Vanguard explains the increase in ex-us allocation

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michaeljmroger
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Vanguard explains the increase in ex-us allocation

Post by michaeljmroger » Thu Jan 10, 2019 7:35 pm

Tim Buckley and Greg Davis just gave the rationale for increasing their recommended allocation in international stocks: it's cheaper now. That's all.

It always made sense to them to diversify internationally to the current proportions, but it just wasn't worth the cost until recently.

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Re: Vanguard explains the increase in ex-us allocation

Post by lakja » Thu Jan 10, 2019 7:53 pm

It's actually an interesting question on asset allocation for the next ten years. The days of cheap, near zero interest rates are over and we're in a rising rate environment that will lead to P/E contraction.

Many leading analyst are basically giving their future 10-year guidance with over whelming consensus that US stocks will under perform relative to International and Emerging Markets. Some are even predicting US bonds will out perform US large cap equities over next ten years due to rising interest rates. This is mainly due to future EPS earnings growth decline and raising interest rates that will also result in P/E contraction.

From what I've found for the next 10-15 years, many analyst are projecting 3-5% US equities, 3-4% US Agg Bond, 6-8% Developed International, and 7-8% Emerging Markets. It'll be interesting to see how the next 10 years go wit
Last edited by lakja on Thu Jan 10, 2019 8:05 pm, edited 3 times in total.

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Re: Vanguard explains the increase in ex-us allocation

Post by bgf » Thu Jan 10, 2019 7:56 pm

increase from what to what?
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Re: Vanguard explains the increase in ex-us allocation

Post by lukestuckenhymer » Thu Jan 10, 2019 8:04 pm

bgf wrote:
Thu Jan 10, 2019 7:56 pm
increase from what to what?
It's been 60/40 US/Ex-US, but it's news to me that they're changing their recommendation. Did they say if they're making these changes in Target Retirement/Life Strategy allocations?

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Re: Vanguard explains the increase in ex-us allocation

Post by hoppy08520 » Thu Jan 10, 2019 8:05 pm

michaeljmroger wrote:
Thu Jan 10, 2019 7:35 pm
Tim Buckley and Greg Davis just gave the rationale for increasing their recommended allocation in international stocks: it's cheaper now. That's all.

It always made sense to them to diversify internationally to the current proportions, but it just wasn't worth the cost until recently.
Source?

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Re: Vanguard explains the increase in ex-us allocation

Post by lostdog » Thu Jan 10, 2019 8:13 pm

They gave the reasons why they increased international allocation in the PAST. It was mainly because of the lower costs to do it.
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Re: Vanguard explains the increase in ex-us allocation

Post by triceratop » Thu Jan 10, 2019 8:16 pm

lakja wrote:
Thu Jan 10, 2019 7:53 pm
It's actually an interesting question on asset allocation for the next ten years. The days of cheap, near zero interest rates are over and we're in a rising rate environment that will lead to P/E contraction.

Many leading analyst are basically giving their future 10-year guidance with over whelming consensus that US stocks will under perform relative to International and Emerging Markets. Some are even predicting US bonds will out perform US large cap equities over next ten years due to rising interest rates. This is mainly due to future EPS earnings growth decline and raising interest rates that will also result in P/E contraction.

From what I've found for the next 10-15 years, many analyst are projecting 3-5% US equities, 3-4% US Agg Bond, 6-8% Developed International, and 7-8% Emerging Markets. It'll be interesting to see how the next 10 years go wit
I took the "it's cheaper now" to be referring to implementation costs of investing abroad, not assessments of undervaluation.
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Re: Vanguard explains the increase in ex-us allocation

Post by michaeljmroger » Thu Jan 10, 2019 8:28 pm

hoppy08520 wrote:
Thu Jan 10, 2019 8:05 pm
michaeljmroger wrote:
Thu Jan 10, 2019 7:35 pm
Tim Buckley and Greg Davis just gave the rationale for increasing their recommended allocation in international stocks: it's cheaper now. That's all.

