Difference between revisions of "Simple non-US portfolios"

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m (Add sections to cover the new Vanguard LifeStrategy UCITS ETFs.)
m (Add a note on EUR hedging, small clarity changes.)
 
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The simple index portfolios illustrated here are a collection of portfolios that contain broad based representation from the major asset classes: local or regional bonds; local or regional equities; and global bonds and global equities. The choice of broad based funds is dictated by a decision to use a passive investing philosophy to keep costs to a minimum and to accept market returns, which helps keep things simple to manage these portfolios.
 
The simple index portfolios illustrated here are a collection of portfolios that contain broad based representation from the major asset classes: local or regional bonds; local or regional equities; and global bonds and global equities. The choice of broad based funds is dictated by a decision to use a passive investing philosophy to keep costs to a minimum and to accept market returns, which helps keep things simple to manage these portfolios.
  
Depending on the level of simplicity desired, one can build one of a:
+
Depending on the level of simplicity desired, investors can build one of a:
  
 
* One fund portfolio consisting of a single multi-asset fund.
 
* One fund portfolio consisting of a single multi-asset fund.
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{| class="wikitable"
 
{| class="wikitable"
|Vanguard LifeStrategy funds hold stocks and bonds in a fixed allocation, and can provide investors with an all-in-one single fund multi-asset portfolio. A handful of discrete allocations are available: 20% stocks and 80% bonds; 40% stocks and 60% bonds; 60% stocks and 40% bonds; and 80% stocks and 20% bonds.
+
|Vanguard LifeStrategy funds hold stocks and bonds in a fixed allocation, and can provide investors with an all-in-one single fund multi-asset portfolio. Vanguard's LifeStrategy ETF range<ref group="note" name="eurhedging">Vanguard LifeStrategy ETFs hedge their bond component to EUR. This may or not be desirable, depending on the local currency.</ref> offers a handful of discrete allocations: 20% stocks and 80% bonds; 40% stocks and 60% bonds; 60% stocks and 40% bonds; and 80% stocks and 20% bonds.
  
An investor could pair up options to create a different allocation, if desired. For example, investing half in the 60% stocks fund and half in the 80% stocks fund produces a 70% stocks and 30% bonds allocation.
+
If these static allocations do not match the desired asset allocation, an investor could pair up options to create a different allocation. For example, investing half in the 60% stocks fund and half in the 80% stocks fund produces a 70% stocks and 30% bonds allocation.
 
|}
 
|}
  
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|+ One fund accumulating portfolio
 
|+ One fund accumulating portfolio
 
|-
 
|-
! Asset class !! Investor !! ETF suggestions !! Amount
+
! Asset class !! Investor !! ETF suggestions<ref group="note" name="eurhedging" /> !! Amount
 
|-
 
|-
 
| Multi-asset || Any ||
 
| Multi-asset || Any ||
* V20A Vanguard LifeStrategy 20% Equity ETF Acc, IE00BMVB5K07
+
* V20A / VNGA20 - Vanguard LifeStrategy 20% Equity ETF Acc, IE00BMVB5K07
* V40A Vanguard LifeStrategy 40% Equity ETF Acc, IE00BMVB5M21
+
* V40A / VNGA40 - Vanguard LifeStrategy 40% Equity ETF Acc, IE00BMVB5M21
* V60A Vanguard LifeStrategy 60% Equity ETF Acc, IE00BMVB5P51
+
* V60A / VNGA60 - Vanguard LifeStrategy 60% Equity ETF Acc, IE00BMVB5P51
* V80A Vanguard LifeStrategy 80% Equity ETF Acc, IE00BMVB5R75
+
* V80A / VNGA80 - Vanguard LifeStrategy 80% Equity ETF Acc, IE00BMVB5R75
 
