Larry Swedroe: Diversify Globally

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Random Walker
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Larry Swedroe: Diversify Globally

Post by Random Walker » Mon Dec 17, 2018 10:24 am

https://www.etf.com/sections/index-inve ... nopaging=1

Larry looks at current valuations of EM relative to US. Longer article than you’d expect with references to valuation metrics, home country bias, recency bias, concave and convex investor behavior, the wrong lessons investors learned from 2008 financial crisis, Asness, Buffett, and a paper looking at EM returns and valuations. Diversification is the only free lunch in investing, and Larry recommends global market cap as the starting point for weighting equities in one’s own portfolio.

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Re: Larry Swedroe: Diversify Globally

Post by Steadfast » Mon Dec 17, 2018 11:02 am

Reassuring words to those like myself who global market cap weight.
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Re: Larry Swedroe: Diversify Globally

Post by pokebowl » Mon Dec 17, 2018 11:10 am

If this thread doesn't at least go to 20 pages of circular discussion, I will feel disappointed.

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Re: Larry Swedroe: Diversify Globally

Post by bearcub » Mon Dec 17, 2018 11:25 am

My stocks are around 60% International 40% Domestic. About 75% or so of FI is in the 2 Vanguard TIPs Funds. I keep chugging along. :shock:

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Re: Larry Swedroe: Diversify Globally

Post by SevenBridgesRoad » Mon Dec 17, 2018 11:35 am

Random Walker wrote:
Mon Dec 17, 2018 10:24 am
https://www.etf.com/sections/index-inve ... nopaging=1

Larry looks at current valuations of EM relative to US. Longer article than you’d expect with references to valuation metrics, home country bias, recency bias, concave and convex investor behavior, the wrong lessons investors learned from 2008 financial crisis, Asness, Buffett, and a paper looking at EM returns and valuations. Diversification is the only free lunch in investing, and Larry recommends global market cap as the starting point for weighting equities in one’s own portfolio.

Dave
Thanks RW and Larry. Logical and assuring for Bogleheads. Close to global market cap here with auto-rebalancing via Life Strategy fund. One fund works best for my nature. 8-)

Some excerpts to tempt folks to read the article:

“At any rate, your allocation should not look much different than the global market capitalization—otherwise, you’re betting against the collective wisdom of the market, a very tough competitor.”

“...investors whose planning horizon is long term (and it should be, or they shouldn’t be invested in stocks to begin with) should care more about long, drawn-out bear markets, which can be significantly more damaging to their wealth.”

“Because we live in a world where there are no accurate crystal balls, the prudent strategy is to build a globally diversified portfolio. But that’s simply the necessary condition for success. The sufficient condition for success is to possess the discipline to stay the course, ignoring not only the clarion cries from those who think their crystal balls are reliable but also the cries from your own stomach to “GET ME OUT!” “
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: Larry Swedroe: Diversify Globally

Post by SevenBridgesRoad » Mon Dec 17, 2018 11:45 am

pokebowl wrote:
Mon Dec 17, 2018 11:10 am
If this thread doesn't at least go to 20 pages of circular discussion, I will feel disappointed.
Yes. Or save time and see: Dan Ackroyd and Jane Curtain SNL Point Counterpoint. :annoyed :annoyed
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: Larry Swedroe: Diversify Globally

Post by asif408 » Mon Dec 17, 2018 11:50 am

The nice thing is that EM Value, which Larry highlighted in his post, has actually outperformed the US stock market for almost 3 straight years already (since January 2016), even with the recent 20% drop in EM: http://quotes.morningstar.com/chart/etf ... 2%3A955%7D

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Re: Larry Swedroe: Diversify Globally

Post by garlandwhizzer » Mon Dec 17, 2018 12:14 pm

I think Larry makes a very good case for global diversification and I believe it. I am US 50/DM 25/EM 25, so I even overweight EM relative to global market weight because I believe that over the long term that increased EM risk will be rewarded with increased return. The increased volatility of EM makes it difficult for many investors to stay the EM course sometimes, one reason not the only one, why EM valuations are so compelling.

Interestingly, Vanguard has a different opinion. In their recently published market forecast for 2019 <https://personal.vanguard.com/pdf/ISGVEMO_2019.pdf>,Vanguard research judged both US and EM equity to be overvalued and DM to be more attractively valued. I guess value is in the eye of the beholder, but I side with Larry on this question.

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Re: Larry Swedroe: Diversify Globally

Post by nedsaid » Mon Dec 17, 2018 12:20 pm

Larry is putting out a "buy" on International Emerging Markets and particularly on International Emerging Markets Value. Pretty much pounding the table on this one.
A fool and his money are good for business.

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Re: Larry Swedroe: Diversify Globally

Post by Random Walker » Mon Dec 17, 2018 12:50 pm

Good to remember that the markets price risk. The lower market valuations represent increased perceived risk, and thus higher EXPECTED returns.

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Re: Larry Swedroe: Diversify Globally

Post by Elysium » Mon Dec 17, 2018 1:01 pm

The EM label is all great. But the fact is DFA EM Value fund and other EM funds are dominated by China. Fully 1/3rd of DFEVX is China + Taiwan. Rest 40% in South Korea, India, and Brazil. Remaining countries are too small allocations and unlikely to make major impacts to returns.

EM is trading low for a reason, because of the worries on China and the trade tariff wars. India and Brazil are not doing so great either, and both are facing structural problems with weak money policies and high inflation, but they are not same, very different situations.