It always made sense to them to diversify internationally to the current proportions, but it just wasn't worth the cost until recently.
Source?
They just had an hour long webcast where they answered questions from the participants.

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Re: Vanguard explains the increase in ex-us allocation

Post by Austintatious » Thu Jan 10, 2019 8:53 pm

hoppy08520 wrote:
Thu Jan 10, 2019 8:05 pm
michaeljmroger wrote:
Thu Jan 10, 2019 7:35 pm
Tim Buckley and Greg Davis just gave the rationale for increasing their recommended allocation in international stocks: it's cheaper now. That's all.

It always made sense to them to diversify internationally to the current proportions, but it just wasn't worth the cost until recently.
Source?
The two participated in a live webcast presented at and by Vanguard this evening, something that Vanguard offers from time to time. Vanguard clients/customers were notified of the webcast some time back. I forgot to listen to it as I typically do but I'm guessing that's where they expressed the referenced opinions. I think Vanguard makes these videos available to anyone interested not too long after they are offered live.

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Re: Vanguard explains the increase in ex-us allocation

Post by columbia » Thu Jan 10, 2019 9:01 pm

I’d like to know THEIR personal allocation to international.

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Re: Vanguard explains the increase in ex-us allocation

Post by arcticpineapplecorp. » Thu Jan 10, 2019 9:13 pm

I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
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Re: Vanguard explains the increase in ex-us allocation

Post by abuss368 » Thu Jan 10, 2019 9:46 pm

arcticpineapplecorp. wrote:
Thu Jan 10, 2019 9:13 pm
I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
Thank you for clarifying. Reading this thread made me initially think they raised it from 40% to 50% or market weight.
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Re: Vanguard explains the increase in ex-us allocation

Post by 2pedals » Thu Jan 10, 2019 9:54 pm

The ER for the Fidelity ZERO International Index Fund is zero unlike the at Vanguard Total International Stock Index fund ER=0.11%. So with that logic even more % ex-us should go in the Fidelity ZEROs.

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Re: Vanguard explains the increase in ex-us allocation

Post by Northern Flicker » Thu Jan 10, 2019 9:58 pm

They are referring to transaction costs, which are not part of ER. (Transaction costs do also include admin costs in the form of soft dollar broker fees that are added in to commissions to move some admin costs from ER to transaction fees.)
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Re: Vanguard explains the increase in ex-us allocation

Post by malabargold » Fri Jan 11, 2019 12:39 am

But if you’ve been overweight US and tech the last
decade you are way ahead of ex-US,EM, and will remain
so for quite some time to come

These things all tend to wash out in the longer runs

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Re: Vanguard explains the increase in ex-us allocation

Post by SoAnyway » Fri Jan 11, 2019 1:18 am

columbia wrote:
Thu Jan 10, 2019 9:01 pm
I’d like to know THEIR personal allocation to international.
Agreed. I'd also be interested as to what a certain someone else on this board has to say. (see below)

As everyone here knows, there's oh-so-much "radio blah-blah" out there on this issue. It seems that the signal-to-noise ratio is approaching zero.... Vanguard does a decent job of trying to cut through it. One of my favorite posts on this board re. international allocation is this one. Snippet:
So there we have it:
Vanguard researchers believe no less than a 20% international stock allocation is reasonable.
Jack Bogle believes no more than a 20% international stock allocation is reasonable.

