Foreign Allocation

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LISD
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Foreign Allocation

Post by LISD »

From a VG analysis of my portfolio 5 years ago, they recommended that 24% of my portfolio should be in foreign stocks. And a 60/40 stock/bond split.

Not 24% of my stocks, 24% of my total portfolio.

That would mean 40% of my stocks would be foreign - seems WAY high to me. I'm nowhere near 40%.

This is an area of great confusion to me (and in a lot of literature). When something states 'X% should be foreign' it needs to be specified X% of WHAT: the total portfolio or just the stock portion of the portfolio. It makes more sense (to me) to be stated as a % of your stocks (which is also more consistent with other allocations), but either way is ok as long as it's defined.

BTW: T Rowe Price defines it the opposite of Vanguard. Bernstein confuses the issue and uses both definitions. And then there is this I found in the net, which is the opposite of how VG defined it for me: "Vanguard’s research suggests that a minimum of 15% of your stocks should be invested internationally"

Is this discussed in the Boglehead Wiki at all? (I couldn't find anything). Are there any good resources for this topic? I know the % foreign recommendation has been all over the place over the years but it would be nice to bound the range, while using a consistent definition.

Thanks,
LISD
visualguy
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Re: Foreign Allocation

Post by visualguy »

On this forum, when people say x% in international, they almost always mean x% of your stock portfolio, not your entire portfolio.

Like you said, there is no consensus on how much (if any) to put in international, or even what to invest it in exactly. Many here don't actually invest it in the ex-US index, and choose other types of international funds instead.
Robot Monster
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Re: Foreign Allocation

Post by Robot Monster »

If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Last edited by Robot Monster on Sun Sep 06, 2020 10:31 pm, edited 1 time in total.
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Whakamole
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Re: Foreign Allocation

Post by Whakamole »

Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 20%.
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
I believe, as visualguy stated, that x% in international means x% of the stock portfolio, not of your entire portfolio. Otherwise international as a % of your stock portfolio would be small during accumulation and huge during your retirement years.

If that's the case, then Swensen has 40% of his equity holdings in international (20%/50%) which is the same as Vanguard's asset allocation portfolios (LifeStrategy and Target Date funds.)
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Re: Foreign Allocation

Post by Robot Monster »

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Last edited by Robot Monster on Sun Sep 06, 2020 10:30 pm, edited 1 time in total.
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Doctor Rhythm
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Re: Foreign Allocation

Post by Doctor Rhythm »

Vanguard is big on international stocks. Their target date funds maintain 40% international allocation for their equity portion through much of the glide path. Vanguard’s portfolio analysis tool gives you a gentle side eye if less than 30% of your stock is non-US. Again, these numbers refer to the % of your stock allocation (not % of your total portfolio).

No idea if 40% will end up being the right amount in the future. I’m just under 30%.
Whakamole
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Re: Foreign Allocation

Post by Whakamole »

Robot Monster wrote: Sun Sep 06, 2020 8:05 pm
Whakamole wrote: Sun Sep 06, 2020 7:18 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 20%.
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
I believe, as visualguy stated, that x% in international means x% of the stock portfolio, not of your entire portfolio. Otherwise international as a % of your stock portfolio would be small during accumulation and huge during your retirement years.

If that's the case, then Swensen has 40% of his equity holdings in international (20%/50%) which is the same as Vanguard's asset allocation portfolios (LifeStrategy and Target Date funds.)
Below is the entire Swensen portfolio, where international holdings are indeed 20%.

30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

Though, his portfolio as reported here has emerging markets at 10%, not 5%, but the 5% suggestion is from a more recent interview.
That is 20% of the total portfolio, not 20% of total equities. International in the Swensen portfolio is 40% of total equities, since equities only take up 50% (30%+15%+5%) of the portfolio.
Robot Monster
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Re: Foreign Allocation

Post by Robot Monster »

Whakamole wrote: Sun Sep 06, 2020 10:13 pm
Robot Monster wrote: Sun Sep 06, 2020 8:05 pm
Whakamole wrote: Sun Sep 06, 2020 7:18 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 20%.
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
I believe, as visualguy stated, that x% in international means x% of the stock portfolio, not of your entire portfolio. Otherwise international as a % of your stock portfolio would be small during accumulation and huge during your retirement years.