South Korea is developed, and apart from the NK threat, may be the best story in this. I am personally not all that highly enthused about it until the trade situation is sorted out. But its not worth very much.

Larry may be bullish on EM, but he has been consistent on EM since 2002 or so from what I remember. When you are consistently bullish on EM stocks, you tend to be right once in a while. I don't think Larry ever suggested lowering or increasing EM allocation based on valuations. This is no different.

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Re: Larry Swedroe: Diversify Globally

Post by nedsaid » Mon Dec 17, 2018 1:27 pm

Elysium wrote:
Mon Dec 17, 2018 1:01 pm
The EM label is all great. But the fact is DFA EM Value fund and other EM funds are dominated by China. Fully 1/3rd of DFEVX is China + Taiwan. Rest 40% in South Korea, India, and Brazil. Remaining countries are too small allocations and unlikely to make major impacts to returns.

EM is trading low for a reason, because of the worries on China and the trade tariff wars. India and Brazil are not doing so great either, and both are facing structural problems with weak money policies and high inflation, but they are not same, very different situations.

South Korea is developed, and apart from the NK threat, may be the best story in this. I am personally not all that highly enthused about it until the trade situation is sorted out. But its not worth very much.

Larry may be bullish on EM, but he has been consistent on EM since 2002 or so from what I remember. When you are consistently bullish on EM stocks, you tend to be right once in a while. I don't think Larry ever suggested lowering or increasing EM allocation based on valuations. This is no different.
I am pretty enthusiastic about Emerging Markets but I am pretty cautious about China. I would try to underweight and not overweight Chinese stocks now. I mean how many more ghost cities can China build? My take has been that China is Japan on steroids. No one knows how much non-performing debt is out there, excess capacity, declining demographics, overinvestment, export economy. The parallels with Japan are eerie, I think China is just not a good place to invest. No respect for intellectual property and you wonder about respect for private property. Furthermore, China seems to be sliding back towards a more authoritarian and Maoist government and that does not bode well. If I was an American company with factories in China, I would be getting out. The Chinese government will steal your intellectual property and could nationalize your plants.
A fool and his money are good for business.

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Re: Larry Swedroe: Diversify Globally

Post by columbia » Mon Dec 17, 2018 1:42 pm

I have wondered if China will actually just gobble up GM (provided there isn’t a regulatory barrier to that happening).

Either way: lots of money to be made in China. I strongly question whether sitting on your couch in the US (or elsewhere) owning an stock fund will yield any of that, however.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: Larry Swedroe: Diversify Globally

Post by UsualLine » Mon Dec 17, 2018 2:01 pm

An argument against the Global Market Cap portfolio is that it is theoretically optimum only if asset values are determined in a free market. Are the Chinese securities valued where the market thinks they should be, or where the Chinese government thinks they should be? To what extent, if any, are Chinese securities overvalued due to government involvement?

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Re: Larry Swedroe: Diversify Globally

Post by JohnDindex » Mon Dec 17, 2018 2:01 pm

Sometimes stocks are cheap for a reason.

I am 50/50 ITOT/IXUS I have no idea what will happen next year.

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Re: Larry Swedroe: Diversify Globally

Post by Elysium » Mon Dec 17, 2018 2:07 pm

nedsaid wrote:
Mon Dec 17, 2018 1:27 pm
Elysium wrote:
Mon Dec 17, 2018 1:01 pm
The EM label is all great. But the fact is DFA EM Value fund and other EM funds are dominated by China. Fully 1/3rd of DFEVX is China + Taiwan. Rest 40% in South Korea, India, and Brazil. Remaining countries are too small allocations and unlikely to make major impacts to returns.

EM is trading low for a reason, because of the worries on China and the trade tariff wars. India and Brazil are not doing so great either, and both are facing structural problems with weak money policies and high inflation, but they are not same, very different situations.

South Korea is developed, and apart from the NK threat, may be the best story in this. I am personally not all that highly enthused about it until the trade situation is sorted out. But its not worth very much.

Larry may be bullish on EM, but he has been consistent on EM since 2002 or so from what I remember. When you are consistently bullish on EM stocks, you tend to be right once in a while. I don't think Larry ever suggested lowering or increasing EM allocation based on valuations. This is no different.
I am pretty enthusiastic about Emerging Markets but I am pretty cautious about China. I would try to underweight and not overweight Chinese stocks now. I mean how many more ghost cities can China build? My take has been that China is Japan on steroids. No one knows how much non-performing debt is out there, excess capacity, declining demographics, overinvestment, export economy. The parallels with Japan are eerie, I think China is just not a good place to invest. No respect for intellectual property and you wonder about respect for private property. Furthermore, China seems to be sliding back towards a more authoritarian and Maoist government and that does not bode well. If I was an American company with factories in China, I would be getting out. The Chinese government will steal your intellectual property and could nationalize your plants.
EM label is just a name, the funds are highly dominated by China. DFA fund cap country weights I believe, even then China + Taiwan is 33%. SK is 16%, India is 12%, Brazil is 11%. Rest are too small.

If China is concern, then that leaves the rest 3, out of which India and Brazil are also facing problems. I am not sure how to get excited about it.

I get that there are risks and that is why valuations are cheap, and that is why EXPECTED returns are high. But sometimes the risks just shows up and there are no returns.

I am invested in EM since 2003 or so, and early years were really good, last several years EM has been highly erratic, with higher distributions coming in very small patches, with long periods of negative returns.

