is really simple, but we insist on making it complicated.” -- Confucius

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Re: U.S. & International Allocation

Post by RRAAYY3 » Mon Feb 12, 2018 9:09 pm

BlackHat wrote:
Mon Feb 12, 2018 9:00 pm
RRAAYY3 wrote:
Mon Feb 12, 2018 6:48 pm
triceratop wrote:
Mon Feb 12, 2018 6:45 pm
RRAAYY3 wrote:
Mon Feb 12, 2018 6:32 pm
BlackHat wrote:
Mon Feb 12, 2018 5:10 pm
I'm just genuinely curious.

Does Vanguard have any incentive to shuttle people into international funds?
Higher ER?
This is not a reason since their funds operate at-cost.
Welp, then I guess Vanguard is just looking out for us. Lovely! (I’m 50/50 regardless)
That's supposedly how Jack Bogle set Vanguard up. I'm still not sold on international. Lots of the people who are selling you a product recommend international. Most people who offer free advice say you don't need international. Makes me wonder is all. :confused
i'm currently on 52/48 US/INT'L [ rebalance when things get 5% off 50/50 ] simply for the ease of rebalancing + i remain somewhat skeptical of the US maintaining it's prowess. the world is changing, figure my investments should reflect the global economy as close as possible.

https://www.fidelity.com/viewpoints/inv ... ting-myths

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Re: U.S. & International Allocation

Post by triceratop » Mon Feb 12, 2018 9:36 pm

BlackHat wrote:
Mon Feb 12, 2018 9:00 pm
That's supposedly how Jack Bogle set Vanguard up. I'm still not sold on international. Lots of the people who are selling you a product recommend international. Most people who offer free advice say you don't need international. Makes me wonder is all. :confused
This post uses really flimsy "logic". The word "supposedly" is doing a lot of subtle work here -- if you're going to use a loaded word like that please find a little data to support the statement it is meant to convey, that some asset manager somewhere is making more money off of your international investments than they would if you invested in the US market.

"Lots of the people who are selling you a product recommend international"

This is called guilt by association. Lots of people who aren't try to sell you a product also recommend international. The Bogleheads.org forum is not trying to sell you a product and many here recommend international. Many posters (myself included) hold international at full market weight.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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