Stock asset allocation for non-US investors
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Stock asset allocation for non-US investors looks at how a non-US investor might decide on their allocation to stocks.
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-bias?
Worldwide or overweighting a region/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 seems to best implement this mantra. 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. Unfortunately, this might require a more complex and more expensive portfolio of multiple funds. Hence sometimes a simpler portfolio is warranted:
- focus on large cap and mid cap stocks of the developed markets only: covers about 75% of the worldwide stock market
- 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 bias: overweight your country or region
- Overweighting the US market: Many US based Bogleheads overweight the US stock market. This might also be a strategy for the non-US investors
Variations on Boglehead investing
Next to the mainstream Boglehead stock allocation there are a few often practiced variations on Bogleheads investing that are as valid for non-US investors as they are for US investors.
- Adding and overweighting of REITs;
- Adding more asset classes to a portfolio: gold, commodities, ... various sub-asset classes of bonds;
- Tilt to value and small cap;
- Slicing and dicing the market and overweighting some of the slices.
- John Norstad, The Arguments for Investing in Total Markets