Here is return distributions I have from my records for last few years:

2011: -25%
2012: 19%
2013: -3.5%
2014: -4.5%
2015: -19%
2016: 22%
2017: 34%
2018: -11%

Annualized 8 yrs: -0.39% (this will be consistent with DFEVX returns, except mine are money weighted returns, but close)

Even with high returns in 3 of the 8 years, it is negative, because of the 5 negative years in between.

Very hard to get excited, hopeful? may be.

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Re: Larry Swedroe: Diversify Globally

Post by Northern Flicker » Mon Dec 17, 2018 2:08 pm

The Vanguard developed markets index fund Vtmgx has about 81.5% of world ex-US market cap, higher than MSCI EAFE funds because of the inclusion of Canada and S Korea (and a small contribution from Poland now as well). It will take a large deviation of EM from DM either way to make an appreciable difference in performance between Vtmgx and a total int’l fund, and if a total int’l fund less Chinese equities existed it would be even closer.

Unless you significantly overweight EM, once you take some of the larger countries out of EM holdings, the case for holding EM at all becomes unimpactful either way, especially when S Korea is classified as DM.
Last edited by Northern Flicker on Tue Dec 18, 2018 11:03 pm, edited 1 time in total.
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Re: Larry Swedroe: Diversify Globally

Post by vineviz » Mon Dec 17, 2018 2:21 pm

Elysium wrote:
Mon Dec 17, 2018 2:07 pm
I am invested in EM since 2003 or so, and early years were really good, last several years EM has been highly erratic, with higher distributions coming in very small patches, with long periods of negative returns.

Here is return distributions I have from my records for last few years:

2011: -25%
2012: 19%
2013: -3.5%
2014: -4.5%
2015: -19%
2016: 22%
2017: 34%
2018: -11%
If you've been invested in EM since 2003, then you remember the 18.9% return in 2010 and the 76% return in 2009.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Larry Swedroe: Diversify Globally

Post by Elysium » Mon Dec 17, 2018 2:30 pm

vineviz wrote:
Mon Dec 17, 2018 2:21 pm
Elysium wrote:
Mon Dec 17, 2018 2:07 pm
I am invested in EM since 2003 or so, and early years were really good, last several years EM has been highly erratic, with higher distributions coming in very small patches, with long periods of negative returns.

Here is return distributions I have from my records for last few years:

2011: -25%
2012: 19%
2013: -3.5%
2014: -4.5%
2015: -19%
2016: 22%
2017: 34%
2018: -11%
If you've been invested in EM since 2003, then you remember the 18.9% return in 2010 and the 76% return in 2009.
For DFEVX, this is what I got for those 2 years:

2010: 29%
2009: 92%

Before that:

2008: -53%
2007: 45%
2006: 36%
2005: 37%
2004: 78%

Unfortunately, I have been accumulating and that means the large percentage returns came when the dollar amounts are smaller and the negative returns are happenning when the dollar amount is high. If the trend reverse anytime soon, I will tend to benefit enormously, if not and any further losses would erase most of the gains made.

When you invest matters, this is a problem when investing in funds with highly uneven distributions.

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Re: Larry Swedroe: Diversify Globally

Post by nedsaid » Mon Dec 17, 2018 2:58 pm

I did get a comment from Larry Swedroe over personal message. This is what he said:
Larry Swedroe said:

putting out buy? Don't know if you were kidding or not but certainly not my intent, I'm not buying, just not selling, just rebalancing as needed, and would tell all investors to do same

Best wishes
Larry
My response:
Well, Larry, your article was pretty enthusiastic about Emerging Markets. I would interpret that as a "buy". I do understand your comments are in the context of a diversified portfolio. I don't think you are telling people to sell US Stocks. But yes, your comments towards EM were pretty enthusiastic and this is not new. You have been writing about cheaper EM stocks and their greater future expected returns for a while.
I want to make it clear that I don't speak for Larry but I did interpret his comments as very positive towards Emerging Markets. Instead of saying that Larry put out a "buy", I probably should have said that Larry believes EM should be a part of everyone's portfolio. Perhaps that states it better.

Brokerage firms will put out "buy", "hold", or "sell" recommendations on individual securities. Sometimes you hear "overweight" or "underweight". In brokerage speak, overweight is buy and underweight is sell. Realistically, hold usually means sell too. Brokerage firms are very reluctant to put out sell recommendations as it can hurt their underwriting business. These recommendations also tend to be shorter term and have a price target.

Again, not speaking for Larry, but my best guess from reading his articles and books is that his recommendations are much longer term. It isn't like he would be enthusiastic about Emerging Markets now and be pessimistic two weeks from now. He seems to look many years into the future.
Pretty sure Larry doesn't put price targets on asset classes.

Edit: Larry PM'd me again and said that people should not be underweight EM below market weightings. He did acknowledge EM was cheaper but also carried higher risk and higher future returns. Larry PM'd me a third time to make it clear he is not market timing here.
Last edited by nedsaid on Mon Dec 17, 2018 3:26 pm, edited 1 time in total.
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Re: Larry Swedroe: Diversify Globally

Post by MJW » Mon Dec 17, 2018 3:07 pm

We should all give Ned questions to ask Larry.

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Re: Larry Swedroe: Diversify Globally

Post by nedsaid » Mon Dec 17, 2018 3:14 pm

MJW wrote:
Mon Dec 17, 2018 3:07 pm
We should all give Ned questions to ask Larry.
I am not his spokesman. He saw my post and thought I misrepresented what he was trying to say in the article. I just set the record straight.

