80% VWRA / 20% bond index - which bond index to choose?

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Vision
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80% VWRA / 20% bond index - which bond index to choose?

Post by Vision » Mon Aug 12, 2019 12:01 pm

I determined that 80% in accumulating world stock VWRA index would be a good choice for me.

That leaves 20% for bond index. Which bond index to choose? BND? AGGH (as recommended by boglebot)?

I'm 30, from Lithuania, using Ireland domiciled funds is the best choice from what I assume.

Country has EUR currency. Maybe specific bond index for currency hedge?

Any recommendations?

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BeBH65
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by BeBH65 » Mon Aug 12, 2019 12:10 pm

Global bonds hedged to euro (as in AGGH) is often advised, as it is wide diversified and offers stability.
US-USD bonds as in BND does not provide the stability that Bogleheads seek in their bond allocation.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Vision
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by Vision » Mon Aug 12, 2019 12:29 pm

BeBH65 wrote:
Mon Aug 12, 2019 12:10 pm
Global bonds hedged to euro (as in AGGH) is often advised, as it is wide diversified and offers stability.
US-USD bonds as in BND does not provide the stability that Bogleheads seek in their bond allocation.
Great, are there also accumulating vs distributing bond indices or does that apply only to stock indices?

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BeBH65
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by BeBH65 » Mon Aug 12, 2019 1:06 pm

There are both distributing as accumulating ETFs for global bonds. You need to calculate what is best for your tax residency - yearly dividends tax Vs capital gains tax.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Vision
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by Vision » Mon Aug 12, 2019 1:36 pm

BeBH65 wrote:
Mon Aug 12, 2019 1:06 pm
There are both distributing as accumulating ETFs for global bonds. You need to calculate what is best for your tax residency - yearly dividends tax Vs capital gains tax.
I would prefer accumulating. Which one you'd recommend?

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BeBH65
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by BeBH65 » Mon Aug 12, 2019 1:46 pm

Ishares AGGH is accumulating and hedged to euro right?
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Vision
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by Vision » Mon Aug 12, 2019 5:14 pm

I assume I should choose Bond index hedged in EUR, right? Since VWRA is only 20% or 10% EUR (I don't recall specifically).

Looking for any more suggestions.

glorat
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by glorat » Mon Aug 12, 2019 8:09 pm

Relating to a post I made at viewtopic.php?t=281432#p4576757

I see 4 viable bond index strategies one can take
1) Global Aggregate Bond (AGGG variants)
Barclays global index that includes govts and corporates from AAA to BBB
2) Global Govt Bond (IGLO variants)
Like 1) but without the corporates - Governments only
3) Global AAA-AA (IAAA variants)
Like 2) but only high grade bonds
4) Local only bonds

Once you've picked your strategy, you then ensure you take the version that is hedged to your local currency (if it isn't already)

None of these choices will be bad choices. There is no such thing as perfection.

If you want to get the expert recommendation, go with what Vanguard recommends, which is the Global Aggregate Bond flavour, hedged to EUR. Hence AGGH.

(p.s. for the advanced folk, I'll add the above options to boglebot when I have time)

tre3sori
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by tre3sori » Tue Aug 13, 2019 2:04 am

Hi vision,
if available to you, take a look at the distributing or accumulating funds that track the
Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index Hedged:

Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Distributing, TER 0.10%
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating, TER 0.10%

Together with either

Vanguard FTSE All-World UCITS ETF (USD) Distributing, TER 0.25%
Vanguard FTSE All-World UCITS ETF (USD) Accumulating, TER 0.25%

this will give you a 80/20 Vanguard portfolio with TER 0.22%.
Not the cheapest possible but nice and simple.

Greets tre3sori

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BeBH65
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by BeBH65 » Tue Aug 13, 2019 2:26 am

The two previous posts are excellent.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

buylowbuyhigh
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by buylowbuyhigh » Tue Aug 13, 2019 2:50 am

The best ETFs seem to be listed above. If you are going with an accumulating stock ETF, the same logic probably applies for an accumulating bond ETF.

You could also check if there are local traditional bond funds available (from Lithuanian banks etc) that would be competitive with the ETFs in terms of cost and content (unlikely).

The third alternative that seems rational for EUR investors is to use savings accounts as a substitute for bonds. If you can get a positive interest from some € bank account and stay within deposit insurance limits, it could be at least as good a choice as a bond ETF/fund, at least for now.

For example the iShares € Aggregate Bond UCITS ETF (IEAG) has YTM (expected return if no changes in yield) of only 0.05%, BEFORE the 0.25% ER :annoyed After hedging other bonds to EUR these numbers are close to what one should expect from a global bond ETF/fund with similar credit risk. The interest rates and yields for EUR investors are really that low that most safe bond investments seem to yield less than the ER of the product.

