Vgt Target 2025: 44% of Stk = Foreign?
Vgt Target 2025: 44% of Stk = Foreign?
Vanguard Target 2025 Fund (VTTVX) has 22% of it's money in foreign stock, and 32% in US stock - see link, top left side:
https://www.morningstar.com/funds/xnas/vttvx/portfolio
so, of all stock, foreign stock represents over 41% of it!
In Bill Bernstien's The Intelligent Asset Allocator (book), his low-mid risk portfolio is 60/40 stock/bond, with 12% of the portfolio foreign stock.
I guess I'm just surprised at the high weighting of foreign stock - especially considering this is for someone who is expected to retire in 2 years?
Is this a new norm that I missed?
Although Foreign adds diversification, it seems like it always follows US very closely, and usually doesn't do as well (the last few months being one exception). Is there a tool where I can look at the results of back-testing different %foreign allocations?
Thank You
https://www.morningstar.com/funds/xnas/vttvx/portfolio
so, of all stock, foreign stock represents over 41% of it!
In Bill Bernstien's The Intelligent Asset Allocator (book), his low-mid risk portfolio is 60/40 stock/bond, with 12% of the portfolio foreign stock.
I guess I'm just surprised at the high weighting of foreign stock - especially considering this is for someone who is expected to retire in 2 years?
Is this a new norm that I missed?
Although Foreign adds diversification, it seems like it always follows US very closely, and usually doesn't do as well (the last few months being one exception). Is there a tool where I can look at the results of back-testing different %foreign allocations?
Thank You
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Re: Vgt Target 2025: 44% of Stk = Foreign?
It is proportional to world market capitalization. More than that or less than that would be a tilted equity portfolio. Therefore, I feel it is totally appropriate.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
All of the Target Date Funds and LifeStrategy Funds hold market weight at approximately 60% US and 40% International which is exactly what you are seeing.
If you think you know the future then you can choose other investments, be less globally diversified and take more risk.
Cheers
If you think you know the future then you can choose other investments, be less globally diversified and take more risk.
Cheers
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Re: Vgt Target 2025: 44% of Stk = Foreign?
OP, here is a Bogleheads wiki article about the history of the Vanguard Target Retirement Funds:
https://www.bogleheads.org/wiki/Vanguar ... ds#History
In 2015, Vanguard increased the international stock allocation from 30% to 40% of equity exposure.
For a while, this still resulted in a slight home bias compared to world stock market capitalization, but now it just about matches world stock market capitalization.
My personal preference is a small home bias, but in my opinion, this is really not a big deal one way or another. Your overall stock/bond mix matters a whole lot more, and even more important than that - by far - is your savings rate.
https://www.bogleheads.org/wiki/Vanguar ... ds#History
In 2015, Vanguard increased the international stock allocation from 30% to 40% of equity exposure.
For a while, this still resulted in a slight home bias compared to world stock market capitalization, but now it just about matches world stock market capitalization.
My personal preference is a small home bias, but in my opinion, this is really not a big deal one way or another. Your overall stock/bond mix matters a whole lot more, and even more important than that - by far - is your savings rate.
Re: Vgt Target 2025: 44% of Stk = Foreign?
Correct, market weighting is the default. Anything else you have to explain through special knowledge of the future performance of stocks, which no one has.Triple digit golfer wrote: ↑Thu Jan 26, 2023 8:39 pm It is proportional to world market capitalization. More than that or less than that would be a tilted equity portfolio. Therefore, I feel it is totally appropriate.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
If you know what the "correct" foreign allocation percentage is, you probably shouldn't be using target date funds.
60/40 is a fine default.
60/40 is a fine default.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
For comparison, Fidelity’s Freedom Index 2025 has 41% international stock in its allocation to equity.
Re: Vgt Target 2025: 44% of Stk = Foreign?
I think you know the answer without the tool - 0% ex-US has been best for returns. Not for "diversification", but there aren't too many businesses out there that accept diversification as payment... If you truly want to diversify, my advice would be to go with a different asset class such as direct real estate.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
Here is what that actually looks like (this is US minus ex-US, five-year rolling returns):it seems like it always follows US very closely, and usually doesn't do as well
So in fact, very rarely does ex-US "follow US very closely", and sometimes it does better, and sometimes it does worse.