| Determined by AA
 
| Determined by AA
 
|}
 
|}
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|-
 
|-
 
| rowspan="2"| Fixed income || EU investor ||
 
| rowspan="2"| Fixed income || EU investor ||
* AGGH iShares Global Aggregate Bd ETF EUR Hedged, IE00BDBRDM35
+
* AGGH - iShares Global Aggregate Bd ETF EUR Hedged, IE00BDBRDM35
 
| rowspan="2"| Determined by AA  
 
| rowspan="2"| Determined by AA  
 
|-
 
|-
 
| Any ||
 
| Any ||
* IGLA iShares Global Govt Bond UCITS USD ETF Acc, IE00BYZ28V50
+
* IGLA - iShares Global Govt Bond UCITS USD ETF Acc, IE00BYZ28V50
* VAGU Vanguard Global Aggregate Bond UCITS ETF - USD Hedged,<ref group="note" name="hedging">Unless the local currency is pegged to USD, hedging to the USD may not be appropriate.</ref> IE00BG47KJ78
+
* VAGU - Vanguard Global Aggregate Bond UCITS ETF - USD Hedged,<ref group="note" name="hedging">Unless the local currency is pegged to USD, hedging to the USD may not be appropriate.</ref> IE00BG47KJ78
 
|-
 
|-
 
| Equities || Any ||
 
| Equities || Any ||
* IWDA/EUNL/SWDA iShares Core MSCI World ETF, IE00B4L5Y983
+
* IWDA / EUNL / SWDA - iShares Core MSCI World ETF, IE00B4L5Y983
* VWRP/VWRA/VWCE Vanguard FTSE All-World UCITS ETF, IE00BK5BQT80
+
* VWRP / VWRA / VWCE - Vanguard FTSE All-World UCITS ETF, IE00BK5BQT80
* SSAC/ISAC/IUSQ iShares MSCI ACWI UCITS ETF, IE00B6R52259
+
* SSAC / ISAC / IUSQ - iShares MSCI ACWI UCITS ETF, IE00B6R52259
| Determined by AA  
+
| Determined by AA
 
|}
 
|}
  
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|-
 
|-
 
| rowspan="2"| Fixed income || EU investor ||
 
| rowspan="2"| Fixed income || EU investor ||
* AGGH iShares Global Aggregate Bd ETF EUR Hedged, IE00BDBRDM35
+
* AGGH - iShares Global Aggregate Bd ETF EUR Hedged, IE00BDBRDM35
 
| rowspan="2"| Determined by AA  
 
| rowspan="2"| Determined by AA  
 
|-
 
|-
 
| Any ||
 
| Any ||
* IGLA iShares Global Govt Bond UCITS USD ETF Acc, IE00BYZ28V50
+
* IGLA - iShares Global Govt Bond UCITS USD ETF Acc, IE00BYZ28V50
* VAGU Vanguard Global Aggregate Bond UCITS ETF - USD Hedged,<ref group="note" name="hedging" /> IE00BG47KJ78
+
* VAGU - Vanguard Global Aggregate Bond UCITS ETF - USD Hedged,<ref group="note" name="hedging" /> IE00BG47KJ78
 
|-
 
|-
 
| Equities || Any ||
 
| Equities || Any ||
* IWDA/EUNL/SWDA iShares Core MSCI World ETF, IE00B4L5Y983
+
* IWDA / EUNL / SWDA - iShares Core MSCI World ETF, IE00B4L5Y983
* VWRP/VWRA/VWCE Vanguard FTSE All-World UCITS ETF, IE00BK5BQT80
+
* VWRP / VWRA / VWCE - Vanguard FTSE All-World UCITS ETF, IE00BK5BQT80
 
| 85-90% of equities
 
| 85-90% of equities
 
|-
 
|-
 
| Emerging markets || Any ||
 
| Emerging markets || Any ||
* EIMI iShares Core MSCI EM IMI, IE00BKM4GZ66
+
* EIMI - iShares Core MSCI EM IMI, IE00BKM4GZ66
 
| 10-15% of equities
 
| 10-15% of equities
 
|}
 
|}
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|+ One fund distributing portfolio
 