Someone already holding bonds for years might not want to change because of unrealized taxes on capital gains, and the cash has no massive advantage in expected return. Just keep in mind that most advice here on bonds is for an USD investor, and we EUR investors have a different situation since bond yields in EUR have reached zero, which is (still?) a lower limit for cash. Personally I only have stocks (index fund) and cash (separate savings account) here in Finland.

DJN
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by DJN » Tue Aug 13, 2019 3:24 am

Hi,
I tried to put together a short paper on choosing a bond fund for non-US: https://www.bogleheads.org/wiki/Bond_ba ... _investors, it is worth a look.

Personally from an EU investor point of view, I would use a global aggregate (The Bloomberg Barclays Global Aggregate Bond Index) + some others, for example some proportion of:
- AGGH = global aggregate (The Bloomberg Barclays Global Aggregate Bond Index)
- SGLU = global govt (FTSE world government bond index WGBI)
- VETA = Euro gov
- VECA = Euro corp
- IBCI = inflation linked
- ITPE = TIPS

Mostly in global aggregate and world govt in the first instance and as you get more cash add some more variety. The additional funds are smaller amounts pretty much following the Vanguard target fund approach. For example if you are in the UK you might substitute Gilts for VETA.
DJN
Yah shure

silverex
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by silverex » Tue Aug 13, 2019 4:18 am

These are all excellent answers. Now that Vanguard has started of offer more accumulating ETFs, it's possible to build Boglehead portfolios using Vanguard funds in Lithuania as well.

By the way, this is the Vanguard paper on bonds and hedging for euro area investors: https://www.vanguardfrance.fr/documents ... -tlisg.pdf

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Vision
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by Vision » Tue Aug 13, 2019 4:28 am

glorat wrote:
Mon Aug 12, 2019 8:09 pm
Relating to a post I made at viewtopic.php?t=281432#p4576757

I see 4 viable bond index strategies one can take
1) Global Aggregate Bond (AGGG variants)
Barclays global index that includes govts and corporates from AAA to BBB
2) Global Govt Bond (IGLO variants)
Like 1) but without the corporates - Governments only
3) Global AAA-AA (IAAA variants)
Like 2) but only high grade bonds
4) Local only bonds
Which of those bonds you mentioned are hedged in EUR?

If you want to get the expert recommendation, go with what Vanguard recommends, which is the Global Aggregate Bond flavour, hedged to EUR. Hence AGGH.
Might as well go with that then. Can others confirm it to be a solid choice?

ALSO - very important, I want an ACCUMULATING bond ETF. Is AGGH accumulating or distributing?
tre3sori wrote:
Tue Aug 13, 2019 2:04 am
Hi vision,
if available to you, take a look at the distributing or accumulating funds that track the
Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index Hedged:

Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Distributing, TER 0.10%
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating, TER 0.10%

Together with either

Vanguard FTSE All-World UCITS ETF (USD) Distributing, TER 0.25%
Vanguard FTSE All-World UCITS ETF (USD) Accumulating, TER 0.25%

this will give you a 80/20 Vanguard portfolio with TER 0.22%.
Not the cheapest possible but nice and simple.

Greets tre3sori
Thanks, what ticker is for the EUR based accumulating fund?

And what do you mean "together with either"? I prefer to have only two ETFs: stock and bond. What options do I have?
Did you meant to take
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating, TER 0.10% in 50% of bond portion and
Vanguard FTSE All-World UCITS ETF (USD) Accumulating, TER 0.25% in other 50% of bond portion?

Why not just take EUR hedged bond fund for 100%?

michoco911
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by michoco911 » Tue Aug 13, 2019 8:21 am

Any reason why nobody recommended CBU0 (iShares Treasury Bonds7-10Y ETF) Ireland domicile?
Don’t you think US treasury bonds can be a good and safe option?
Would appreciate your comments/advise.
30% VWRD 30% VUSD 40% AGGG until further notice

tre3sori
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by tre3sori » Tue Aug 13, 2019 8:55 am

tre3sori wrote:
Tue Aug 13, 2019 2:04 am
Hi vision,
if available to you, take a look at the distributing or accumulating funds that track the
Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index Hedged:

Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Distributing, TER 0.10%
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating, TER 0.10%

Together with either

Vanguard FTSE All-World UCITS ETF (USD) Distributing, TER 0.25%
Vanguard FTSE All-World UCITS ETF (USD) Accumulating, TER 0.25%

this will give you a 80/20 Vanguard portfolio with TER 0.22%.
Not the cheapest possible but nice and simple.

Greets tre3sori
Thanks, what ticker is for the EUR based accumulating fund?