We, of course, are looking back at a period where US did do better. So, some people here have come to the conclusion US stocks predictably do better. There is a lot that is odd about that conclusion, including that it implies US stocks predictably do better and yet global stock investors haven't figured that out. And some would say it is classic recency bias and performance chasing. But some people here implicitly believe they have figured something out that the rest of stock investors have missed.
Entities like Vanguard instead basically reason that the recent US overperformance is observably mostly a combination of relative valuation increases and a strengthening USD. And we have seen both those things in the past and eventually they have turned around and gone the other way instead. Meaning to date, such effects can last a long time, but not forever.
But, again some people here implicitly believe that this time is different, that this time the recent relative increases in valuations and strengthening USD will continue on and on and on and never stop, let alone reverse.
Personally, I don't know what will happen next. But I am not willing to bet that this time is different and that finally these trends will be sustainable forever.
Re: Vgt Target 2025: 44% of Stk = Foreign?
The US outperformed very significantly during the period in the graph, so I'm not sure what the point is. Sure, it underperformed some of the time, but it outperformed by much more than it underperformed over time.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
I thought it was pretty clear. I was responding to these claims:
Those claims are observably false.it seems like it always follows US very closely, and usually doesn't do as well
But another observation is which has "outperformed" on average has depended on when you make that calculation, and specifically on what has happened most recently.
Looking at this information, you could assume whatever the latest long-term averages are currently will now remain the average returns in the next long period, and indeed forever.
Historically, that approach would have led to you being repeatedly wrong, over and over, whenever the next long period was very different from the long-term averages as of the beginning of that period.
Or you could simply embrace the fundamental uncertainty of the situation and recognize it isn't really possible to predict in such detail what is going to happen in the next long period.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
I can't believe Vanguard didn't call Bill to ask how they should be managing their Target Retirement funds.LISD wrote: ↑Thu Jan 26, 2023 8:31 pm Vanguard Target 2025 Fund (VTTVX) has 22% of it's money in foreign stock, and 32% in US stock - see link, top left side:
https://www.morningstar.com/funds/xnas/vttvx/portfolio
so, of all stock, foreign stock represents over 41% of it!
In Bill Bernstien's The Intelligent Asset Allocator (book), his low-mid risk portfolio is 60/40 stock/bond, with 12% of the portfolio foreign stock.
I guess I'm just surprised at the high weighting of foreign stock - especially considering this is for someone who is expected to retire in 2 years?
Is this a new norm that I missed?
Although Foreign adds diversification, it seems like it always follows US very closely, and usually doesn't do as well (the last few months being one exception). Is there a tool where I can look at the results of back-testing different %foreign allocations?
Thank You
If you care enough about what's under the hood of a TR fund to post on Bogleheads about it, you shouldn't be in a TR fund. Heck, if you read that book and understood the math you shouldn't be in a TR fund.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
I'm sorry, but this ignores the effect of currency fluctuations. Like everything else about US/international this is hotly debated. I will only argue my own side.z3r0c00l wrote: ↑Thu Jan 26, 2023 8:48 pmCorrect, market weighting is the default. Anything else you have to explain through special knowledge of the future performance of stocks, which no one has.Triple digit golfer wrote: ↑Thu Jan 26, 2023 8:39 pm It is proportional to world market capitalization. More than that or less than that would be a tilted equity portfolio. Therefore, I feel it is totally appropriate.
Usually we are not concerned with raw return but with risk-adjusted return (with debate on how to measure this).
From the point of view of, say, a German investor buying stock priced in euros, there is some amount of uncertainty in the price of the stock in euros. You can measure this uncertainty how you like, but it represents a risk. Risk in itself is bad. For the same return, we would rather have less risk.
