A Question [about Vanguard's asset allocation recommendations]

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abuss368
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A Question [about Vanguard's asset allocation recommendations]

Post by abuss368 » Sun Sep 16, 2018 1:55 pm

Bogleheads -

Considering Vanguard's domestic and international allocations for stocks and bonds for a moment.

Stocks
If we step back and look at the history, Vanguard had recommended a 20% of equity allocation, followed by 30% of equities, and finally the present 40% of equities.

Bonds
Vanguard introduced Total International Bond Index and recommended a 20% of fixed income allocation. That was increased to 30% of fixed income.

At what point (if any) will Vanguard recommend for stocks a 50% U.S. and 50% International and for bonds 50% US Total Bond and 50% Total International? All the investor would have to do is simply figure out the overall asset allocation between stocks and bonds.

Now granted, Vanguard could recommend a simple Two Fund Portfolio of Total World and the new Global Bond, but if one considers the Target and Lifestrategy funds that would be a massive (and probably taxable event) to exchange followed by an increase in expense ratios for the four Total stock and bond funds. I am not so sure I could see that happening.

Food for thought but the trend appears to be in one direction only.

I am interested in thoughts and perspectives.
Last edited by abuss368 on Sun Sep 16, 2018 2:28 pm, edited 1 time in total.
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Re: A Question for the Boglehads

Post by livesoft » Sun Sep 16, 2018 2:10 pm

It's all idle speculation much like discussing who will win the NBA finals, the Superbowl, or even the Nobel Prize in Physiology or Medicine. What Vanguard does really should have no impact at all on one's life, so one should act accordingly.
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Re: A Question for the Bogleheads

Post by abuss368 » Sun Sep 16, 2018 2:18 pm

livesoft wrote:
Sun Sep 16, 2018 2:10 pm
It's all idle speculation much like discussing who will win the NBA finals, the Superbowl, or even the Nobel Prize in Physiology or Medicine. What Vanguard does really should have no impact at all on one's life, so one should act accordingly.
True. However, I would think that there could be many investors who would rely on Vanguard’s investment experts advice and research.
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Re: A Question for the Bogleheads

Post by Kalo » Sun Sep 16, 2018 4:16 pm

I agree it's interesting to watch what vanguard will do. It has had an impact on me in the past. Well their papers have, not so much what they do with funds. I bumped my international from 30% of equity to 40% about the time they were doing the same. I won't pay higher expenses for all-in-one funds, and I'm not interested in foreign bonds. But I like my international domestic equity split and Vanguard papers helped me get there.

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Re: A Question for the Bogleheads

Post by nedsaid » Sun Sep 16, 2018 4:31 pm

If you are a follower of Vanguard/Bogle methodology, you should care very much about what Vanguard thinks. It appears that Vanguard is disagreeing a bit with their founder. For example, Vanguard has upped their International allocation of stocks from 20% to 30% and now 40%. Bogle would recommend a maximum of 20% if any at all. Vanguard is recommending an International allocation to bonds of 30%, my guess is that Mr. Bogle would recommend zero. Bogle is probably not a fan of Vanguard launching ETFs, Alt funds, and Factor funds.

Vanguard is in competition with Fidelity and they will offer things that seemingly vary from their underlying philosophy. But pretty much, what the customer wants, the customer will get. In another thread, Vanguard has fired shots across the bow of Fidelity, is challenging DFA, and will likely go after AQR as well. Pretty much mission creep.
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Re: A Question for the Bogleheads

Post by abuss368 » Sun Sep 16, 2018 7:33 pm

nedsaid wrote:
Sun Sep 16, 2018 4:31 pm
If you are a follower of Vanguard/Bogle methodology, you should care very much about what Vanguard thinks. It appears that Vanguard is disagreeing a bit with their founder. For example, Vanguard has upped their International allocation of stocks from 20% to 30% and now 40%. Bogle would recommend a maximum of 20% if any at all. Vanguard is recommending an International allocation to bonds of 30%, my guess is that Mr. Bogle would recommend zero. Bogle is probably not a fan of Vanguard launching ETFs, Alt funds, and Factor funds.

Vanguard is in competition with Fidelity and they will offer things that seemingly vary from their underlying philosophy. But pretty much, what the customer wants, the customer will get. In another thread, Vanguard has fired shots across the bow of Fidelity, is challenging DFA, and will likely go after AQR as well. Pretty much mission creep.
Agreed.
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Re: A Question for the Bogleheads

Post by abuss368 » Sun Sep 16, 2018 7:33 pm

More thoughts are need from the Bogleheads!
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Re: A Question for the Bogleheads

Post by ndx » Mon Sep 17, 2018 11:07 am

I predict Vanguard's ultimate endgame will be recommending a global market cap weighted portfolio (like OP alluded to, something like VT and BNDW). This doesn't necessarily mean an even 50/50 split, however, the global stock market is currently pretty close to 50/50 US/int'l and I believe the same is true for global bond markets (I may be wrong about that). Maybe at some point they will transition the target date and lifestrategy funds from the four 'total US' and 'total international' funds to two 'total world' funds, but they don't necessarily need to do that unless it were to make sense from a cost perspective.

I'd imagine their reasoning behind shifting to global market weights would be a diversification argument, so as to not overweight one's portfolio to favor a single country, even if that country is the 'home team' and has historically outperformed. Also worth noting that Vanguard seems to be predicting that international stocks are more likely to outperform US stocks in the next ten years, primarily due to the current high valuations of US stocks relative to international.

Also (this is not so much a factual or logical argument as it is a 'feels to me like' observation), I think a large part of the increase in international exposure is simply due to the rapid growth of Vanguard and indexing in the US in general. When a firm like Vanguard gets to the point that they essentially own 5% of every public corporation in America (this isn't only Vanguard), it just seems to me like they are almost forced to start taking their money elsewhere.

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Re: A Question for the Bogleheads

Post by linenfort » Mon Sep 17, 2018 1:05 pm

I didn't understand the OP until I read Nedsaid's post. So
Vanguard had recommended a 20% of equity allocation
means they recommended that 20% of equities be international equities? Maybe you had that before and it got lost in subsequent edits.
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Re: A Question for the Bogleheads

Post by Kevin8696 » Mon Sep 17, 2018 1:50 pm

abuss368 wrote:
Sun Sep 16, 2018 7:33 pm
More thoughts are need from the Bogleheads!
Plain and simple. Follow Mr. Bogle's advice, and Occam's Razor. Buy a broad market stock index fund, buy a broad market bond index fund... and you own the haystack. Re-balance as you see fit. If 60/40 allocation floats your boat, buy the Vanguard Balanced Index Fund. K.I.S.S. and get on with life !!
Last edited by Kevin8696 on Tue Sep 18, 2018 12:01 pm, edited 1 time in total.

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Re: A Question [about Vanguard's asset allocation recommendations]

Post by abuss368 » Tue Sep 18, 2018 11:59 am

Good responses thus far!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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