Larry has PM'd many people here. You are, as are all of us, free to ask questions of Larry at any time. He is available by Personal Message and he has posted his e-mail address here. I have no special access or privilege here.
A fool and his money are good for business.

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Re: Larry Swedroe: Diversify Globally

Post by hilink73 » Mon Dec 17, 2018 3:28 pm

Elysium wrote:
Mon Dec 17, 2018 1:01 pm
The EM label is all great. But the fact is DFA EM Value fund and other EM funds are dominated by China. Fully 1/3rd of DFEVX is China + Taiwan. Rest 40% in South Korea, India, and Brazil. Remaining countries are too small allocations and unlikely to make major impacts to returns.

EM is trading low for a reason, because of the worries on China and the trade tariff wars. India and Brazil are not doing so great either, and both are facing structural problems with weak money policies and high inflation, but they are not same, very different situations.

South Korea is developed, and apart from the NK threat, may be the best story in this. I am personally not all that highly enthused about it until the trade situation is sorted out. But its not worth very much.
Have you posted anything not critical about the post you're replying to?
Doesn't matter if alternatives, EM, or whatelse?
Larry may be bullish on EM, but he has been consistent on EM since 2002 or so from what I remember. When you are consistently bullish on EM stocks, you tend to be right once in a while. I don't think Larry ever suggested lowering or increasing EM allocation based on valuations. This is no different.
Or maybe it's just any topic Larry is writing or positive about?

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Re: Larry Swedroe: Diversify Globally

Post by hilink73 » Mon Dec 17, 2018 3:34 pm

nedsaid wrote:
Mon Dec 17, 2018 12:20 pm
Larry is putting out a "buy" on International Emerging Markets and particularly on International Emerging Markets Value. Pretty much pounding the table on this one.

I'm about 42% EM (of 37% target alloc) at the moment.
And 27% Intl (of 38% target alloc.)
Looks like I'll need some more. Hold my beer.

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Re: Larry Swedroe: Diversify Globally

Post by nedsaid » Mon Dec 17, 2018 3:38 pm

hilink73 wrote:
Mon Dec 17, 2018 3:34 pm
nedsaid wrote:
Mon Dec 17, 2018 12:20 pm
Larry is putting out a "buy" on International Emerging Markets and particularly on International Emerging Markets Value. Pretty much pounding the table on this one.

I'm about 42% EM (of 37% target alloc) at the moment.
And 27% Intl (of 38% target alloc.)
Looks like I'll need some more. Hold my beer.
Please note my other posts above where Larry responded to my comments. Want to make sure that it is clear what he actually said.
A fool and his money are good for business.

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Re: Larry Swedroe: Diversify Globally

Post by hilink73 » Mon Dec 17, 2018 4:43 pm

nedsaid wrote:
Mon Dec 17, 2018 3:38 pm
hilink73 wrote:
Mon Dec 17, 2018 3:34 pm
nedsaid wrote:
Mon Dec 17, 2018 12:20 pm
Larry is putting out a "buy" on International Emerging Markets and particularly on International Emerging Markets Value. Pretty much pounding the table on this one.

I'm about 42% EM (of 37% target alloc) at the moment.
And 27% Intl (of 38% target alloc.)
Looks like I'll need some more. Hold my beer.
Please note my other posts above where Larry responded to my comments. Want to make sure that it is clear what he actually said.
Yes, read that afterwards. ;-)
Still all good fun.
But seriously, am I supposed to put money into US still? Rather not, right? I'd need to prop up my Intl.

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Re: Larry Swedroe: Diversify Globally

Post by Elysium » Mon Dec 17, 2018 5:06 pm

nedsaid wrote:
Mon Dec 17, 2018 3:38 pm
hilink73 wrote:
Mon Dec 17, 2018 3:34 pm
nedsaid wrote:
Mon Dec 17, 2018 12:20 pm
Larry is putting out a "buy" on International Emerging Markets and particularly on International Emerging Markets Value. Pretty much pounding the table on this one.

I'm about 42% EM (of 37% target alloc) at the moment.
And 27% Intl (of 38% target alloc.)
Looks like I'll need some more. Hold my beer.
Please note my other posts above where Larry responded to my comments. Want to make sure that it is clear what he actually said.
I don't have any doubts over what he actually meant. Larry has been advocating for including EM back when it had annualized returns of just 2% over previous 5-10 years back in early 2000's, and he has been consistent with that through the years. I never recall him make any recommendations to over/under weight based on valuations. I wasn't convinced initially EM is a good addition to my portfolio, but decided to buy in 2003 eventually and continued slowly build up to about 10% of equity allocation in an 80/20 portfolio, and the early years were really good, even with the 50% plus haircut in 2008 it worked out well because of the huge recovery in 2009 & 2010.

The problem I face now is because of all that growth my money has grown to a large dollar amount by end of 2017, and now the losses mean more in dollar. Unless the trend reserves, I will end up losing quite a bit of my earnings in real money, even if the Time Weighted returns will show good returns. Anyway, glad I still have another 10-15 years before I will need the money. Hopefully the trend will reverse, and given the dollar amount today is large, if we get returns like 2003-07, then it will work out really well.
Last edited by Elysium on Mon Dec 17, 2018 5:14 pm, edited 2 times in total.

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Re: Larry Swedroe: Diversify Globally

Post by nedsaid » Mon Dec 17, 2018 5:13 pm

Elysium wrote:
Mon Dec 17, 2018 5:06 pm
nedsaid wrote:
Mon Dec 17, 2018 3:38 pm
hilink73 wrote:
Mon Dec 17, 2018 3:34 pm
nedsaid wrote:
Mon Dec 17, 2018 12:20 pm
Larry is putting out a "buy" on International Emerging Markets and particularly on International Emerging Markets Value. Pretty much pounding the table on this one.

