Ok to use VT (world ETF)"

Discussion of the Stock portion of the Permanent Portfolio

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fred9

Ok to use VT (world ETF)"

Post by fred9 » Tue May 25, 2010 5:50 pm

I'm just starting out. I plan to put $25,000 in GTU, VGSH, VGLT and VT. I'm a Vanguard fan and I also believe I need "world" exposure. But maybe for this approach I don't.
Any thoughts on this quarter or the other quarters?
Thank you.

PS I'm 66 and plan to retire at age 67 & 1/2. Not sure yet if this approach will become 20 or 50 or 80% of my liquid assets.
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Re: Ok to use VT (world ETF)"

Post by 6 Iron » Tue May 25, 2010 6:40 pm

fred9 wrote:I'm just starting out. I plan to put $25,000 in GTU, VGSH, VGLT and VT. I'm a Vanguard fan and I also believe I need "world" exposure.


Fred, with VT, well over 50% of your equity exposure will be outside of the US. That is more than I personally want, and I have opted for a blend of 80% in VTI, and 20% VEU for the equity component. You will have greater currency risk with VT; I would not tell you not to do it, just be aware going in.

VGLT, unfortunately, does not have the duration of TLT (or buying your own 30 year bonds through Vanguard), and will not provide you as much deflation protection, or as much volatility with interest rate changes. I recommend that you read the bond FAQ at http://crawlingroad.com/blog/2009/02/09/permanent-portfolio-25-bond-allocation-faq/
Good luck.

edit:modified link
Last edited by Guest on Tue May 25, 2010 11:01 pm, edited 1 time in total.
fred9

Re: Ok to use VT (world ETF)"

Post by fred9 » Tue May 25, 2010 8:01 pm

6 Iron,
thanks for your input! I will read the bond FAQ and maybe back off on the foreign.

(7 iron is my favorite club.)
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Re: Ok to use VT (world ETF)"

Post by KevinW » Tue May 25, 2010 9:07 pm

My opinion is that VT is an excellent component for a Boglehead style portfolio, but doesn't add much except expenses to a Permanent Portfolio.

A pure Boglehead portfolio is built out of Total Stock Market, Total International Stock, and Total Bond.  The international stocks are absolutely necessary to have exposure to a currency other than the US Dollar.  A lot of brainpower has been spent on deciding how to split up the stock part between domestic and international stocks.  I think letting the market decide, as VT does, is more elegant and in keeping with Boglehead principles.  Also, using a single index fund for both domestic and international stocks may be more tax efficient since the fund automatically "rebalances" itself internally without distributing capital gains.  So VT has a lot going for it as the one and only stock fund in a Boglehead portfolio.

A Permanent Portfolio, however, already has very strong currency insurance from the gold allocation.  Adding international stocks seems redundant to me.  Adding international stocks to the mix increases expenses and complexity, neither of which is a good thing.
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Re: Ok to use VT (world ETF)"

Post by 6 Iron » Tue May 25, 2010 10:50 pm

KevinW wrote:
A Permanent Portfolio, however, already has very strong currency insurance from the gold allocation.  Adding international stocks seems redundant to me.  Adding international stocks to the mix increases expenses and complexity, neither of which is a good thing.


None other than Harry Browne would agree with you, Kevin. I like the added diversity of a dash of international stocks in my permanent portfolio, but it would be very reasonable to consider placing it in the variable portfolio as well.
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Re: Ok to use VT (world ETF)"

Post by MediumTex » Wed May 26, 2010 8:17 am

I would go 85% domestic with VTI and 15% in an international index like VGTSX.

The point about currency risk with international stocks is the key.  Over on the bogleheads PP thread people have occasionally lost sight of this point, and I think recent world events may have reminded them that foreign stocks are actually a hybrid equity/currency play.
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Re: Ok to use VT (world ETF)"

Post by Roy » Wed May 26, 2010 9:43 am

As discussed here and elsewhere, I think there are a number of ways to implement the Stock portion, and good arguments can made to justify wildly different divisions (in nation, size, and value) among that asset class.  My opinion is that the presence of Gold in 25% weight mitigates the need for much, if not all, of the currency question; but contrary arguments here have all been reasonably founded.  Also note that the diversification benefit gained when using asset classes that are themselves primarily Large Cap in weight are likely to be small.  Yet, in Harry's design of the PP, no weighting or impact is small; all have powerful effect, even as we can argue which class holds the greatest dominance.

So, for me, the question becomes what allocation is best suited to help stay the course and avoid the capitulation point (switching strategies or going to cash)?

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Re: Ok to use VT (world ETF)"

Post by craigr » Wed May 26, 2010 11:12 am

My own allocation is pretty close to what Tex mentions as well. About 80% in Vanguard Total Stock Market Index and about 20% in Vanguard FTSE ex-US international index.

I'm not big on loading up on international stocks for the currency risks already stated.
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Re: Ok to use VT (world ETF)"

Post by MCSquared » Wed May 26, 2010 1:40 pm

craigr wrote:My own allocation is pretty close to what Tex mentions as well. About 80% in Vanguard Total Stock Market Index and about 20% in Vanguard FTSE ex-US international index.

I'm not big on loading up on international stocks for the currency risks already stated.


Craig or MT, given that PRPFX holds 10% swiss franc exposure, have either of you ever thought about a Swiss equity index like EWL?  I agree it is not necessary but wonder what the thought process was during the fund creation............
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Re: Ok to use VT (world ETF)"

Post by craigr » Wed May 26, 2010 1:53 pm

MCSquared wrote:
craigr wrote:My own allocation is pretty close to what Tex mentions as well. About 80% in Vanguard Total Stock Market Index and about 20% in Vanguard FTSE ex-US international index.

I'm not big on loading up on international stocks for the currency risks already stated.


Craig or MT, given that PRPFX holds 10% swiss franc exposure, have either of you ever thought about a Swiss equity index like EWL?   I agree it is not necessary but wonder what the thought process was during the fund creation............


Never considered it. I'm not sure owning Swiss Francs is relevant any more as Switzerland dropped the gold link to the franc several years back.
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Re: Ok to use VT (world ETF)"

Post by MCSquared » Wed May 26, 2010 5:45 pm

craigr wrote:
MCSquared wrote:
craigr wrote:My own allocation is pretty close to what Tex mentions as well. About 80% in Vanguard Total Stock Market Index and about 20% in Vanguard FTSE ex-US international index.

I'm not big on loading up on international stocks for the currency risks already stated.


Craig or MT, given that PRPFX holds 10% swiss franc exposure, have either of you ever thought about a Swiss equity index like EWL?   I agree it is not necessary but wonder what the thought process was during the fund creation............


Never considered it. I'm not sure owning Swiss Francs is relevant any more as Switzerland dropped the gold link to the franc several years back.


Understood.  The fund still claims that the franc will benefit greatly from high inflation.
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Re: Ok to use VT (world ETF)"

Post by MediumTex » Wed May 26, 2010 9:03 pm

MCSquared wrote:Understood.  The fund still claims that the franc will benefit greatly from high inflation.


They are presumably talking about inflation outside Switzerland.  :D
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