|+ One fund distributing portfolio
 
|-
 
|-
! Asset class !! Investor !! ETF suggestions !! Amount
+
! Asset class !! Investor !! ETF suggestions<ref group="note" name="eurhedging" /> !! Amount
 
|-
 
|-
 
| Multi-asset || Any ||
 
| Multi-asset || Any ||
* V20D Vanguard LifeStrategy 20% Equity ETF Dist, IE00BMVB5L14
+
* V20D / VNGD20 - Vanguard LifeStrategy 20% Equity ETF Dist, IE00BMVB5L14
* V40D Vanguard LifeStrategy 40% Equity ETF Dist, IE00BMVB5N38
+
* V40D / VNGD40 - Vanguard LifeStrategy 40% Equity ETF Dist, IE00BMVB5N38
* V60D Vanguard LifeStrategy 60% Equity ETF Dist, IE00BMVB5Q68
+
* V60D / VNGD60 - Vanguard LifeStrategy 60% Equity ETF Dist, IE00BMVB5Q68
* V80D Vanguard LifeStrategy 80% Equity ETF Dist, IE00BMVB5S82
+
* V80D / VNGD80 - Vanguard LifeStrategy 80% Equity ETF Dist, IE00BMVB5S82
 
| Determined by AA
 
| Determined by AA
 
|}
 
|}
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|-
 
|-
 
| rowspan="2"| Fixed income || EU investor ||
 
| rowspan="2"| Fixed income || EU investor ||
* VAGE Vanguard Global Aggregate ETF Hedged, IE00BG47KB92
+
* VAGE - Vanguard Global Aggregate ETF EUR Hedged, IE00BG47KB92
 
| rowspan="2"| Determined by AA
 
| rowspan="2"| Determined by AA
 
|-
 
|-
 
| Any ||
 
| Any ||
* AGGG iShares Core Global Aggregate Bond UCITS ETF Dist, IE00B3F81409
+
* AGGG - iShares Core Global Aggregate Bond UCITS ETF Dist, IE00B3F81409
 
|-
 
|-
 
| Equities || Any ||
 
| Equities || Any ||
* VWRL Vanguard FTSE All-World UCITS ETF, IE00B3RBWM25
+
* VWRL / VWRD - Vanguard FTSE All-World UCITS ETF, IE00B3RBWM25
 
| Determined by AA
 
| Determined by AA
 
|}
 
|}
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|-
 
|-
 
| rowspan="2"| Fixed income || EU investor ||
 
| rowspan="2"| Fixed income || EU investor ||
* VAGE Vanguard Global Aggregate ETF Hedged, IE00BG47KB92
+
* VAGE - Vanguard Global Aggregate ETF EUR Hedged, IE00BG47KB92
 
| rowspan="2"| Determined by AA
 
| rowspan="2"| Determined by AA
 
|-
 
|-
 
| Any ||
 
| Any ||
* AGGG iShares Core Global Aggregate Bond UCITS ETF Dist, IE00B3F81409
+
* AGGG - iShares Core Global Aggregate Bond UCITS ETF Dist, IE00B3F81409
 
|-
 
|-
 
| Equities || Any ||
 
| Equities || Any ||
* VWRL Vanguard FTSE All-World UCITS ETF, IE00B3RBWM25
+
* VWRL / VWRD - Vanguard FTSE All-World UCITS ETF, IE00B3RBWM25
 
| Determined by AA
 
| Determined by AA
 
|-
 
|-
| Emerging markets || Any || Already included in VWRL || (None)
+
| Emerging markets || Any || Already included in VWRL / VWRD || (None)
 
|}
 
|}
  
 
===Indices===
 
===Indices===
  
When choosing a particular ETF or group of ETFs, investors need to be aware that the different providers may be using different benchmarks for the tracking of their fund performance. For example the iShares global aggregate bond (AGGH indicated in the accumulating sample above) tracks the Bloomberg Barclays Global Aggregate Bond Index while the Vanguard tracks the same index. However in the case of iShares global stock ETF (IWDA/SWDA indicated in the accumulating sample above) it tracks the MSCI World index while the Vanguard world stock ETF tracks the FTSE All-World index.  
+
When choosing a particular ETF or group of ETFs, investors need to be aware that the different providers may be using different benchmarks for the tracking of their fund performance. For example the iShares global aggregate bond (AGGH indicated in the accumulating sample above) tracks the Bloomberg Barclays Global Aggregate Bond Index while the Vanguard tracks the same index. However, the iShares global stock ETF (IWDA / EUNL / SWDA indicated in the accumulating sample above) tracks the MSCI World index, while the Vanguard world stock ETF (VWRP / VWRA / VWCE) tracks the FTSE All-World index.  
  
 
See also: [https://en.wikipedia.org/wiki/FTSE_All-World_index_series FTSE All World Index] and [https://www.msci.com/world MSCI World Index].
 
See also: [https://en.wikipedia.org/wiki/FTSE_All-World_index_series FTSE All World Index] and [https://www.msci.com/world MSCI World Index].

Latest revision as of 04:57, 10 April 2021

Ambox globe content.svg This article contains details specific to non-US investors. It does not apply to United States (US) investors, or to US citizens and US permanent residents (green card holders) living outside the US.

Simple non-US portfolios are designed to perform well for non-US investors in most market conditions. Most contain a small number of low-cost funds that are easy to rebalance. They are "lazy" because the investor can maintain the same asset allocation for an extended period of time.[note 1]

Non-US investors will usually want asset allocations and index funds or ETFs that are different from those employed by US investors who use "lazy" portfolios.

Simple portfolios

The simplest portfolios are based on using index funds (where these are easily available) or the corresponding ETFs to build a low-cost structure with a small number of funds, generally five or fewer, that are easy to re-balance and follow the spirit of the Bogleheads® approach.

The simple index portfolios illustrated here are a collection of portfolios that contain broad based representation from the major asset classes: local or regional bonds; local or regional equities; and global bonds and global equities. The choice of broad based funds is dictated by a decision to use a passive investing philosophy to keep costs to a minimum and to accept market returns, which helps keep things simple to manage these portfolios.

Depending on the level of simplicity desired, investors can build one of a:

  • One fund portfolio consisting of a single multi-asset fund.
  • Two fund portfolio consisting of a global bond fund and a global stock fund.
  • Three fund portfolio consisting of a global bond fund, global developed market stock fund and a global emerging market stock fund.
  • Four or five fund portfolios consisting of local or regional bond fund, global stock fund, local or regional stock fund, emerging market stock fund and small cap stock fund.

The main Wiki site for Bogleheads can provide ample background for the build-up of various approaches that can accord with the Bogleheads principles while introducing some variety for whatever reason. For example, see: Lazy portfolios

These portfolios are well suited for do-it-yourself (DIY) index investors in the accumulation stage, with retirement as their main goal. Simple index portfolios can also work during the withdrawal stage.

The choice of global aggregate bond fund can be for a global fund that includes both government and corporate debt, or alternatively there are some ETFs that are dedicated to global government debt only.

These generic portfolios as shown below should be made up of the appropriate available ETFs that are consistent with the local tax regime. Investors should address any tax reporting requirements that might indicate a preference for accumulating or distributing versions of the funds to be used. The actual choice of individual ETFs may be subject to the availability of specific funds.

The illustrated examples are based upon a 50/50 allocation of bonds and stocks. The allocation chosen will depend upon the evaluation of the individuals risk tolerance and their particular stage in the investment lifecycle.

Cash and cash equivalents, property and other investments assets are not included in these portfolios. These assets can become part of a more complex portfolio for the more experienced investor. Some element of cash is advised for investors as a fund for emergencies, predicted expenditure, or both.

The actual percentage allocated to each of the funds is driven by your asset allocation (AA). Your risk tolerance and your need, ability and willingness to take risk will determine the split bonds and equity.

One fund portfolio

Vanguard LifeStrategy funds hold stocks and bonds in a fixed allocation, and can provide investors with an all-in-one single fund multi-asset portfolio. Vanguard's LifeStrategy ETF range[note 2] offers a handful of discrete allocations: 20% stocks and 80% bonds; 40% stocks and 60% bonds; 60% stocks and 40% bonds; and 80% stocks and 20% bonds.

If these static allocations do not match the desired asset allocation, an investor could pair up options to create a different allocation. For example, investing half in the 60% stocks fund and half in the 80% stocks fund produces a 70% stocks and 30% bonds allocation.

Two fund portfolio

Beyond Vanguard LifeStrategy funds, the simplest interpretation of the Boglehead approach for non-US retail investors with the minimum number of funds, wide diversity, low cost and modest risk combines a global equity fund and a global bond fund in the split that match your chosen Asset Allocation (for example, 50/50, 60/40, or other). 2 fund non-US portfolio.png

Three fund portfolio

A very simple portfolio with the addition of a world emerging market equity fund in case the world equity fund that is available only cover the developed markets. Based on free float, the Emerging Markets are typically between 10 and 15% of the total global equity market. 3 fund non-US portfolio.png

Four fund portfolio

Certain investors wish to invest more in the local equity market then would be justified by the market weight of the local market. For example, a simple portfolio which introduces some home bias in stocks. 4 fund non-US portfolio a.png

Five fund portfolio

This version adds small cap stocks to equities. This is useful when the equity funds do not include small caps and investors wish to include them. 5 fund non-US portfolio.png

Sample portfolios

Using the approach set out in the generic simple portfolio design set out above, the following portfolios are possible solutions for a non-US retail investor, subject to all the caveats regarding jurisdiction, domicile, tax matters and costs. Samples are given using the two and three fund solutions in both accumulating and distributing versions.

Investors need to research their domicile and tax status in order to correctly identify the particular ETF which is appropriate in their case for each asset class. There is a Boglebot tool that will provide good guidance on how to implement a two-fund portfolio given some information on tax residency and currencies and should make for a good starting point. The Boglebot will also collate necessary information for you to help post in the Bogleheads forum for further guidance.

Sample accumulating portfolios

One fund accumulating portfolio
Asset class Investor ETF suggestions[note 2] Amount
Multi-asset Any
  • V20A / VNGA20 - Vanguard LifeStrategy 20% Equity ETF Acc, IE00BMVB5K07
  • V40A / VNGA40 - Vanguard LifeStrategy 40% Equity ETF Acc, IE00BMVB5M21
  • V60A / VNGA60 - Vanguard LifeStrategy 60% Equity ETF Acc, IE00BMVB5P51
  • V80A / VNGA80 - Vanguard LifeStrategy 80% Equity ETF Acc, IE00BMVB5R75
Determined by AA
Two fund accumulating portfolio
Asset class Investor ETF suggestions Amount
Fixed income EU investor
  • AGGH - iShares Global Aggregate Bd ETF EUR Hedged, IE00BDBRDM35
Determined by AA
Any
  • IGLA - iShares Global Govt Bond UCITS USD ETF Acc, IE00BYZ28V50
  • VAGU - Vanguard Global Aggregate Bond UCITS ETF - USD Hedged,[note 3] IE00BG47KJ78
Equities Any
  • IWDA / EUNL / SWDA - iShares Core MSCI World ETF, IE00B4L5Y983
  • VWRP / VWRA / VWCE - Vanguard FTSE All-World UCITS ETF, IE00BK5BQT80
  • SSAC / ISAC / IUSQ - iShares MSCI ACWI UCITS ETF, IE00B6R52259
Determined by AA
Three fund accumulating portfolio
Asset class Investor ETF suggestions Amount
Fixed income EU investor
  • AGGH - iShares Global Aggregate Bd ETF EUR Hedged, IE00BDBRDM35
Determined by AA
Any
  • IGLA - iShares Global Govt Bond UCITS USD ETF Acc, IE00BYZ28V50
  • VAGU - Vanguard Global Aggregate Bond UCITS ETF - USD Hedged,[note 3] IE00BG47KJ78
Equities Any
  • IWDA / EUNL / SWDA - iShares Core MSCI World ETF, IE00B4L5Y983
  • VWRP / VWRA / VWCE - Vanguard FTSE All-World UCITS ETF, IE00BK5BQT80
85-90% of equities
Emerging markets Any
  • EIMI - iShares Core MSCI EM IMI, IE00BKM4GZ66
10-15% of equities

Sample distributing portfolios

One fund distributing portfolio
Asset class Investor ETF suggestions[note 2] Amount
Multi-asset Any
  • V20D / VNGD20 - Vanguard LifeStrategy 20% Equity ETF Dist, IE00BMVB5L14
  • V40D / VNGD40 - Vanguard LifeStrategy 40% Equity ETF Dist, IE00BMVB5N38
  • V60D / VNGD60 - Vanguard LifeStrategy 60% Equity ETF Dist, IE00BMVB5Q68
  • V80D / VNGD80 - Vanguard LifeStrategy 80% Equity ETF Dist, IE00BMVB5S82
Determined by AA
Two fund distributing portfolio
Asset class Investor ETF suggestions Amount
Fixed income EU investor
  • VAGE - Vanguard Global Aggregate ETF EUR Hedged, IE00BG47KB92
Determined by AA
Any
  • AGGG - iShares Core Global Aggregate Bond UCITS ETF Dist, IE00B3F81409
Equities Any
  • VWRL / VWRD - Vanguard FTSE All-World UCITS ETF, IE00B3RBWM25
Determined by AA
Three fund distributing portfolio
Asset class Investor ETF suggestions Amount
Fixed income EU investor
  • VAGE - Vanguard Global Aggregate ETF EUR Hedged, IE00BG47KB92
Determined by AA
Any
  • AGGG - iShares Core Global Aggregate Bond UCITS ETF Dist, IE00B3F81409
Equities Any
  • VWRL / VWRD - Vanguard FTSE All-World UCITS ETF, IE00B3RBWM25
Determined by AA
Emerging markets Any Already included in VWRL / VWRD (None)

Indices

When choosing a particular ETF or group of ETFs, investors need to be aware that the different providers may be using different benchmarks for the tracking of their fund performance. For example the iShares global aggregate bond (AGGH indicated in the accumulating sample above) tracks the Bloomberg Barclays Global Aggregate Bond Index while the Vanguard tracks the same index. However, the iShares global stock ETF (IWDA / EUNL / SWDA indicated in the accumulating sample above) tracks the MSCI World index, while the Vanguard world stock ETF (VWRP / VWRA / VWCE) tracks the FTSE All-World index.

See also: FTSE All World Index and MSCI World Index.

The content of these indices is different and investors may wish to understand the differences and choose accordingly.

For more information on indices, see: Stock market indexing and Bond market indexing.

The amount in percentage terms of each sub asset class within an index should be followed at least in rough terms to suit the investors' overall portfolio management constraints; in other words, rounding percentages (or cash amounts) to match the exact index allocation is not necessary for the smaller sub asset classes as the Emerging Market and small cap allocations are relatively minor. It may help to group portfolio choices to one provider, subject to costs.

Notes

  1. The term Lazy portfolios has been popularized by Paul B. Farrell, who writes MarketWatch columns about various simple portfolios.
  2. 2.0 2.1 2.2 Vanguard LifeStrategy ETFs hedge their bond component to EUR. This may or not be desirable, depending on the local currency.
  3. 3.0 3.1 Unless the local currency is pegged to USD, hedging to the USD may not be appropriate.

See also

External links