I'm about 42% EM (of 37% target alloc) at the moment.
And 27% Intl (of 38% target alloc.)
Looks like I'll need some more. Hold my beer.
Please note my other posts above where Larry responded to my comments. Want to make sure that it is clear what he actually said.
I don't have any doubts over what he actually meant. Larry has been advocating for including EM back when it had annualized returns of just 2% over previous 5-10 years back in early 2000's, and he has been consistent with that through the years. I never recall him make any recommendations to over/under weight based on valuations. I wasn't convinced initially EM is a good addition to my portfolio, but decided to buy in 2003 eventually and continued slowly build up to about 10% of equity allocation in an 80/20 portfolio, and the early years were really, even with the 50% plus haircut in 2008 it worked out well because of the huge recovery in 2009 & 2010.

The problem I have face now is because of all that growth my money has grown to a large dollar amount by end of 2017, and now the losses mean more in dollar. Unless the trend reserves, I will end up losing quite a bit of my earnings in real money, even if the Time Weighted returns will show good returns. Anyway, glad I still have another 10-15 years before I will need the money. Hopefully the trend will reverse, and given the dollar amount today is large, if we get returns like 2003-07, then it will work out really well.
I have posted a lot over the years about "Tiger in the Tank" asset classes to add octane to your portfolio. Volatile asset classes like REITS, Small-Cap Value, Emerging Markets, International Small-Cap, and Aggressive US Growth. I advocate adding such asset classes to your portfolio but not so much that you blow it up. There can be too much of a good thing. I wouldn't put any more than 25% of Emerging Markets into an equity portfolio. 50% US, 25% International Developed, and 25% Emerging Markets is as aggressive as I would go.

Emerging Markets are nicknamed Submerging Markets for a reason. They are risky, they are volatile, and can underperform for years at a time.
A fool and his money are good for business.

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Re: Larry Swedroe: Diversify Globally

Post by MJW » Mon Dec 17, 2018 6:20 pm

nedsaid wrote:
Mon Dec 17, 2018 3:14 pm
MJW wrote:
Mon Dec 17, 2018 3:07 pm
We should all give Ned questions to ask Larry.
I am not his spokesman. He saw my post and thought I misrepresented what he was trying to say in the article. I just set the record straight.

Larry has PM'd many people here. You are, as are all of us, free to ask questions of Larry at any time. He is available by Personal Message and he has posted his e-mail address here. I have no special access or privilege here.
It was meant entirely in jest. Sorry if there was a misunderstanding.

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Re: Larry Swedroe: Diversify Globally

Post by gtwhitegold » Mon Dec 17, 2018 8:16 pm

I personally allocate 30% of equities to Emerging and Frontier Markets. This combined with 20% in Developed International make up 50% of my total equity allocation. I also am using tilted options wherever I can. So, it's mostly tilted in EM since I have most of my US and Developed International investments in the TSP. I like the idea of holding less correlated assets where possible.

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Re: Larry Swedroe: Diversify Globally

Post by nedsaid » Tue Dec 18, 2018 12:01 am

MJW wrote:
Mon Dec 17, 2018 6:20 pm
nedsaid wrote:
Mon Dec 17, 2018 3:14 pm
MJW wrote:
Mon Dec 17, 2018 3:07 pm
We should all give Ned questions to ask Larry.
I am not his spokesman. He saw my post and thought I misrepresented what he was trying to say in the article. I just set the record straight.

Larry has PM'd many people here. You are, as are all of us, free to ask questions of Larry at any time. He is available by Personal Message and he has posted his e-mail address here. I have no special access or privilege here.
It was meant entirely in jest. Sorry if there was a misunderstanding.
Well, nothing to be sorry about. My attempts at humor don't always work. Didn't want it to sound like I had any special access that no one else did. Only know Larry through interaction here and a tiny bit by e-mail, never have had the opportunity to meet him. As for me, I always seem to have an opinion. :wink: Many best wishes, Ned.
A fool and his money are good for business.

greenhill
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Re: Larry Swedroe: Diversify Globally

Post by greenhill » Tue Dec 18, 2018 1:48 am

Interesting article but I would also love if Larry write something about DM in the future. I'm 40/50/10 in US/DM/EM myself. My home country is Hong Kong so I do agree with a lot of skeptical views towards EM mentioned in this post, particularly China. Both DM and EM has lower price-to-fundamentals ratios than US which I think is a result of higher expected (but not guaranteed) return due to higher risk. But the regulations in EM is generally poor we don't even know if the fundamentals reported by those EM companies are real and I think I can trust the regulations and system in DM more. I'm fully aware that DM has its own problems (Eurozone crisis, Brexit, Japan lost decade, etc) as well but I accept the extra risk involved and hope that the extra risk will pay off.

fennewaldaj
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Re: Larry Swedroe: Diversify Globally

Post by fennewaldaj » Tue Dec 18, 2018 2:00 am

nedsaid wrote:
Mon Dec 17, 2018 1:27 pm

I am pretty enthusiastic about Emerging Markets but I am pretty cautious about China.
At the moment the level of exposure i get at 15% equities is not concerning to me. So roughly 15%*30% = 4.5% of my stock allocation. Now if all the A shares are added it might start to become a bit more concerning as they have a pretty big market cap. I think I would draw the line at no more than 10% of stocks in one country that is not a firm US ally. I will deal with that situation when and if it develops. I suspect when and if A shares a re fully available China only and EM ex china index funds will be more common.

