Ex-US Boglehead Portfolio

A place to talk about speculative investing ideas for the optional Variable Portfolio

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AdamA
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Ex-US Boglehead Portfolio

Post by AdamA » Mon Oct 12, 2015 9:37 am

The idea of using the VP to add yet more diversity to the PP came up in another thread:

From CraigR:
If I was in the EU with the present migrant situation and immigration trajectory I would be looking to diversify beyond the EU and the Euro that's for sure. What the pols are doing there is pure suicide.

I think the turning point for the U.S. will be the next election. Personally if I don't see serious efforts to control immigration into the U.S. along with deportation of illegals then I'm thinking the U.S. should be diversified away from as well. The U.S. is losing its edge by their immigration policies and globally this will only hurt the long-term performance.

Note that when I say diversify away, I mean that I'd hold the EU and U.S. in proportion to their global economic percentages, not sell them outright. So for instance if the U.S. were 50% of the global economy, I'd reduce my portfolio to 50% U.S. total exposure. Just as an example.

This can break some things in regards to the link of monetary policy and the Permanent Portfolio though. So some planning and thought needs to go into this with an acknowledgement of new risks being introduced. I haven't thought of all the hang ups yet which is why I don't discuss this much.

Basically, I'd hold a core Permanent Portfolio of home currency/stocks/bonds, but use the Variable Portfolio to get the international diversification necessary to spread the risk amongst the stocks/bonds/cash of other countries. Gold would remain the same, and of course geographically diversified.

Immigration is the #1 issue facing Western countries today. Honestly, I feel quite silly talking so much about money and investing when the immigration issue looms so large for western culture. The likelihood of future wars and/or broken countries as a result of these stupid policies is very high.
I was thinking the easiest way to achieve this would be with a BH type portfolio that excludes the US. 

50% VTIAX  (Vanguard's ex-US international stock fund)
50% VTABX (Vanguard's ex-US international bond fund)

I'm not planning on doing this any time, but hypothetically I would probably do this with a dollar equivalent of 10-20% of my PP and rebalance every year or two.

Just curious as to what people think of the idea.
"All men's miseries derive from not being able to sit in a quiet room alone."

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MachineGhost
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Re: Ex-US Boglehead Portfolio

Post by MachineGhost » Mon Oct 12, 2015 2:23 pm

AdamA wrote: I was thinking the easiest way to achieve this would be with a BH type portfolio that excludes the US. 

50% VTIAX  (Vanguard's ex-US international stock fund)
50% VTABX (Vanguard's ex-US international bond fund)

I'm not planning on doing this any time, but hypothetically I would probably do this with a dollar equivalent of 10-20% of my PP and rebalance every year or two.

Just curious as to what people think of the idea.
The world's core economy is the USA.  It serves no useful purpose to diversify sovereign risk by going into non-core stocks and sovereign bonds.  There are no markets as deep or as a liquid in the world as Treasuries.  We are going to be the last man standing after the sovereign debt crisis, not the first.  So the transition to an IMF-basket new world currency will be the least relatively contentious for the USA.  We are just very lucky like that.

Seriously, if Treasuries start imploding for whatever reason (which is not possible, but yields would at least quintuple), capital will just flee into AAA corporate bonds, stocks and gold.  It would not then be an issue of the USA vs another sovereign, it would be confidence in government vs capitalism.  It's very easy to conflate the two.
Last edited by MachineGhost on Mon Oct 12, 2015 2:26 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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AdamA
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Re: Ex-US Boglehead Portfolio

Post by AdamA » Mon Oct 12, 2015 3:26 pm

MachineGhost wrote:
AdamA wrote: I was thinking the easiest way to achieve this would be with a BH type portfolio that excludes the US. 

50% VTIAX  (Vanguard's ex-US international stock fund)
50% VTABX (Vanguard's ex-US international bond fund)

I'm not planning on doing this any time, but hypothetically I would probably do this with a dollar equivalent of 10-20% of my PP and rebalance every year or two.

Just curious as to what people think of the idea.
The world's core economy is the USA.  It serves no useful purpose to diversify sovereign risk by going into non-core stocks and sovereign bonds.  There are no markets as deep or as a liquid in the world as Treasuries.  We are going to be the last man standing after the sovereign debt crisis, not the first.  So the transition to an IMF-basket new world currency will be the least relatively contentious for the USA.  We are just very lucky like that.

Seriously, if Treasuries start imploding for whatever reason (which is not possible, but yields would at least quintuple), capital will just flee into AAA corporate bonds, stocks and gold.  It would not then be an issue of the USA vs another sovereign, it would be confidence in government vs capitalism.  It's very easy to conflate the two.
I agree with everything you say here. 

And I also think that the gold portion of the PP is intended to serve as protection against a major catastrophe within the US financial system.

Still...it just seems to me that there is an argument to be made for diversifying outside of the US at least just a little bit.  I hadn't really thought much about it until I saw dutchtraffic's post and read Craig's response.
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MachineGhost
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Re: Ex-US Boglehead Portfolio

Post by MachineGhost » Mon Oct 12, 2015 3:53 pm

AdamA wrote: Still...it just seems to me that there is an argument to be made for diversifying outside of the US at least just a little bit.  I hadn't really thought much about it until I saw dutchtraffic's post and read Craig's response.
Well you can do it in the PP if you use hedged ETF's.  It won't break the firewall.  There's a couple out there.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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