From the point of view of a US investor paying dollars for the stock, there are two layers of uncertainty. They don't know what the stock will be in euros, and on top of that they don't know how many dollars they will need to pay for a euro. So, however you measure it, the uncertainty or risk of the German stock is not the same for the German and US investor. Because of the "law of one price," long-term we expect the effect of currency fluctuations to average out, so long-term they will experience the same return. But the US investor will experience more uncertainty or risk than the German investor.
The German stock is riskier for the US investor than it is for the German investor.
This has nothing to do with the relative coolness of the two countries, because it is exactly the same the other way around. A US stock, the same stock, is riskier for the German investor than for the US investor.
The idea that ex-US stocks are riskier than US stocks for a US investor is almost a truism, and you will find it state explicitly in the prospectus of... well, any fund I've ever actually looked at. Vanguard also illustrates this by putting VTSAX, Total [US] stock, into risk category 4, but VTIAX, Total International Stock, into risk category 5.
The difference in risk isn't huge. If someone wants to claim it's negligible, I'll listen. But I can't accept any claim that it just isn't there.
There's a theorem that says that under a pack of assumptions the market portfolio, or the cap-weighted replica of the market portfolio, has the highest return-for-risk of any other portfolio made from the same stocks. However, one of the assumptions of that theorem is frictionless trading within a single market. There isn't any single "global stock market," there are eighteen with market caps over $1 trillion, and because of currency fluctuations, trading across them isn't frictionless.
So the statement that cap-weighting should be the default isn't true, and there is a justification other than flag-waving why investors rationally should give preference to stocks denominated in their home currency.
I don't know if Vanguard's choice of making 40% of stocks international is the result of careful research, or just spitballing in a meeting room. It went from 20% to 30% to 40%. But I suspect that "40% rather than cap-weighted" is defensible. It's interesting that so far Vanguard hasn't replaced separate holdings of Total [US] Stock and Total International with a single holding of Total World. It wouldn't surprise me if they eventually did, and it wouldn't surprise me if they didn't.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
nisiprius wrote: ↑Fri Jan 27, 2023 11:40 amI'm sorry, but this ignores the effect of currency fluctuations. Like everything else about US/international this is hotly debated. I will only argue my own side.z3r0c00l wrote: ↑Thu Jan 26, 2023 8:48 pmCorrect, market weighting is the default. Anything else you have to explain through special knowledge of the future performance of stocks, which no one has.Triple digit golfer wrote: ↑Thu Jan 26, 2023 8:39 pm It is proportional to world market capitalization. More than that or less than that would be a tilted equity portfolio. Therefore, I feel it is totally appropriate.
Usually we are not concerned with raw return but with risk-adjusted return (with debate on how to measure this).
From the point of view of, say, a German investor buying stock priced in euros, there is some amount of uncertainty in the price of the stock in euros. You can measure this uncertainty how you like, but it represents a risk. Risk in itself is bad. For the same return, we would rather have less risk.
From the point of view of a US investor paying dollars for the stock, there are two layers of uncertainty. They don't know what the stock will be in euros, and on top of that they don't know how many dollars they will need to pay for a euro. So, however you measure it, the uncertainty or risk of the German stock is not the same for the German and US investor. Because of the "law of one price," long-term we expect the effect of currency fluctuations to average out, so long-term they will experience the same return. But the US investor will experience more uncertainty or risk than the German investor.
The German stock is riskier for the US investor than it is for the German investor.
This has nothing to do with the relative coolness of the two countries, because it is exactly the same the other way around. A US stock, the same stock, is riskier for the German investor than for the US investor.
The idea that ex-US stocks are riskier than US stocks for a US investor is almost a truism, and you will find it state explicitly in the prospectus of... well, any fund I've ever actually looked at. Vanguard also illustrates this by putting VTSAX, Total [US] stock, into risk category 4, but VTIAX, Total International Stock, into risk category 5.
The difference in risk isn't huge. If someone wants to claim it's negligible, I'll listen. But I can't accept any claim that it just isn't there.
There's a theorem that says that under a pack of assumptions the market portfolio, or the cap-weighted replica of the market portfolio, has the highest return-for-risk of any other portfolio made from the same stocks. However, one of the assumptions of that theorem is frictionless trading within a single market. There isn't any single "global stock market," there are eighteen with market caps over $1 trillion, and because of currency fluctuations, trading across them isn't frictionless.