When 20% is the only percentage of stocks that these two expert sources agree on, I feel comfortable suggesting that 20% figure.
SoAnyway, when Mr. Larimore suggests an increase, I'll consider it. (Not saying I'll blindly follow, mind you. But I will consider it.) Until then, I've been very comfortable with my 20% allocation. The recent dips don't bother me at all, btw; every asset class has its day. Per my "radio blah-blah" link above, Mr. Larimore is both my "radio" and my "Freddie Mercury" on this one. Best wishes, OP.
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Re: Vanguard explains the increase in ex-us allocation

Post by JoMoney » Fri Jan 11, 2019 3:56 am

^ 20% would seem to be a happy middle-road between the 0% and 40% contenders
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Re: Vanguard explains the increase in ex-us allocation

Post by visualguy » Fri Jan 11, 2019 4:51 am

JoMoney wrote:
Fri Jan 11, 2019 3:56 am
^ 20% would seem to be a happy middle-road between the 0% and 40% contenders
It's middle ground, but I wouldn't call it "happy" because I can't imagine anyone being happy with this 20%, just not as unhappy as with 40%...

Anyway, I think that 20% is neither here nor there. It's enough to piss you off if the poor performance continues, but not enough to make you happy if a miracle happens and it starts providing good long-term performance.

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Re: Vanguard explains the increase in ex-us allocation

Post by Scooter57 » Fri Jan 11, 2019 9:32 am

Decades of investing in international have provided me with more tax loss harvesting opportunities than I care to remember.

I can't help wondering if Vanguard is recommending these funds because the execs benefit when they grow. Though the funds are supposedly "owned" by shareholders the execs are apparently paid based on secret formulas based on AUM that explain the huge push to grow the company perhaps beyond the size that would best suit it. We shareholders do not get to choose the execs or have input into policy, which to my mind does not make me feel like an owner.

Right now recession signals are flashing in Europe and fascism/distatorship increasing in other large international economies. Investing in international because Vanguard or anyone else is cutting fees seems misguided.

If US only is good enough for Bogle, its good enough for me. Ditto for what kinds of bonds to invest in.

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Re: Vanguard explains the increase in ex-us allocation

Post by visualguy » Fri Jan 11, 2019 10:01 am

Ex-US is mostly Europe and Japan. I don't hear Vanguard saying that they expect those to do well, or that China or India are going to suddenly have American-style economies and public markets, or anything like that.

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Re: Vanguard explains the increase in ex-us allocation

Post by hoppy08520 » Fri Jan 11, 2019 10:56 am

michaeljmroger wrote:
Thu Jan 10, 2019 8:28 pm
hoppy08520 wrote:
Thu Jan 10, 2019 8:05 pm
michaeljmroger wrote:
Thu Jan 10, 2019 7:35 pm
Tim Buckley and Greg Davis just gave the rationale for increasing their recommended allocation in international stocks: it's cheaper now. That's all.

It always made sense to them to diversify internationally to the current proportions, but it just wasn't worth the cost until recently.
Source?
They just had an hour long webcast where they answered questions from the participants.
Thanks for the clarification. The post gave me the impression that this was something new. In their Target Date and LifeStrategy all-in-one funds, Vanguard increased the international equity allocation to 60:40 (US:Intl) from 70:30 almost four years ago. They went from 80:20 to 70:30 back around 2011.

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Re: Vanguard explains the increase in ex-us allocation

Post by Beehave » Fri Jan 11, 2019 11:33 am

Scooter57 wrote:
Fri Jan 11, 2019 9:32 am
Decades of investing in international have provided me with more tax loss harvesting opportunities than I care to remember.

I can't help wondering if Vanguard is recommending these funds because the execs benefit when they grow. Though the funds are supposedly "owned" by shareholders the execs are apparently paid based on secret formulas based on AUM that explain the huge push to grow the company perhaps beyond the size that would best suit it. We shareholders do not get to choose the execs or have input into policy, which to my mind does not make me feel like an owner.

Right now recession signals are flashing in Europe and fascism/distatorship increasing in other large international economies. Investing in international because Vanguard or anyone else is cutting fees seems misguided.