And what do you mean "together with either"? I prefer to have only two ETFs: stock and bond. What options do I have?
Did you meant to take
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating, TER 0.10% in 50% of bond portion and
Vanguard FTSE All-World UCITS ETF (USD) Accumulating, TER 0.25% in other 50% of bond portion?

Why not just take EUR hedged bond fund for 100%?
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Distributing, TER 0.10%
ISIN: IE00BG47KB92
ticker: VAGE

Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating, TER 0.10%
ISIN: IE00BG47KH54
ticker: VAGF

These are pretty new products. The tickers are for Deutsche Börse. I don't know if the funds are already available in other countries.

Yes, I meant you to consider

80% Vanguard FTSE All-World UCITS ETF (USD) Accumulating
ISIN: IE00BK5BQT80
ticker: VWRA

20% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating
ISIN: IE00BG47KH54
ticker: VAGF

for the whole portfolio of course, not for the bond portion :happy
Sorry for expanding the answer beyond your question.

ignition
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by ignition » Tue Aug 13, 2019 9:03 am

michoco911 wrote:
Tue Aug 13, 2019 8:21 am
Any reason why nobody recommended CBU0 (iShares Treasury Bonds7-10Y ETF) Ireland domicile?
Don’t you think US treasury bonds can be a good and safe option?
Would appreciate your comments/advise.
Because they aren't hedged and you'll have currency risk.

michoco911
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by michoco911 » Tue Aug 13, 2019 9:30 am

Because they aren't hedged and you'll have currency risk.
Yes but in my case i am not european and not american and my currency is USD so which would be a better option for my case?
30% VWRD 30% VUSD 40% AGGG until further notice

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BeBH65
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by BeBH65 » Tue Aug 13, 2019 9:33 am

michoco911 wrote:
Tue Aug 13, 2019 9:30 am
Because they aren't hedged and you'll have currency risk.
Yes but in my case i am not european and not american and my currency is USD so which would be a better option for my case?
Then you could look at the recommendation that are made on the forum for US investors.
Vanguard BND is often mentioned.

Make sure to check the tax treatment: tax-treaties between your country and the US as well as estate tax and alike.
Maybe you can open a new thread so you can get responses focussed on your situation.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

michoco911
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by michoco911 » Tue Aug 13, 2019 9:50 am

Then you could look at the recommendation that are made on the forum for US investors.
Vanguard BND is often mentioned.

Make sure to check the tax treatment: tax-treaties between your country and the US as well as estate tax and alike.
Maybe you can open a new thread so you can get responses focussed on your situation.
Will open a separate thread thanks.
US investors approach wouldn't help due to estate tax above 60K and since i am an NRA without tax treaties with US.
30% VWRD 30% VUSD 40% AGGG until further notice

ignition
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by ignition » Tue Aug 13, 2019 10:02 am

michoco911 wrote:
Tue Aug 13, 2019 9:30 am
Because they aren't hedged and you'll have currency risk.
Yes but in my case i am not european and not american and my currency is USD so which would be a better option for my case?
Maybe iShares Global Aggregate Bond UCITS ETF USD Hedged (Acc)|AGGU?

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Vision
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by Vision » Tue Aug 13, 2019 10:47 am

80% Vanguard FTSE All-World UCITS ETF (USD) Accumulating
ISIN: IE00BK5BQT80
ticker: VWRA

20% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating
ISIN: IE00BG47KH54
ticker: VAGF

for the whole portfolio of course, not for the bond portion :happy
Sorry for expanding the answer beyond your question.
This seems solid. So if I'm 80% VWRA and only 10% of VWRA is EUR, then I'm +20% EUR from VAGF, so 30% EUR, 70% USD and it will even out with time.

And since both are accumulating I don't have to pay tax from each dividend, only when I cash out.

Combined with annual rebalancing once a year this should be a good long term option I guess?

tre3sori
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Re: 80% VWRA / 20% bond index - which bond index to choose?

Post by tre3sori » Wed Aug 14, 2019 3:04 am

Vision wrote:
Tue Aug 13, 2019 10:47 am
80% Vanguard FTSE All-World UCITS ETF (USD) Accumulating
ISIN: IE00BK5BQT80
ticker: VWRA

20% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating
ISIN: IE00BG47KH54
ticker: VAGF

for the whole portfolio of course, not for the bond portion :happy
Sorry for expanding the answer beyond your question.
This seems solid. So if I'm 80% VWRA and only 10% of VWRA is EUR, then I'm +20% EUR from VAGF, so 30% EUR, 70% USD and it will even out with time.

And since both are accumulating I don't have to pay tax from each dividend, only when I cash out.

Combined with annual rebalancing once a year this should be a good long term option I guess?
I would say so. Make sure to order with a decent limit since VAGF is not very liquid yet.

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