If that's the case, then Swensen has 40% of his equity holdings in international (20%/50%) which is the same as Vanguard's asset allocation portfolios (LifeStrategy and Target Date funds.)
Below is the entire Swensen portfolio, where international holdings are indeed 20%.

30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

Though, his portfolio as reported here has emerging markets at 10%, not 5%, but the 5% suggestion is from a more recent interview.
That is 20% of the total portfolio, not 20% of total equities. International in the Swensen portfolio is 40% of total equities, since equities only take up 50% (30%+15%+5%) of the portfolio.
You're right...my apologies! I edited my post to correct my stupidity.
Last edited by Robot Monster on Sun Sep 06, 2020 10:31 pm, edited 1 time in total.
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pascalwager
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Re: Foreign Allocation

Post by pascalwager »

Doctor Rhythm wrote: Sun Sep 06, 2020 9:57 pm Vanguard is big on international stocks. Their target date funds maintain 40% international allocation for their equity portion through much of the glide path. Vanguard’s portfolio analysis tool gives you a gentle side eye if less than 30% of your stock is non-US. Again, these numbers refer to the % of your stock allocation (not % of your total portfolio).

No idea if 40% will end up being the right amount in the future. I’m just under 30%.
Vanguard isn't big on international stocks--they're actually neutral. Their basic belief is that you should own the world market allocation for both US and foreign--currently 58/42.
Doctor Rhythm
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Re: Foreign Allocation

Post by Doctor Rhythm »

pascalwager wrote: Sun Sep 06, 2020 10:24 pm
Doctor Rhythm wrote: Sun Sep 06, 2020 9:57 pm Vanguard is big on international stocks. Their target date funds maintain 40% international allocation for their equity portion through much of the glide path. Vanguard’s portfolio analysis tool gives you a gentle side eye if less than 30% of your stock is non-US. Again, these numbers refer to the % of your stock allocation (not % of your total portfolio).

No idea if 40% will end up being the right amount in the future. I’m just under 30%.
Vanguard isn't big on international stocks--they're actually neutral. Their basic belief is that you should own the world market allocation for both US and foreign--currently 58/42.
I was speaking in relative terms compared to most US investors who have a home country tilt, including the ones on this forum where “owning the market” is a mantra of sorts.
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NerveDoc
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Re: Foreign Allocation

Post by NerveDoc »

Whakamole wrote: Sun Sep 06, 2020 10:13 pm
Robot Monster wrote: Sun Sep 06, 2020 8:05 pm
Whakamole wrote: Sun Sep 06, 2020 7:18 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 20%.
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
I believe, as visualguy stated, that x% in international means x% of the stock portfolio, not of your entire portfolio. Otherwise international as a % of your stock portfolio would be small during accumulation and huge during your retirement years.

If that's the case, then Swensen has 40% of his equity holdings in international (20%/50%) which is the same as Vanguard's asset allocation portfolios (LifeStrategy and Target Date funds.)
Below is the entire Swensen portfolio, where international holdings are indeed 20%.

30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

Though, his portfolio as reported here has emerging markets at 10%, not 5%, but the 5% suggestion is from a more recent interview.
That is 20% of the total portfolio, not 20% of total equities. International in the Swensen portfolio is 40% of total equities, since equities only take up 50% (30%+15%+5%) of the portfolio.
International in the Swensen portfolio is 28.57% of equities since equities take up 70% of the portfolio (including REITs).
pascalwager
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Re: Foreign Allocation

Post by pascalwager »

NerveDoc wrote: Sun Sep 06, 2020 11:54 pm
Whakamole wrote: Sun Sep 06, 2020 10:13 pm
Robot Monster wrote: Sun Sep 06, 2020 8:05 pm
Whakamole wrote: Sun Sep 06, 2020 7:18 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 20%.
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
I believe, as visualguy stated, that x% in international means x% of the stock portfolio, not of your entire portfolio. Otherwise international as a % of your stock portfolio would be small during accumulation and huge during your retirement years.