If US only is good enough for Bogle, its good enough for me. Ditto for what kinds of bonds to invest in.
The top executive "pay based on AUM" information, if correct, is disturbing. I have long trusted Vanguard because of my experience with its non-commission-paid staff. For example, at a time of career change when I reviewed my circumstances with their annuity sales team, the Vanguard annuity salesperson advised me, based on my circumstances at the time, not to purchase an annuity. Now I have to wonder, if the top-level people are essentially working on commission, how long does it take from pressure from above to filter down to the fund managers and front-line personnel?

(Edited to that pressure might be on fund managers too)

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Re: Vanguard explains the increase in ex-us allocation

Post by GaryA505 » Fri Jan 11, 2019 12:04 pm

So, not to digress, but I was wondering which of the firms that offer target date funds have the lowest allocation to ex-US equities and ex-US bonds.

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Re: Vanguard explains the increase in ex-us allocation

Post by whodidntante » Fri Jan 11, 2019 12:57 pm

It's even cheaper if you go to Fidelity, and buy their ex-USA index fund with a ZERO ER.

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Re: Vanguard explains the increase in ex-us allocation

Post by Dandy » Fri Jan 11, 2019 1:38 pm

I'm not buying that the cost of investing internationally has dropped from basically forget it to now you should have 40%. The possible advantage of having 40% international surely would have offset all but outrageous expense levels. Not commenting on the merits just the rationale.

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Re: Vanguard explains the increase in ex-us allocation

Post by arcticpineapplecorp. » Fri Jan 11, 2019 9:34 pm

abuss368 wrote:
Thu Jan 10, 2019 9:46 pm
arcticpineapplecorp. wrote:
Thu Jan 10, 2019 9:13 pm
I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
Thank you for clarifying. Reading this thread made me initially think they raised it from 40% to 50% or market weight.
no, but one could speculate that if costs to invest internationally continue to drop, their weight could eventually increase to market capitalization in the all-in-one funds. Tim made no specific mention to this, however.
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Re: Vanguard explains the increase in ex-us allocation

Post by abuss368 » Fri Jan 11, 2019 10:20 pm

arcticpineapplecorp. wrote:
Fri Jan 11, 2019 9:34 pm
abuss368 wrote:
Thu Jan 10, 2019 9:46 pm
arcticpineapplecorp. wrote:
Thu Jan 10, 2019 9:13 pm
I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
Thank you for clarifying. Reading this thread made me initially think they raised it from 40% to 50% or market weight.
no, but one could speculate that if costs to invest internationally continue to drop, their weight could eventually increase to market capitalization in the all-in-one funds. Tim made no specific mention to this, however.
In my opinion it would not be surprising if eventually Vanguard went with a 50%/50% allocation on stocks and raised the international bond allocation.
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Re: Vanguard explains the increase in ex-us allocation

Post by fire4fun » Sat Jan 12, 2019 2:05 am

visualguy wrote:
Thu Jan 10, 2019 10:22 pm
lakja wrote:
Thu Jan 10, 2019 7:53 pm
Many leading analyst are basically giving their future 10-year guidance with over whelming consensus that US stocks will under perform relative to International and Emerging Markets. Some are even predicting US bonds will out perform US large cap equities over next ten years due to rising interest rates. This is mainly due to future EPS earnings growth decline and raising interest rates that will also result in P/E contraction.

From what I've found for the next 10-15 years, many analyst are projecting 3-5% US equities, 3-4% US Agg Bond, 6-8% Developed International, and 7-8% Emerging Markets. It'll be interesting to see how the next 10 years go wit
I've seen many projections of poor US performance for the next decade, but not any projections of good ex-US performance. Where did you see these 6%-8% numbers? Rising interest rates will hit ex-US, including EM as well. Moreover, Europe appears to be on the brink of recession, or at least very poor growth:

https://www.express.co.uk/news/world/10 ... production
All the more reason to buy Europe and Asia 8-)

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Re: Vanguard explains the increase in ex-us allocation

Post by khh » Sat Jan 12, 2019 2:48 am

arcticpineapplecorp. wrote:
Thu Jan 10, 2019 9:13 pm
I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
I would think some investors in those funds would be really put off by the change. Perhaps they wanted no more than 20% in international and that's why they bought the fund. I am not in those funds myself, but that's how I would feel. It seems like they're switching the rules in the middle of the game.