So the statement that cap-weighting should be the default isn't true, and there is a justification other than flag-waving why investors rationally should give preference to stocks denominated in their home currency.
I don't know if Vanguard's choice of making 40% of stocks international is the result of careful research, or just spitballing in a meeting room. It went from 20% to 30% to 40%. But I suspect that "40% rather than cap-weighted" is defensible. It's interesting that so far Vanguard hasn't replaced separate holdings of Total [US] Stock and Total International with a single holding of Total World. It wouldn't surprise me if they eventually did, and it wouldn't surprise me if they didn't.
Vanguard has a Total World Stock fund that is cap weighted. If you want to keep a simple portfolio but tilt it more to US and less bonds, you can simply add VTSAX or VTI to the Target Date Fund to get the mix you want or just manage your own Boglehead 3 fund portfolio.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
Yeah, all this is why I personally set our portfolio at 60 US/40 ex-US, back at a time when that was mildly overweighting US. Vanguard had a framework, which I still basically believe in, which suggested what you are basically doing is trading off idiosyncratic country risk versus currency risk, both of which are usually assumed to be uncompensated forms of risk. And as a general proposition, SOME amount of home-currency-zone bias made sense (not just for US investors, but other investors as well). But typically only a modest amount as too much would up your idiosyncratic country risk more than it was reducing your currency risk.nisiprius wrote: ↑Fri Jan 27, 2023 11:40 amI'm sorry, but this ignores the effect of currency fluctuations. Like everything else about US/international this is hotly debated. I will only argue my own side.z3r0c00l wrote: ↑Thu Jan 26, 2023 8:48 pmCorrect, market weighting is the default. Anything else you have to explain through special knowledge of the future performance of stocks, which no one has.Triple digit golfer wrote: ↑Thu Jan 26, 2023 8:39 pm It is proportional to world market capitalization. More than that or less than that would be a tilted equity portfolio. Therefore, I feel it is totally appropriate.
Usually we are not concerned with raw return but with risk-adjusted return (with debate on how to measure this).
From the point of view of, say, a German investor buying stock priced in euros, there is some amount of uncertainty in the price of the stock in euros. You can measure this uncertainty how you like, but it represents a risk. Risk in itself is bad. For the same return, we would rather have less risk.
From the point of view of a US investor paying dollars for the stock, there are two layers of uncertainty. They don't know what the stock will be in euros, and on top of that they don't know how many dollars they will need to pay for a euro. So, however you measure it, the uncertainty or risk of the German stock is not the same for the German and US investor. Because of the "law of one price," long-term we expect the effect of currency fluctuations to average out, so long-term they will experience the same return. But the US investor will experience more uncertainty or risk than the German investor.
The German stock is riskier for the US investor than it is for the German investor.
This has nothing to do with the relative coolness of the two countries, because it is exactly the same the other way around. A US stock, the same stock, is riskier for the German investor than for the US investor.
The idea that ex-US stocks are riskier than US stocks for a US investor is almost a truism, and you will find it state explicitly in the prospectus of... well, any fund I've ever actually looked at. Vanguard also illustrates this by putting VTSAX, Total [US] stock, into risk category 4, but VTIAX, Total International Stock, into risk category 5.
The difference in risk isn't huge. If someone wants to claim it's negligible, I'll listen. But I can't accept any claim that it just isn't there.
There's a theorem that says that under a pack of assumptions the market portfolio, or the cap-weighted replica of the market portfolio, has the highest return-for-risk of any other portfolio made from the same stocks. However, one of the assumptions of that theorem is frictionless trading within a single market. There isn't any single "global stock market," there are eighteen with market caps over $1 trillion, and because of currency fluctuations, trading across them isn't frictionless.
So the statement that cap-weighting should be the default isn't true, and there is a justification other than flag-waving why investors rationally should give preference to stocks denominated in their home currency.