WanderingDoc
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Re: Larry Swedroe: Diversify Globally

Post by WanderingDoc » Tue Dec 18, 2018 2:52 am

garlandwhizzer wrote:
Mon Dec 17, 2018 12:14 pm
I think Larry makes a very good case for global diversification and I believe it. I am US 50/DM 25/EM 25, so I even overweight EM relative to global market weight because I believe that over the long term that increased EM risk will be rewarded with increased return. The increased volatility of EM makes it difficult for many investors to stay the EM course sometimes, one reason not the only one, why EM valuations are so compelling.

Interestingly, Vanguard has a different opinion. In their recently published market forecast for 2019 <https://personal.vanguard.com/pdf/ISGVEMO_2019.pdf>,Vanguard research judged both US and EM equity to be overvalued and DM to be more attractively valued. I guess value is in the eye of the beholder, but I side with Larry on this question.

Garland Whizzer
If I wanted to replicate something like this with the TSP (and a Vanguard Roth IRA), am I able to? If so, how?
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

gtwhitegold
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Re: Larry Swedroe: Diversify Globally

Post by gtwhitegold » Tue Dec 18, 2018 7:48 am

WanderingDoc wrote:
Tue Dec 18, 2018 2:52 am
garlandwhizzer wrote:
Mon Dec 17, 2018 12:14 pm
I think Larry makes a very good case for global diversification and I believe it. I am US 50/DM 25/EM 25, so I even overweight EM relative to global market weight because I believe that over the long term that increased EM risk will be rewarded with increased return. The increased volatility of EM makes it difficult for many investors to stay the EM course sometimes, one reason not the only one, why EM valuations are so compelling.

Interestingly, Vanguard has a different opinion. In their recently published market forecast for 2019 <https://personal.vanguard.com/pdf/ISGVEMO_2019.pdf>,Vanguard research judged both US and EM equity to be overvalued and DM to be more attractively valued. I guess value is in the eye of the beholder, but I side with Larry on this question.

Garland Whizzer
If I wanted to replicate something like this with the TSP (and a Vanguard Roth IRA), am I able to? If so, how?
You can do this by holding your EM funds in your Roth IRA account as long as your Roth IRA is at least a quarter of your equity allocation.

Personally, I am underweight EM compared to my desired allocation due to having a large amount in the TSP. Due to this, I have it in the I Fund since it is a part of my international allocation.

hilink73
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Re: Larry Swedroe: Diversify Globally

Post by hilink73 » Tue Dec 18, 2018 2:25 pm

nedsaid wrote:
Mon Dec 17, 2018 5:13 pm


Emerging Markets are nicknamed Submerging Markets for a reason. They are risky, they are volatile, and can underperform for years at a time.
Also: where's grap0013?

Crisium
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Re: Larry Swedroe: Diversify Globally

Post by Crisium » Wed Dec 19, 2018 11:15 am

I'm only 1/3 International, but I moderately overweight EM so that it is 40% of my Int, which makes it roughly 13.3% of my total stock holdings. This is inline (just slightly higher) than world weights so it seems pretty good.

I'm not confident on ex-US DM, but it is a big part of the world weight and I'm already underweighting it. Ex-US DM is roughly 35-40% of the world, and it's only 20% of my stocks already. In other words I'd like to have maybe a little more EM, but I don't feel comfortable taking it from DM (including from US).

Just musing. I hope EM does well but not too well too embarrass me for not giving it more than 13.3% of my stocks.

azanon
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Re: Larry Swedroe: Diversify Globally

Post by azanon » Wed Dec 19, 2018 11:25 am

I found it a bit odd to see Warren Buffett quoted, and a reference made to his investing wisdom, in an article making a case for investing in Emerging Market Stocks, given that Warren is mostly (if not all?) a US stock investor. Might as well have thrown in Jack B's "stay the course" advice for those that have had EM stock for years already.

Northern Flicker
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Re: Larry Swedroe: Diversify Globally

Post by Northern Flicker » Thu Dec 20, 2018 2:29 pm

Berkshire Hathaway holds mostly US stocks, but not exclusively. In fact, they recently took a position in an Indian mobile payments firm:

https://www.investopedia.com/news/buffe ... ias-paytm/
Risk is not a guarantor of return.

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Ketawa
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Re: Larry Swedroe: Diversify Globally

Post by Ketawa » Thu Dec 20, 2018 2:46 pm

Elysium wrote:
Mon Dec 17, 2018 1:01 pm
The EM label is all great. But the fact is DFA EM Value fund and other EM funds are dominated by China. Fully 1/3rd of DFEVX is China + Taiwan. Rest 40% in South Korea, India, and Brazil. Remaining countries are too small allocations and unlikely to make major impacts to returns.

EM is trading low for a reason, because of the worries on China and the trade tariff wars. India and Brazil are not doing so great either, and both are facing structural problems with weak money policies and high inflation, but they are not same, very different situations.

South Korea is developed, and apart from the NK threat, may be the best story in this. I am personally not all that highly enthused about it until the trade situation is sorted out. But its not worth very much.