If that's the case, then Swensen has 40% of his equity holdings in international (20%/50%) which is the same as Vanguard's asset allocation portfolios (LifeStrategy and Target Date funds.)
Below is the entire Swensen portfolio, where international holdings are indeed 20%.

30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

Though, his portfolio as reported here has emerging markets at 10%, not 5%, but the 5% suggestion is from a more recent interview.
That is 20% of the total portfolio, not 20% of total equities. International in the Swensen portfolio is 40% of total equities, since equities only take up 50% (30%+15%+5%) of the portfolio.
International in the Swensen portfolio is 28.57% of equities since equities take up 70% of the portfolio (including REITs).
Authors tend not to include REITs in their domestic/foreign stock ratios. And Swensen considers Real Estate to be a hybrid asset, both stock-like and bond-like.
Topic Author
LISD
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Re: Foreign Allocation

Post by LISD »

OP here:

Just an FYI: Morningstar defines foreign as the % of the total portfolio. But then uses % of stocks for sectors, value, growth, etc. So they are inconsistent.

Instead of % of foreign stock, it should be based on sales (foreign vs domestic sales). For example, If I own a company in France that sells only to the US, that should be considered a domestic stock. Ditto for US companies like Nike, who sell a lot oversees. Of course, this would be a difficult stat to track.

Owning equal %'s of the global market assumes all global markets are equal. VT holds .3% Russia. I wonder if that is because Russia is .3% of the global market, or because they under-weigh markets that are not 'free-markets', or markets that are difficult to access. A lot of these foreign companies are listed on US exchanges, but I'm sure not all. So Vanguard must have to purchase some foreign stock on foreign exchanges correct?
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Re: Foreign Allocation

Post by Robot Monster »

LISD wrote: Mon Sep 07, 2020 1:17 pm OP here:

Just an FYI: Morningstar defines foreign as the % of the total portfolio. But then uses % of stocks for sectors, value, growth, etc. So they are inconsistent.

Instead of % of foreign stock, it should be based on sales (foreign vs domestic sales). For example, If I own a company in France that sells only to the US, that should be considered a domestic stock. Ditto for US companies like Nike, who sell a lot oversees. Of course, this would be a difficult stat to track.

Owning equal %'s of the global market assumes all global markets are equal. VT holds .3% Russia. I wonder if that is because Russia is .3% of the global market, or because they under-weigh markets that are not 'free-markets', or markets that are difficult to access. A lot of these foreign companies are listed on US exchanges, but I'm sure not all. So Vanguard must have to purchase some foreign stock on foreign exchanges correct?
I've also thought it would be interesting to create a portfolio of stocks based on revenue exposure.

VT's holdings are based on the market cap for each company worldwide. I believe it's no more complicated than that. The U.S. has lots of big companies, Russia not so many, thus the disparity.
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Blue456
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Re: Foreign Allocation

Post by Blue456 »

Doctor Rhythm wrote: Sun Sep 06, 2020 9:57 pm Vanguard is big on international stocks. Their target date funds maintain 40% international allocation for their equity portion through much of the glide path. Vanguard’s portfolio analysis tool gives you a gentle side eye if less than 30% of your stock is non-US. Again, these numbers refer to the % of your stock allocation (not % of your total portfolio).

No idea if 40% will end up being the right amount in the future. I’m just under 30%.
Not only Vanguard. 40% international has become defecto standard recommendation. Even government Thrift Savings Plan has now 40% international on their target date funds.
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Re: Foreign Allocation

Post by abuss368 »

LISD wrote: Sun Sep 06, 2020 6:02 pm From a VG analysis of my portfolio 5 years ago, they recommended that 24% of my portfolio should be in foreign stocks. And a 60/40 stock/bond split.

Not 24% of my stocks, 24% of my total portfolio.

That would mean 40% of my stocks would be foreign - seems WAY high to me. I'm nowhere near 40%.

This is an area of great confusion to me (and in a lot of literature). When something states 'X% should be foreign' it needs to be specified X% of WHAT: the total portfolio or just the stock portion of the portfolio. It makes more sense (to me) to be stated as a % of your stocks (which is also more consistent with other allocations), but either way is ok as long as it's defined.