I don't know if Vanguard's choice of making 40% of stocks international is the result of careful research, or just spitballing in a meeting room. It went from 20% to 30% to 40%. But I suspect that "40% rather than cap-weighted" is defensible. It's interesting that so far Vanguard hasn't replaced separate holdings of Total [US] Stock and Total International with a single holding of Total World. It wouldn't surprise me if they eventually did, and it wouldn't surprise me if they didn't.
I do think assets not in your home currency operate as a hedge against some forms of unexpected inflation in your home currency, which is a different topic entirely. Still, even if you think that is a plausible idea, you don't necessarily need to do it with stocks, or more precisely if you already have a decent allocation to stocks outside your home currency zone, you might think you have already done enough that way.
But anyway, yeah, a mild home country bias by US investors due to currency risk issues is not unreasonable. At least I hope not.
Now theoretically, I should really be upping my US percentage because I have pretty much lost my original home country bias. But, meh, too lazy for that.
Re: Vgt Target 2025: 44% of Stk = Foreign?
I specifically include currency in my diversification goals, holding international stocks helps protect me in the event of a weakening dollar. What you call risk is just another dimension of diversification for me. The dollar has been weakening lately and my international stock fund has done quite well as a result. Full disclosure, I plan to spend a non-zero amount of money in other countries during the rest of my life but that isn't the primary reason for my cosmopolitan investing. By spreading my investments out across currencies, I am neutral on which will do better and worse. Weakening dollar and inflation? Well I have I-bonds and international stocks. Strong dollar? Well I am buying international stocks 2x per month at a discount and will save money on vacations.nisiprius wrote: ↑Fri Jan 27, 2023 11:40 amI'm sorry, but this ignores the effect of currency fluctuations. Like everything else about US/international this is hotly debated. I will only argue my own side.z3r0c00l wrote: ↑Thu Jan 26, 2023 8:48 pmCorrect, market weighting is the default. Anything else you have to explain through special knowledge of the future performance of stocks, which no one has.Triple digit golfer wrote: ↑Thu Jan 26, 2023 8:39 pm It is proportional to world market capitalization. More than that or less than that would be a tilted equity portfolio. Therefore, I feel it is totally appropriate.
From the point of view of, say, a German investor buying stock priced in euros, there is some amount of uncertainty in the price of the stock in euros. You can measure this uncertainty how you like, but it represents a risk. Risk in itself is bad. For the same return, we would rather have less risk.
From the point of view of a US investor paying dollars for the stock, there are two layers of uncertainty. They don't know what the stock will be in euros, and on top of that they don't know how many dollars they will need to pay for a euro.
I have seen thoughts about why one should concentrate on one country, one sector, one stock... But none of them strike me as more compelling than the simple concept of owning the entire market and letting the market sort out how much each stock is worth. If you can't tell me which country will have the best stock returns this year or this decade, then I have no possible way to decide how much of each market to hold except what trillions of "smart" dollars, or euros or pounds, have decided during the trading day. This is literally one of the underlying concepts of this forum, not that I would argue that means it is true from popularity alone, but it is so peculiar when people think indexing should suddenly stop at the US border.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
OP here,
“It is proportional to Market Capitalization”
This makes sense. But when I looked at Wikipedia, the US actually represents 41% of the total world market capitalization. So, 59% Foreign, 41% US.
https://en.wikipedia.org/wiki/List_of_c ... talization
So, if Vanguard were going by that data, the target date funds would be 59% invested in foreign instead of 41%. Maybe, like “Silence Dogood”, Vanguard is home biased? The entire industry is home biased?
Then, I thought I’d look at what countries VTTVX actually invests in. Morningstar has that information easily available. They actually invest only in 51 countries (out of 100), and it’s not strictly by market capitalization (fortunately). For example, Saudia Arabia (#8) and Russia (#21) aren’t on the list. I will have to find other ways to invest in Saudi Arabia and Russia, and Venezuela!
Does anyone want to invest in Bermuda? Their market cap is only $220 Million. Their share of the world pie is .0002%.