Larry may be bullish on EM, but he has been consistent on EM since 2002 or so from what I remember. When you are consistently bullish on EM stocks, you tend to be right once in a while. I don't think Larry ever suggested lowering or increasing EM allocation based on valuations. This is no different.
Why do you consider these country weights to be an issue? My region splits are according to global market cap. That makes emerging markets about 12% of my equities according to MSCI definitions. According to the S&P index data I use every month to calculate my region splits, China plus Taiwan is about 4.5% of the total market. South Korea plus India plus Brazil is about 4%. This puts them at about 39% and 35% of my emerging markets allocation, respectively. Why would I want anything different?

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Ketawa
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Re: Larry Swedroe: Diversify Globally

Post by Ketawa » Thu Dec 20, 2018 2:52 pm

gtwhitegold wrote:
Tue Dec 18, 2018 7:48 am
WanderingDoc wrote:
Tue Dec 18, 2018 2:52 am
garlandwhizzer wrote:
Mon Dec 17, 2018 12:14 pm
I think Larry makes a very good case for global diversification and I believe it. I am US 50/DM 25/EM 25, so I even overweight EM relative to global market weight because I believe that over the long term that increased EM risk will be rewarded with increased return. The increased volatility of EM makes it difficult for many investors to stay the EM course sometimes, one reason not the only one, why EM valuations are so compelling.

Interestingly, Vanguard has a different opinion. In their recently published market forecast for 2019 <https://personal.vanguard.com/pdf/ISGVEMO_2019.pdf>,Vanguard research judged both US and EM equity to be overvalued and DM to be more attractively valued. I guess value is in the eye of the beholder, but I side with Larry on this question.

Garland Whizzer
If I wanted to replicate something like this with the TSP (and a Vanguard Roth IRA), am I able to? If so, how?
You can do this by holding your EM funds in your Roth IRA account as long as your Roth IRA is at least a quarter of your equity allocation.

Personally, I am underweight EM compared to my desired allocation due to having a large amount in the TSP. Due to this, I have it in the I Fund since it is a part of my international allocation.
FWIW, the I Fund will change sometime in 2019 to track the MSCI All Country World Ex-US Investable Market Index, which includes Canada and emerging markets.

bgf
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Re: Larry Swedroe: Diversify Globally

Post by bgf » Thu Dec 20, 2018 3:02 pm

jalbert wrote:
Thu Dec 20, 2018 2:29 pm
Berkshire Hathaway holds mostly US stocks, but not exclusively. In fact, they recently took a position in an Indian mobile payments firm:

https://www.investopedia.com/news/buffe ... ias-paytm/
i think (hope) that over the coming decades berkshire will continue to invest more abroad.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Elysium
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Re: Larry Swedroe: Diversify Globally

Post by Elysium » Thu Dec 20, 2018 9:48 pm

Ketawa wrote:
Thu Dec 20, 2018 2:46 pm
Elysium wrote:
Mon Dec 17, 2018 1:01 pm
The EM label is all great. But the fact is DFA EM Value fund and other EM funds are dominated by China. Fully 1/3rd of DFEVX is China + Taiwan. Rest 40% in South Korea, India, and Brazil. Remaining countries are too small allocations and unlikely to make major impacts to returns.

EM is trading low for a reason, because of the worries on China and the trade tariff wars. India and Brazil are not doing so great either, and both are facing structural problems with weak money policies and high inflation, but they are not same, very different situations.

South Korea is developed, and apart from the NK threat, may be the best story in this. I am personally not all that highly enthused about it until the trade situation is sorted out. But its not worth very much.

Larry may be bullish on EM, but he has been consistent on EM since 2002 or so from what I remember. When you are consistently bullish on EM stocks, you tend to be right once in a while. I don't think Larry ever suggested lowering or increasing EM allocation based on valuations. This is no different.
Why do you consider these country weights to be an issue? My region splits are according to global market cap. That makes emerging markets about 12% of my equities according to MSCI definitions. According to the S&P index data I use every month to calculate my region splits, China plus Taiwan is about 4.5% of the total market. South Korea plus India plus Brazil is about 4%. This puts them at about 39% and 35% of my emerging markets allocation, respectively. Why would I want anything different?
DFA believes in putting a cap on the country weights, to avoid mania fueled bubbles in specific regional stock markets from taking over the fund. This is because of the specific nature of countries in the EM index. Political, financial, currency, and other such manipulations can cause rapid bubbles forming in these markets,. You do not wish to be 35% to 40% in one single country weighting. You may feel whatever the market decides is most efficient and let it decide the country weight. This is all fine in developed markets with accounting and political systems we can trust, but not in EM. Therefore, I believe what DFA does in putting a ceiling on country weight is a good risk management measure. Sort of like a circuit breaker in place to halt trading.

gtwhitegold
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Re: Larry Swedroe: Diversify Globally

Post by gtwhitegold » Fri Dec 21, 2018 7:35 am

Ketawa wrote:
Thu Dec 20, 2018 2:52 pm
gtwhitegold wrote:
Tue Dec 18, 2018 7:48 am
WanderingDoc wrote:
Tue Dec 18, 2018 2:52 am
garlandwhizzer wrote:
Mon Dec 17, 2018 12:14 pm
I think Larry makes a very good case for global diversification and I believe it. I am US 50/DM 25/EM 25, so I even overweight EM relative to global market weight because I believe that over the long term that increased EM risk will be rewarded with increased return. The increased volatility of EM makes it difficult for many investors to stay the EM course sometimes, one reason not the only one, why EM valuations are so compelling.

Interestingly, Vanguard has a different opinion. In their recently published market forecast for 2019 <https://personal.vanguard.com/pdf/ISGVEMO_2019.pdf>,Vanguard research judged both US and EM equity to be overvalued and DM to be more attractively valued. I guess value is in the eye of the beholder, but I side with Larry on this question.

