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Vanguard Recommends Investors Increase Non-U.S. Holdings To 40%
FYI: Investors should put about 40% of their portfolios in non-U.S. stocks and bonds to diversify their holdings, according to top executives at Vanguard Group, the fund giant that manages $4.9 trillion.
"I say you don't need to have non-U.S., but if you do, limit it to 20%. A lot of portfolios now have 25%, 35%, 45% in non-U.S. securities, and I think that's just too much."
"World bond" category at Morningstar TRP fund PRSNX is biggest holding now, in conservation mode. Biggest equity fund remains PRWCX. Foreign equity = 6%. (PRIDX.)
According to a recent (year end) broker provided portfolio analysis Old_Skeet has a domestic/foreign asset allocation ratio of about 75% domestic and 25% foreign. The broker recommended foreign exposure for my risk tolerance ranges form a low of 15% to a high of 30%. With this, I fall a little above the middle of what they recommend. In review of my year end Morningstar Xray analysis reflects much the same domestic/foreign allocation. I am happy with my current level of foreign exposure so I plan to make no changes.
While 40% might be a tad high, I agree more with @msf here. Bogle is generally a lot of “bluster.” I doubt even he agrees 100% with everything he says. (But I’ll acknowledge his contributions to mutual funds / investors).
The biggest reason I can think of to diversify equity holdings more outside the U.S. is the long term damage being done to our competitive position and democratic institutions by the current occupant of the WH. Unfortunately, to a degree he’s a symptom of deeper problems in the country that aren’t going to disappear overnight. I’ve tried to increase international exposure by bolstering my % in RPGAX. And it hasn’t escaped my attention that domestically oriented DODBX has a significant amount of foreign exposure (somewhere near 20%). Recently increased my stake in that one.
I’ve always clung to a healthy dose of foreign currencies / bonds for a somewhat different reason, If some nasty inflation (actually Dollar deflation) were to emerge down the road, the dollar would weaken against foreign currencies and foreign currencies would increase in relative value. I can’t predict that will happen. But I like having the insurance of some foreign currency exposure anyway.
Back to equities - About the time equities in one region or another begin looking bleak is, IMHO, a good time to begin averaging in. Europe appears “on the ropes” now due to BREXIT & related issues. And China just had an awful year. Good places for long term investors to look for possible value. EM as a group? If younger, I’d make a spec play on the beaten up EM sector. But over the very long term most of my international exposure would be with the less risky / volatile developed markets.
The problem I have with either Target date funds, benchmark allocations for "people your age" and recommendations is suggest to people that someone else can do the hard work for them. Most people cannot competently analyze a balance sheet but they need to look at their own fiances and mindset decide if they can sleep at night with the expected volatility of the recommendations. Diversity will reduce volatility sure, but unfortunately most of the people I know are more knowledgeable about the Game of Thrones than they are with how they will pay for retirement, just like most people don't dig deep into the trade war to realize how it is being run by one NYC law firm for the benefit of their steel producing clients
I don't use target date funds since I prefer to chart my allocation. A static 40% foreign allocation is too rigid since I already have a health % in developed and emerging markets.
Again I agree with hank's sentiment on the trade WH trade policy and the potential negative impact on the global stock market as observed in 2018.
I remember good years for US stocks, when EM outperformed US. But I do not know bad years for US stocks, when EM performed well. So, your attitude to EM depends first of all on your predictions to US market.
Comments
"I say you don't need to have non-U.S., but if you do, limit it to 20%. A lot of portfolios now have 25%, 35%, 45% in non-U.S. securities, and I think that's just too much."
Morningstar, Oct 16, 2018, Why Jack Bogle Doesn't Own Non-U.S. Stocks
https://www.morningstar.com/videos/885739/why-jack-bogle-doesnt-own-nonus-stocks.html
FWIW, I disagree with Bogle and maintain a healthy exposure to foreign markets.
The biggest reason I can think of to diversify equity holdings more outside the U.S. is the long term damage being done to our competitive position and democratic institutions by the current occupant of the WH. Unfortunately, to a degree he’s a symptom of deeper problems in the country that aren’t going to disappear overnight. I’ve tried to increase international exposure by bolstering my % in RPGAX. And it hasn’t escaped my attention that domestically oriented DODBX has a significant amount of foreign exposure (somewhere near 20%). Recently increased my stake in that one.
I’ve always clung to a healthy dose of foreign currencies / bonds for a somewhat different reason, If some nasty inflation (actually Dollar deflation) were to emerge down the road, the dollar would weaken against foreign currencies and foreign currencies would increase in relative value. I can’t predict that will happen. But I like having the insurance of some foreign currency exposure anyway.
Back to equities - About the time equities in one region or another begin looking bleak is, IMHO, a good time to begin averaging in. Europe appears “on the ropes” now due to BREXIT & related issues. And China just had an awful year. Good places for long term investors to look for possible value. EM as a group? If younger, I’d make a spec play on the beaten up EM sector. But over the very long term most of my international exposure would be with the less risky / volatile developed markets.
Again I agree with hank's sentiment on the trade WH trade policy and the potential negative impact on the global stock market as observed in 2018.
https://www.investmentnews.com/article/20180601/FREE/180609992/international-funds-continue-to-disappoint
https://www.investmentnews.com/article/20170429/FREE/170429921/is-it-time-to-go-international
https://www.usatoday.com/story/money/2015/01/16/investing-international-funds/21825245/