Stock asset allocation for non-US investors

 looks at how an investor domiciled outside of the US might decide on their asset allocation within stocks.

Introduction
When deciding on their stock allocation, every investor needs to make a number of decisions:
 * What regional allocation will I adhere to?
 * Do I want global diversification?
 * Do I overweight one region?
 * Do I overweight my region and introduce a home country bias?
 * In addition, investors need to decide if they will focus on the mainstream Boglehead practices, or if they prefer one of the variations.
 * Do I introduce a tilt?
 * Do I overweight/underweight a portion of the stock market?

Worldwide market cap or overweighting a region or country
One of the Boglehead principles is to diversify. The principle mentions that rather than trying to pick the specific securities or sub-asset classes of the market that will outperform in the future, Bogleheads buy funds that are widely diversified, or even approximate the whole market.

Owning the whole worldwide stock market
Owning the whole worldwide stock market seems to implement the diversify principle the most closely. It would mean to own large cap, mid cap and small cap stocks of the developed and emerging markets, covering about 98% of the worldwide stock market.

Sometimes a simpler portfolio is warranted as, unfortunately, owning the whole worldwide stock market might require a complex and more expensive portfolio of multiple funds. Options include:
 * A focus on large cap and mid cap stocks of the developed markets only: covers about 75-80% of the worldwide stock market.
 * A focus on large cap and mid cap stocks of the developed and emerging markets: covers about 85%-90% of the worldwide stock market and might be achieved with one or two funds.

Home country bias
Home country bias is the overweight of your home country or region in your asset allocation. A simple reason for this is familiarity (and in many countries a lack of opportunity to invest elsewhere).

See: Home country bias from finiki, and Equity home bias puzzle from Wikipedia. An article in A Wealth of Common Sense discusses how the different regions of the world differ in terms of their market structure and composition and how the home country bias can impact the diversification, performance and risks of the portfolio.

Overweighting the US market
Many US based Bogleheads overweight the US stock market. Both John Bogle in Common Sense on Mutual Funds and Taylor Larimore in The Bogleheads' Guide to the Three-Fund Portfolio argue for overweighting US stocks in a US investor's asset allocation policy by limiting non-US stocks to a maximum 20% of the total equity allocation.

This might also be a strategy for the non-US investors that subscribes to the same reasoning.

Investing in the World blog series
Forum member Siamond posted an Investing in the World series on the Bogleheads blog Financial Page where he poses the question:


 * Part 1 studies a fairly extreme position of investing 100% in the world (global stocks and global bonds).


 * Part 2 explores the opposite position of exclusively investing with domestic assets. The article focuses on the historical returns from 16 developed countries, looking from the perspective of a local investor, and assuming a strong home country bias to begin with (that is, solely using domestic stocks and domestic bonds).


 * Part 3 seeks a middle ground and looks at more diversified portfolios mixing domestic and global investments in the various countries of the study. It looks at the mitigation mixing domestic and global can bring to the countries having fared the worst, but also consequences for countries having fared better.

The author believes that this study makes a convincing case to seek a fairly high exposure to global (or international) equities, while keeping a significant tilt towards domestic equities.

Vanguard studies
Vanguard has several studies related to strategic asset allocation and home bias:


 * In The global case for strategic asset allocation and an examination of home bias, the study concludes:


 * In The role of home bias in global asset allocation decisions the paper asks the question,


 * In Considerations for global equities: A European investor’s perspective, the paper concludes:


 * In Global equity investing: The benefits of diversification and sizing your allocation (2019), the study concludes:

Variations on Boglehead investing
Next to the mainstream Boglehead stock allocation there are a few often practiced variations on Bogleheads investing discussed on the forum. Within the US context several studies investigate the benefits and drawbacks of these variations. It is unclear if the conclusions that have been drawn for the US can be extrapolated to worldwide investing.
 * Adding and overweighting of REITs: Notable often discussed US-based portfolios that provide allocations to REITs include the David Swensen Lazy Portfolio and Rick Ferri's Core Four Portfolio.
 * Adding more asset classes to a portfolio: For example gold, commodities, and various sub-asset classes of bonds. The most discussed portfolios utilizing gold in portfolio construction include the Harry Browne Permanent Portfolio and the Golden Butterfly Portfolio.
 * Tilt to value and small cap: A much discussed portfolio that tilts to value and small cap stocks is the Bill Schultheis Coffeehouse Portfolio.
 * Slicing and dicing the market and overweighting some of the slices: Slice and dice portfolios include William Bernstein's "Coward's" portfolio and Frank Armstrong's "Ideal Index" portfolio.