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Re: Vanguard explains the increase in ex-us allocation

Post by Dink2018 » Sat Jan 12, 2019 6:57 am

khh wrote:
Sat Jan 12, 2019 2:48 am
arcticpineapplecorp. wrote:
Thu Jan 10, 2019 9:13 pm
I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
I would think some investors in those funds would be really put off by the change. Perhaps they wanted no more than 20% in international and that's why they bought the fund. I am not in those funds myself, but that's how I would feel. It seems like they're switching the rules in the middle of the game.
I can see your point but the reason I'm in LifeStrategy is that I want someone else to make the decisions for me with regard to balancing and what's in the whole fund for decades to come. I don't want to be second guessing myself all the time what percentages I should have and if I'm on track with those percentages. Given what I've seen with my own button pushing, I'm the greatest threat to the portfolio.

Here I sit at 90% money market and the rest in 60/40 because its so hard for me to know which one I can just stick with and live with forever. Then again I'm only 6 months into learning about equities.

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Re: Vanguard explains the increase in ex-us allocation

Post by LadyGeek » Sat Jan 12, 2019 9:33 am

This is a "no politics" forum - for any country. I removed some off-topic posts and replies regarding political bias of news sources. The discussion was getting derailed.
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Re: Vanguard explains the increase in ex-us allocation

Post by samsdad » Sat Jan 12, 2019 9:58 am

khh wrote:
Sat Jan 12, 2019 2:48 am
arcticpineapplecorp. wrote:
Thu Jan 10, 2019 9:13 pm
I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
I would think some investors in those funds would be really put off by the change. Perhaps they wanted no more than 20% in international and that's why they bought the fund. I am not in those funds myself, but that's how I would feel. It seems like they're switching the rules in the middle of the game.
I’m biased against international; that said, I’d be upset too, even if they went the other way and reduced the international exposure. They should’ve opened another fund instead.

But I’m sure their ability to change the fund makeup is completely disclosed In the prospectus and perhaps there are some who chose the fund so that Vanguard would do all the thinking and tinkering for them.

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Re: Vanguard explains the increase in ex-us allocation

Post by Broken Man 1999 » Sat Jan 12, 2019 10:13 am

khh wrote:
Sat Jan 12, 2019 2:48 am
arcticpineapplecorp. wrote:
Thu Jan 10, 2019 9:13 pm
I can confirm Tim said this (I watched the interview as well). He was referencing how over time the international portion of funds (like target date, lifestrategy, etc) has moved from 20% to 30% and now 40%. This has coincided with the lowering of costs to invest internationally.
I would think some investors in those funds would be really put off by the change. Perhaps they wanted no more than 20% in international and that's why they bought the fund. I am not in those funds myself, but that's how I would feel. It seems like they're switching the rules in the middle of the game.
Definitely a risk if the investor wanted to stay at a particular % of one asset focus or the other. But, any multi-fund offering collection is always going to run the risk that changes could be made. And many changes have been made.

The only way to keep your AA where you want it to be is buy your desired AA via single focus funds/ETFs.

I bailed out of TRD funds when I had enough to get Admiral shares to cut my expenses. Keeping my desired AA where I wanted to be was just another plus.

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Re: Vanguard explains the increase in ex-us allocation

Post by DeadPoets » Sat Jan 12, 2019 10:43 am

Ex-US doesn’t interest me. Maybe I’ll pay a price for that, but I just don’t see enough there for me to allocate 30-40% of my equities that way. Cheaper doesn’t always mean better.

A lot of those countries have some have major hurdles to overcome politically, globally, etc.

Not saying US doesn’t either, but imo it’s much less of a problem.

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