Garland Whizzer
If I wanted to replicate something like this with the TSP (and a Vanguard Roth IRA), am I able to? If so, how?
You can do this by holding your EM funds in your Roth IRA account as long as your Roth IRA is at least a quarter of your equity allocation.

Personally, I am underweight EM compared to my desired allocation due to having a large amount in the TSP. Due to this, I have it in the I Fund since it is a part of my international allocation.
FWIW, the I Fund will change sometime in 2019 to track the MSCI All Country World Ex-US Investable Market Index, which includes Canada and emerging markets.
I'm aware, but I'm at the point where I'll believe it when I see it. FRTIB has not been forthcoming with information regarding this.

blastoff
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Re: Larry Swedroe: Diversify Globally

Post by blastoff » Fri Dec 21, 2018 1:01 pm

Curious about emerging markets value funds through fidelity?

Not trying to buy on this advice. Thread just reminded me I had looked at one point and was unsure of good answer.

I have some in the fidelity emerging markets index fund.

asif408
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Re: Larry Swedroe: Diversify Globally

Post by asif408 » Fri Dec 21, 2018 1:17 pm

blastoff wrote:
Fri Dec 21, 2018 1:01 pm
Curious about emerging markets value funds through fidelity?

Not trying to buy on this advice. Thread just reminded me I had looked at one point and was unsure of good answer.

I have some in the fidelity emerging markets index fund.
Don't think there are any cheap NTF funds in that category at Fidelity. There are a few decent ETFs in that space, PXH and FNDE, but I don't think they are commission free there. If you have a Vanguard account you can get those two commission free. If you have a Schwab or TDAmeritrade account, PXH is commission free at TD and FNDE is commission free at Schwab. You can also get the mutual fund version of FNDE (SFENX) at Schwab commission free if you prefer traditional index funds.

gtwhitegold
Posts: 441
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Re: Larry Swedroe: Diversify Globally

Post by gtwhitegold » Fri Dec 21, 2018 1:30 pm

Elysium wrote:
Thu Dec 20, 2018 9:48 pm
Ketawa wrote:
Thu Dec 20, 2018 2:46 pm
Elysium wrote:
Mon Dec 17, 2018 1:01 pm
The EM label is all great. But the fact is DFA EM Value fund and other EM funds are dominated by China. Fully 1/3rd of DFEVX is China + Taiwan. Rest 40% in South Korea, India, and Brazil. Remaining countries are too small allocations and unlikely to make major impacts to returns.

EM is trading low for a reason, because of the worries on China and the trade tariff wars. India and Brazil are not doing so great either, and both are facing structural problems with weak money policies and high inflation, but they are not same, very different situations.

South Korea is developed, and apart from the NK threat, may be the best story in this. I am personally not all that highly enthused about it until the trade situation is sorted out. But its not worth very much.

Larry may be bullish on EM, but he has been consistent on EM since 2002 or so from what I remember. When you are consistently bullish on EM stocks, you tend to be right once in a while. I don't think Larry ever suggested lowering or increasing EM allocation based on valuations. This is no different.
Why do you consider these country weights to be an issue? My region splits are according to global market cap. That makes emerging markets about 12% of my equities according to MSCI definitions. According to the S&P index data I use every month to calculate my region splits, China plus Taiwan is about 4.5% of the total market. South Korea plus India plus Brazil is about 4%. This puts them at about 39% and 35% of my emerging markets allocation, respectively. Why would I want anything different?
DFA believes in putting a cap on the country weights, to avoid mania fueled bubbles in specific regional stock markets from taking over the fund. This is because of the specific nature of countries in the EM index. Political, financial, currency, and other such manipulations can cause rapid bubbles forming in these markets,. You do not wish to be 35% to 40% in one single country weighting. You may feel whatever the market decides is most efficient and let it decide the country weight. This is all fine in developed markets with accounting and political systems we can trust, but not in EM. Therefore, I believe what DFA does in putting a ceiling on country weight is a good risk management measure. Sort of like a circuit breaker in place to halt trading.
I'm pretty neutral about caps on country weights, but I'd prefer to have restrictions on state owned enterprises. Either requiring a higher threshold for inclusion in quantitative funds or having a maximum percentage of the fund invested in SOEs. I'm not so far as excluding them entirely like in the Wisdomtree XSOE ETF.

fennewaldaj
Posts: 950
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Re: Larry Swedroe: Diversify Globally

Post by fennewaldaj » Fri Dec 21, 2018 11:51 pm

asif408 wrote:
Fri Dec 21, 2018 1:17 pm
blastoff wrote:
Fri Dec 21, 2018 1:01 pm
Curious about emerging markets value funds through fidelity?

Not trying to buy on this advice. Thread just reminded me I had looked at one point and was unsure of good answer.

I have some in the fidelity emerging markets index fund.
Don't think there are any cheap NTF funds in that category at Fidelity. There are a few decent ETFs in that space, PXH and FNDE, but I don't think they are commission free there. If you have a Vanguard account you can get those two commission free. If you have a Schwab or TDAmeritrade account, PXH is commission free at TD and FNDE is commission free at Schwab. You can also get the mutual fund version of FNDE (SFENX) at Schwab commission free if you prefer traditional index funds.
I buy SFENX at Fidelity. I paid the $75 once but i don't pay anything on monthly purchases. Its not a bad option it is a big enough position to make the fee relatively small as a %.

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