But if I look at only the top 7, the US has 56% of that, meaning 44% foreign. So, BINGO, close enough. It IS capitalization weighted but they filter out countries they don’t want to invest in (a lot of which are very small markets anyway. And a lot of these small markets have a high level of corruption probably - and are also difficult to invest in I would think).
History of Vanguard Target Retirement Funds
Thanks for that link ”Silence Dogood” – very interesting data. I plotted the % US stock, and % foreign stock for Vgd Target Date Funds vs time. The results were very surprising. Crazy changes up to 2012. The total amount of stock in this fund increased from 35% to 53% in 5 years (with a target date always 2 years in the future). In that same time, the %Foreign increased from 0 to 22% where it is now (from 0, to 11, to 16, to 22).
I'd put that plot in this post, but I can't figure out how people do that. Crud.
I wonder how Vanguard would rationalize this: Foreign investing became more practical and efficient, so they decided to increase the weighting by using the Market Capitalization philosophy? Or maybe they would just say they just got smarter?
“It is proportional to Market Capitalization”
This makes sense. But when I looked at Wikipedia, the US actually represents 41% of the total world market capitalization. So, 59% Foreign, 41% US.
https://en.wikipedia.org/wiki/List_of_c ... talization
So, if Vanguard were going by that data, the target date funds would be 59% invested in foreign instead of 41%. Maybe, like “Silence Dogood”, Vanguard is home biased? The entire industry is home biased?
Then, I thought I’d look at what countries VTTVX actually invests in. Morningstar has that information easily available. They actually invest only in 51 countries (out of 100), and it’s not strictly by market capitalization (fortunately). For example, Saudia Arabia (#8) and Russia (#21) aren’t on the list. I will have to find other ways to invest in Saudi Arabia and Russia, and Venezuela!
Does anyone want to invest in Bermuda? Their market cap is only $220 Million. Their share of the world pie is .0002%.
But if I look at only the top 7, the US has 56% of that, meaning 44% foreign. So, BINGO, close enough. It IS capitalization weighted but they filter out countries they don’t want to invest in (a lot of which are very small markets anyway. And a lot of these small markets have a high level of corruption probably - and are also difficult to invest in I would think).
History of Vanguard Target Retirement Funds
Thanks for that link ”Silence Dogood” – very interesting data. I plotted the % US stock, and % foreign stock for Vgd Target Date Funds vs time. The results were very surprising. Crazy changes up to 2012. The total amount of stock in this fund increased from 35% to 53% in 5 years (with a target date always 2 years in the future). In that same time, the %Foreign increased from 0 to 22% where it is now (from 0, to 11, to 16, to 22).
I'd put that plot in this post, but I can't figure out how people do that. Crud.
I wonder how Vanguard would rationalize this: Foreign investing became more practical and efficient, so they decided to increase the weighting by using the Market Capitalization philosophy? Or maybe they would just say they just got smarter?
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Re: Vgt Target 2025: 44% of Stk = Foreign?
Vanguard’s target date funds are probably not the right choice for you. Alternatively, you can hold a US stock fund in conjunction with a TDF (yes, it breaks with the goal of a hands-off, all-in-one fund). I do that in my workplace accounts, where I use a global stock allocated TDF as an anchor and then hold other funds to achieve my desired (somewhat US-tilted) allocation.
I also don’t think a Wikipedia article covers the topic in adequate depth to draw sound conclusions about whether a fund’s global allocation is correct.
I also don’t think a Wikipedia article covers the topic in adequate depth to draw sound conclusions about whether a fund’s global allocation is correct.
Re: Vgt Target 2025: 44% of Stk = Foreign?
That is incorrect. Recently the major all-country all cap indices are 59% US and 41% ex-US.LISD wrote: ↑Fri Jan 27, 2023 3:09 pm OP here,
“It is proportional to Market Capitalization”
This makes sense. But when I looked at Wikipedia, the US actually represents 41% of the total world market capitalization. So, 59% Foreign, 41% US.
https://en.wikipedia.org/wiki/List_of_c ... talization
So, if Vanguard were going by that data, the target date funds would be 59% invested in foreign instead of 41%. Maybe, like “Silence Dogood”, Vanguard is home biased? The entire industry is home biased?