BTW: T Rowe Price defines it the opposite of Vanguard. Bernstein confuses the issue and uses both definitions. And then there is this I found in the net, which is the opposite of how VG defined it for me: "Vanguard’s research suggests that a minimum of 15% of your stocks should be invested internationally"

Is this discussed in the Boglehead Wiki at all? (I couldn't find anything). Are there any good resources for this topic? I know the % foreign recommendation has been all over the place over the years but it would be nice to bound the range, while using a consistent definition.

Thanks,
LISD
Hi LISD -

Vanguard has increased the recommended percentage of both stocks and bonds to international over the past few years.

In terms of stocks, Vanguard initially recommended 20% of stock to international and increased that to 30%, and then to the present 40%.

Related to bonds, Vanguard recommended 20% of bonds to international and increased that to the present 30%.
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Re: Foreign Allocation

Post by abuss368 »

Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Foreign Allocation

Post by Whakamole »

LISD wrote: Mon Sep 07, 2020 1:17 pm OP here:

Just an FYI: Morningstar defines foreign as the % of the total portfolio. But then uses % of stocks for sectors, value, growth, etc. So they are inconsistent.
What do the screenshots look like? Typically stock/bond breakdowns will be % of the stock/bond portfolio because the stock/bond breakdowns are in separate tables.
Instead of % of foreign stock, it should be based on sales (foreign vs domestic sales). For example, If I own a company in France that sells only to the US, that should be considered a domestic stock. Ditto for US companies like Nike, who sell a lot oversees. Of course, this would be a difficult stat to track.
Revenue exposure is not difficult to track, but you are already effectively getting it:

Image
Source: MSCI courtesy of a thread here, viewtopic.php?f=10&t=245719
A lot of these foreign companies are listed on US exchanges, but I'm sure not all. So Vanguard must have to purchase some foreign stock on foreign exchanges correct?
I believe so; China A-Shares (if the fund owns them, not all Vanguard international funds do) are an example.
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Re: Foreign Allocation

Post by pascalwager »

abuss368 wrote: Mon Sep 07, 2020 2:12 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
I disagree with your math.

I think Swensen (essentially) recommends 50% stocks, 20% Real Estate, and 30% bonds. He considers Real Estate to be a hybrid asset (stocklike and bondlike) and not a regular stock.

Also, if you do include Real Estate as a part of domestic equities, then the total for domestic equities becomes 30% + 20% = 50%. This violates one of his portfolio construction rules as it exceeds 25 to 30% maximum for any one asset class.

So I get 20/50 = 40% ex-US stocks
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Re: Foreign Allocation

Post by abuss368 »

pascalwager wrote: Mon Sep 07, 2020 4:07 pm
abuss368 wrote: Mon Sep 07, 2020 2:12 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
I disagree with your math.

I think Swensen (essentially) recommends 50% stocks, 20% Real Estate, and 30% bonds. He considers Real Estate to be a hybrid asset (stocklike and bondlike) and not a regular stock.

Also, if you do include Real Estate as a part of domestic equities, then the total for domestic equities becomes 30% + 20% = 50%. This violates one of his portfolio construction rules as it exceeds 25 to 30% maximum for any one asset class.

So I get 20/50 = 40% ex-US stocks
If you want to exclude REITs then sure 40% of equity to international. The math is easy.

However, I would be careful with that assumption. Whether REITs are stocks or bonds have been debated for a long time of the forum. REITs have become very volatile during recent market declines (Great Recession and Corona). They have function like stocks and certainly not like bonds. I know as I had both Vanguard US REIT and Vanguard International REIT for a long time.

Now they did out perform during the Tech bubble 20 years ago.

But to segregate as a 3rd asset class I am not so sure about that especially if an investor is not sure how REITs perform in different market environments.
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Re: Foreign Allocation

Post by Robot Monster »

NerveDoc wrote: Sun Sep 06, 2020 11:54 pm International in the Swensen portfolio is 28.57% of equities since equities take up 70% of the portfolio (including REITs).
abuss368 wrote: Mon Sep 07, 2020 2:12 pm Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
Well, is it 28.57% or 28.50%? Enquiring minds want to know. :wink:
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Re: Foreign Allocation

Post by abuss368 »

Robot Monster wrote: Mon Sep 07, 2020 4:21 pm
NerveDoc wrote: Sun Sep 06, 2020 11:54 pm International in the Swensen portfolio is 28.57% of equities since equities take up 70% of the portfolio (including REITs).
abuss368 wrote: Mon Sep 07, 2020 2:12 pm Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
Well, is it 28.57% or 28.50%? Enquiring minds want to know. :wink:
That was good.
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Re: Foreign Allocation

Post by vineviz »

LISD wrote: Mon Sep 07, 2020 1:17 pm
Instead of % of foreign stock, it should be based on sales (foreign vs domestic sales). For example, If I own a company in France that sells only to the US, that should be considered a domestic stock. Ditto for US companies like Nike, who sell a lot oversees. Of course, this would be a difficult stat to track.
A French company is not a “domestic” company for US investors, regardless of the percentage of sales that company earns in the US.

The degree of revenue overlap is not a terrible useful proxy of return diversification.
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Re: Foreign Allocation

Post by whereskyle »

LISD wrote: Sun Sep 06, 2020 6:02 pm From a VG analysis of my portfolio 5 years ago, they recommended that 24% of my portfolio should be in foreign stocks. And a 60/40 stock/bond split.

Not 24% of my stocks, 24% of my total portfolio.

That would mean 40% of my stocks would be foreign - seems WAY high to me. I'm nowhere near 40%.

This is an area of great confusion to me (and in a lot of literature). When something states 'X% should be foreign' it needs to be specified X% of WHAT: the total portfolio or just the stock portion of the portfolio. It makes more sense (to me) to be stated as a % of your stocks (which is also more consistent with other allocations), but either way is ok as long as it's defined.

BTW: T Rowe Price defines it the opposite of Vanguard. Bernstein confuses the issue and uses both definitions. And then there is this I found in the net, which is the opposite of how VG defined it for me: "Vanguard’s research suggests that a minimum of 15% of your stocks should be invested internationally"

Is this discussed in the Boglehead Wiki at all? (I couldn't find anything). Are there any good resources for this topic? I know the % foreign recommendation has been all over the place over the years but it would be nice to bound the range, while using a consistent definition.

Thanks,
LISD
Global market cap and us only are the extremes of the range among US investors in my view. Rather than make an impossible decision, I cop out completely and hold just two stock funds in equal parts: VTSAX (VTI) and VTWAX (VT).
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Re: Foreign Allocation

Post by Blue456 »

pascalwager wrote: Mon Sep 07, 2020 4:07 pm
abuss368 wrote: Mon Sep 07, 2020 2:12 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
I disagree with your math.

I think Swensen (essentially) recommends 50% stocks, 20% Real Estate, and 30% bonds. He considers Real Estate to be a hybrid asset (stocklike and bondlike) and not a regular stock.

Also, if you do include Real Estate as a part of domestic equities, then the total for domestic equities becomes 30% + 20% = 50%. This violates one of his portfolio construction rules as it exceeds 25 to 30% maximum for any one asset class.

So I get 20/50 = 40% ex-US stocks
He does not consider real estate to be the same asset class as US total stock market. His domestic market exposure is still 50/70 which is 71%.
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Re: Foreign Allocation

Post by abuss368 »

Blue456 wrote: Mon Sep 07, 2020 5:35 pm
pascalwager wrote: Mon Sep 07, 2020 4:07 pm
abuss368 wrote: Mon Sep 07, 2020 2:12 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
I disagree with your math.

I think Swensen (essentially) recommends 50% stocks, 20% Real Estate, and 30% bonds. He considers Real Estate to be a hybrid asset (stocklike and bondlike) and not a regular stock.

Also, if you do include Real Estate as a part of domestic equities, then the total for domestic equities becomes 30% + 20% = 50%. This violates one of his portfolio construction rules as it exceeds 25 to 30% maximum for any one asset class.

So I get 20/50 = 40% ex-US stocks
He does not consider real estate to be the same asset class as US total stock market. His domestic market exposure is still 50/70 which is 71%.
Agree with the math.
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Re: Foreign Allocation

Post by abuss368 »

Honestly I am not going to be surprised if Vanguard eventually moves to a 50% US and 50% International stock allocation and also bond allocation.

The only decision an investor would have to make would be the overall asset allocation between stocks and bonds.

Total simplicity.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Foreign Allocation

Post by Blue456 »

LISD wrote: Sun Sep 06, 2020 6:02 pm "Vanguard’s research suggests that a minimum of 15% of your stocks should be invested internationally"

Is this discussed in the Boglehead Wiki at all? (I couldn't find anything). Are there any good resources for this topic? I know the % foreign recommendation has been all over the place over the years but it would be nice to bound the range, while using a consistent definition.
Yes. I would suggest you read this:
Investing in the World:
https://web.archive.org/web/20190120222 ... ld-part-1/
The Japanese Crisis:
https://www.bogleheads.org/blog/2017/02 ... se-crisis/
There is also long thread here:
viewtopic.php?t=196956
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Re: Foreign Allocation

Post by pascalwager »

abuss368 wrote: Mon Sep 07, 2020 4:13 pm
pascalwager wrote: Mon Sep 07, 2020 4:07 pm
abuss368 wrote: Mon Sep 07, 2020 2:12 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
I disagree with your math.

I think Swensen (essentially) recommends 50% stocks, 20% Real Estate, and 30% bonds. He considers Real Estate to be a hybrid asset (stocklike and bondlike) and not a regular stock.

Also, if you do include Real Estate as a part of domestic equities, then the total for domestic equities becomes 30% + 20% = 50%. This violates one of his portfolio construction rules as it exceeds 25 to 30% maximum for any one asset class.

So I get 20/50 = 40% ex-US stocks
If you want to exclude REITs then sure 40% of equity to international. The math is easy.

However, I would be careful with that assumption. Whether REITs are stocks or bonds have been debated for a long time of the forum. REITs have become very volatile during recent market declines (Great Recession and Corona). They have function like stocks and certainly not like bonds. I know as I had both Vanguard US REIT and Vanguard International REIT for a long time.

Now they did out perform during the Tech bubble 20 years ago.

But to segregate as a 3rd asset class I am not so sure about that especially if an investor is not sure how REITs perform in different market environments.
Swensen considers Real Estate an inflation protector like TIPS. That's their supposed bondlike characteristic.
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Re: Foreign Allocation

Post by abuss368 »

pascalwager wrote: Mon Sep 07, 2020 10:43 pm
abuss368 wrote: Mon Sep 07, 2020 4:13 pm
pascalwager wrote: Mon Sep 07, 2020 4:07 pm
abuss368 wrote: Mon Sep 07, 2020 2:12 pm
Robot Monster wrote: Sun Sep 06, 2020 7:11 pm If you invest in Vanguard Total World Stock ETF (VT), it gives you about a 40% international stock allocation.
https://investor.vanguard.com/etf/profile/portfolio/vt

That said, a lot of people around here keep international at bay with only 20% (Bogle himself said,he wouldn't recommend any international, but if you're going to have it, at most have 20%.)

David Swensen's portfolio recommendation is 40% international, 60% domestic. (As discussed in a recent interview)
30% in U.S. stocks.
15% in developed country stocks.
5% in emerging market stocks.
20% in domestic U.S. real estate.
15% in U.S. Treasury bonds.
15% U.S. Treasury Inflation Protected Securities.

There are other portfolios here,
https://www.bogleheads.org/wiki/Lazy_portfolios
Davis Swensen's recommends a 70% stock and 30% bond portfolio for those comfortable with that recommendation. International Developed at 15% and Emerging at 5% for a combined 20% divided by 70% stock results in 28.50%.
I disagree with your math.

I think Swensen (essentially) recommends 50% stocks, 20% Real Estate, and 30% bonds. He considers Real Estate to be a hybrid asset (stocklike and bondlike) and not a regular stock.

Also, if you do include Real Estate as a part of domestic equities, then the total for domestic equities becomes 30% + 20% = 50%. This violates one of his portfolio construction rules as it exceeds 25 to 30% maximum for any one asset class.

So I get 20/50 = 40% ex-US stocks
If you want to exclude REITs then sure 40% of equity to international. The math is easy.

However, I would be careful with that assumption. Whether REITs are stocks or bonds have been debated for a long time of the forum. REITs have become very volatile during recent market declines (Great Recession and Corona). They have function like stocks and certainly not like bonds. I know as I had both Vanguard US REIT and Vanguard International REIT for a long time.

Now they did out perform during the Tech bubble 20 years ago.

But to segregate as a 3rd asset class I am not so sure about that especially if an investor is not sure how REITs perform in different market environments.
Swensen considers Real Estate an inflation protector like TIPS. That's their supposed bondlike characteristic.
Indeed. In Unconventional Success he discussed real estate and inflation at length.
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Re: Foreign Allocation

Post by 2pedals »

LISD wrote: Sun Sep 06, 2020 6:02 pm <--- snip ---->
Is this discussed in the Boglehead Wiki at all? (I couldn't find anything). Are there any good resources for this topic? I know the % foreign recommendation has been all over the place over the years but it would be nice to bound the range, while using a consistent definition.

Thanks,
LISD
Have you seen the following Bogleheads Wiki. I believe this Wiki was started in 2009 based on recommendations then.
https://www.bogleheads.org/wiki/Domestic/International

The following paper presents a more recent view by Vanguard.
https://personal.vanguard.com/pdf/ISGGEB.pdf

The way I look at percentages they are usually based on percent stock market equity invested when the main concern is how much equity in international is appropriate. They can also be presented in terms of total portfolio if the main idea is how to construct a portfolio.

My percent target of international (ex-US) is 30% of equity.
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Re: Foreign Allocation

Post by vineviz »

pascalwager wrote: Mon Sep 07, 2020 10:43 pm
abuss368 wrote: Mon Sep 07, 2020 4:13 pm But to segregate as a 3rd asset class I am not so sure about that especially if an investor is not sure how REITs perform in different market environments.
Swensen considers Real Estate an inflation protector like TIPS. That's their supposed bondlike characteristic.
Swensen could be wrong, of course.

Or he could be right about real estate without that being any support for treating REITS as a separate asset class. REITS historically have behaved much more like an equity sector fund than like a TIPS fund.
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Re: Foreign Allocation

Post by Blue456 »

pascalwager wrote: Mon Sep 07, 2020 10:43 pm

Swensen considers Real Estate an inflation protector like TIPS. That's their supposed bondlike characteristic.
I really don’t remember him specifically mentioning that REITs are there for inflation protection. I think this way implied from his book. My understanding was that he truly believed that REITs behave differently from US TSM.
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Re: Foreign Allocation

Post by MotoTrojan »

Seems reasonable to me and aligns with Vanguard's Lifestrategy and Target Retirement funds. It is still a tilt to US, why does it seem like too much to you?
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Re: Foreign Allocation

Post by pascalwager »

Blue456 wrote: Tue Sep 08, 2020 10:37 am
pascalwager wrote: Mon Sep 07, 2020 10:43 pm

Swensen considers Real Estate an inflation protector like TIPS. That's their supposed bondlike characteristic.
I really don’t remember him specifically mentioning that REITs are there for inflation protection. I think this way implied from his book. My understanding was that he truly believed that REITs behave differently from US TSM.
Swensen discusses Real Estate Prices and Inflation on pages 78-79 of Unconventional Success. Fifteen percent TIPS and 20% Real Estate comprise the inflation protection for his portfolio. There's no need for implication, and how is this characteristic not different than TSM?

The 20% Real Estate also "assists" (compared to bonds) the domestic and foreign equity returns.
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Re: Foreign Allocation

Post by pascalwager »

MotoTrojan wrote: Tue Sep 08, 2020 10:39 am Seems reasonable to me and aligns with Vanguard's Lifestrategy and Target Retirement funds. It is still a tilt to US, why does it seem like too much to you?
I guess you could say that the domestic/foreign AA is somewhere between 60/40 and 71/29 and just decide to accept that uncertainty if you like the Swensen approach.
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Re: Foreign Allocation

Post by Lou354 »

Blue456 wrote: Mon Sep 07, 2020 2:07 pm Not only Vanguard. 40% international has become defecto standard recommendation. Even government Thrift Savings Plan has now 40% international on their target date funds.
TSP Lifecycle funds are 35% international. https://www.tsp.gov/
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