Foreign equity in PP

[craigr]

I think you will be fine with that allocation as long as you are indexing the components.

[rwc356]

I am transitioning from a similar portfolio into PP. My international stock holdings had been in VEU - roughly 25% of my stock holdings. As I was reading more about the PP and its theory, I started examining the impact of foreign business sales/profits within in the scope of the S&P 500. While estimates vary, it seems at least 25-30% of the profits for the S&P 500 are based on international sales. Given this fact, I became comfortable with the idea that US multinationals provided me with sufficient international exposure.

Like you I am using VTI for my stock exposure. I have not seen any estimates for the impact of foreign sales/profits within VTI but it seems it should be at least 10-15% due to the larger population of holdings in VTI compared to S&P 500. This may just be an exercise in rationalization, but it does allow me to keep it simple and yet address that feeling that I need foreign exposure to make the PP work.

Bob

[craigr]

I am transitioning from a similar portfolio into PP. My international stock holdings had been in VEU - roughly 25% of my stock holdings. As I was reading more about the PP and its theory, I started examining the impact of foreign business sales/profits within in the scope of the S&P 500. While estimates vary, it seems at least 25-30% of the profits for the S&P 500 are based on international sales. Given this fact, I became comfortable with the idea that US multinationals provided me with sufficient international exposure.

Like you I am using VTI for my stock exposure. I have not seen any estimates for the impact of foreign sales/profits within VTI but it seems it should be at least 10-15% due to the larger population of holdings in VTI compared to S&P 500. This may just be an exercise in rationalization, but it does allow me to keep it simple and yet address that feeling that I need foreign exposure to make the PP work.

Bob

All true. As I said in another thread, US companies have massive international exposure. The example I gave was Coca Cola. This is a US company but their brand is sold all over the planet. I may not own Brazilian stocks directly, but when I was in Rio de Janiero seeing people drink Coca Cola I knew that a small part of that profit was going into my pocket through the stock ownership. Same thing for the people going to McDonald's, using a computer with Microsoft Windows and a Cisco router. The construction was being done with Caterpillar equipment around the city. My flight down there was probably on a Boeing jet. Etc. As US stock holder you are accessing economies all over the world through the exports of US corporations.

So some international exposure is fine and I wouldn't get too wrapped up about it. But at the same time even if you think you have no international exposure by only owning US Domestic companies, you actually have quite a bit.

[BobS]

FWIW - I ran a few portfolios through Fidelity's retirement calculator.  Assumption - contributions to an IRA from now to 2020,
then taking withdrawals through 2040.

From that, the best total return was insignificant - better by .0001%.  Still, it was instructive in that it was easy to start
decreasing the amount of total return by 0.1% or more.  Best results -

VTI/DEW - 70%/30% mix.

A higher DEW and the total return dropped.  A smaller DEW - 75%/25% and the total return dropped.

Next best was just - VTI

Other combos tried with decreasing returns -

  VTI/PRFZ/VBR - 70%/15%/15%
  VTI/VBR - 90%/10%
  VTI/VWO - 90%/10%
  VBR/VWO - 50%/50%

I also tried adding in 10% REIT to some of the above with the same loss of return.

There may be something out there that works better.  But from the limited test runs I've done, it might not
be worth the expense to run it.