Here's a link to the by-country breakdown for the FTSE Global all-cap index.
Page 3 gives the country breakdowns and US is 58.98% as of Dec 31, 2022.
http://www.ftse.com/Analytics/FactSheet ... me=GEISLMS
Market cap is also more efficient for indexing. If US outperforms or vice-versa, the portfolio weighting shifts automatically due to pricing changes and the managers are not having to buy and sell to force the fund to adhere to a fixed percentage between US and ex-US.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
Imo Vanguard has gone off the rails with this and has been wrong for a long time. I sold all of my Target Retirement funds when they first started moving so heavily into international stocks. I have been right for a long time. Wonder if it will continue?
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Re: Vgt Target 2025: 44% of Stk = Foreign?
Of course they will continue. They haven’t gone off the rails and they aren’t some sort of outlier in the industry on this or with the way that individual investors setup their asset allocations with a handful of mutual funds or etfs.
Do as you wish but be careful about drinking your own Kool-Aid.
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Re: Vgt Target 2025: 44% of Stk = Foreign?
if it makes you feel any better the number could go down. Or up. It changes over time and the beauty is nothing has to be done about it (not even rebalancing!).
source: https://ritholtz.com/2018/02/global-assets-1900-2017/
source: https://ritholtz.com/2018/02/global-assets-1900-2017/
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Re: Vgt Target 2025: 44% of Stk = Foreign?
what will backtesting tell you? You want to know what the future returns will be, not the past returns. Yes, I know you're using it as a guide, but past performance is no guarantee of future results.LISD wrote: ↑Thu Jan 26, 2023 8:31 pm Although Foreign adds diversification, it seems like it always follows US very closely, and usually doesn't do as well (the last few months being one exception). Is there a tool where I can look at the results of back-testing different %foreign allocations?
Thank You
I also think it depends on the time frame you look at. Some will show returns over the past 30 years and US did much better than international but if you go back further (I think nisiprius has shown a copy of a page from a book) that the returns for US vs international was very close, something like 9.6% US vs 9.5% international (CAGR).
thing is, the returns come at different times. And some of the benefits of this diversification comes from reblancing (just as it does for small cap value), in the sense that you get to buy that which has gone down/is cheaper and sell that which has gone up/is more expensive. You then are buying the country(ies) that haven't done well and selling those that have. With an all in one fund you don't have to worry about it because it's done automatically.
last year is a good example total international only lost -16.10% whereas US lost -19.51%. VT went down -18.01% (source: https://www.portfoliovisualizer.com/bac ... ion3_3=100)
2017 was the same. total international only made 27.45% whereas US made 21.21%. VT went made 24.49% (source: https://www.portfoliovisualizer.com/bac ... ion3_3=100)
Sure it can go the other way too. Look at 2013 (US made twice what total international did; 33% vs 15% roughly (source: https://www.portfoliovisualizer.com/bac ... ion3_3=100). But still. These cycles can take time to play out. You have to be patient as an investor:
source: https://am.jpmorgan.com/us/en/asset-man ... e-markets/
Last edited by arcticpineapplecorp. on Fri Jan 27, 2023 7:51 pm, edited 1 time in total.
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- arcticpineapplecorp.
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- Joined: Tue Mar 06, 2012 8:22 pm
Re: Vgt Target 2025: 44% of Stk = Foreign?
sorry, one last thing. I haven't read the intelligent asset allocator in a long time (great book) but look at what Dr. Bernstein wrote (on page 2) even more recently (2014) in If You Can: How Millennials Can Get Rich Slowly (source: https://www.etf.com/docs/IfYouCan.pdf)
equal amounts. That's 33.3% in each. That means 33% "of the portfolio" (your words) in total international, not 12%.
And half of the equity (50%) in international. Not 41% like in total world stock index fund or a target date fund.
Sounds like the total global stock index fund (or target date fund) is even more conservative than Dr. Bernstein's recommendations and I don't see any problem with it. Especially because I don't know anything the global stock market hasn't already figured out.
(source: https://www.etf.com/docs/IfYouCan.pdf)
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |