AndrewXnn wrote: ↑Sat Oct 30, 2021 2:12 pm
I am wondering how one could go about establishing a proper amount for international?
First message says to go thru the Vanguard Questioner to determine the amount in Bonds
and a suggestion of 20% in international equity.
However, what is the basis for that international suggestion?
Why and how much does Vanguard recommend international equity?
Before answering that question, you should know that Vanguard has changed its answer over time, which is reflected in the composition of their
LifeStrategy and
Target Date funds. Basically, Vanguard has been increasing the recommended amount of international stocks and bonds. For their funds, they had to pick a specific amount but in general I've seen them recommend anywhere from 30% to market weight. They don't seem to keep their web site content updated -- one example is the questionnaire you found where it recommends 20%.
In April 2021, they published
Global equity investing: The benefits of diversification and sizing your allocation. Note this was written for a global audience, not just US investors.
One of the main conclusions they drew:
This paper concludes that although no one answer fits all investors, global market capitalization weight serves as a helpful starting point in determining the appropriate allocation between domestic and international equities. In practice, many investors will consider an allocation to international equities well below global market-capitalization weight based on their sensitivity to a number of considerations, including volatility reduction, expected returns, implementation costs, taxes, regulation, and their own preferences.
Reducing portfolio volatility seems to be a key rationale for Vanguard. Which raises a key question: how much does volatility reduction matter
to me? A.k.a, do I lose sleep when stocks fall by 5% in a day/rise 3% the next day, or 15% in a month, or 35% in a few months?
Putting aside Vanguard's recommendation, here's an interesting Boglehead post that offers a different reason:
Take a look and check out the chart... food for thought.
As for me, I have around 10% of stocks in international. I'd be okay with 10%-25%. No great basis for that, it's just where I ended up after many years of investing & finding myway.