Global PP

[Dets]

Just a question for some of the more experienced posters on here.  Given that for most people, their 2 biggest assets are their future earnings from their day job and their home, which are both denominated in their domestic currency, why wouldn't a global PP as opposed to a domestic PP make sense as a way to diversify their total holdings? Wouldn't that serve as a further hedge against recessions and hard times in their home country?  Presumably you'd be left with a foreign portfolio that appreciates relative to your domestic currency, and you'd have a bit of a buffer in place to help you through those harder times.

Any thoughts on this?

[melveyr]

I have proposed this as a potential global PP for current US investors:

25% VT
25% BWX
25% TLH
25% GLD

The foreign currency exposure means you are likely increasing your portfolio risk if plan to spend all of your portfolios earnings in the US. But if you plan to do a lot of traveling and perhaps living in foreign countries than this portfolio will probably reduce your risk. I am probably going to stay in the US for my whole life so I don't really want to make huge bets on the value of the dollar falling versus other currencies.

[Dets]

I should have mentioned that the question was geared more towards people who live and work outside the US.  It was also about balancing existing assets vs. future earnings.  Does it make sense to concentrate everything into one currency, or should people look at their total wealth and try to diversify between future earnings and existing assets.  If your currency collapses, a global PP provides a larger cushion, presumably in a time when your future earnings stream may not be in the strongest position.  Conversely if your domestic currency increases in value, your portfolio will suffer because of it, but it happens at a time where your future earnings make you relatively wealthier on a global basis.  I don't have any convictions either way, just wondering what people think.

[frugal]

I have proposed this as a potential global PP for current US investors:

25% VT
25% BWX
25% TLH
25% GLD

The foreign currency exposure means you are likely increasing your portfolio risk if plan to spend all of your portfolios earnings in the US. But if you plan to do a lot of traveling and perhaps living in foreign countries than this portfolio will probably reduce your risk. I am probably going to stay in the US for my whole life so I don't really want to make huge bets on the value of the dollar falling versus other currencies.

Melv,

You have the same opinion for someone living in the eurozone?

Tks

[BP]

I have read about the desire for a global PP to diversify risk from the US economy in other threads at the forum, so a search might reveal more information for you.  Unfortunately, I do not think that it really can be done, but would really like to be proven wrong.

However, the easiest solution may well be to establish a PP in the country or zone in which you might eventually live.  For example, perhaps a 70%/30% split with 70% in a US based PP and the remaining 30% (no particular reason for the percentage - could be 5%, 15%, etc.) in another country or zone PP.  One could also start shifting away from the US PP as one got closer to moving to the other country so that by the time one moved the bulk of the PP assets would be in the new country PP.

[escafandro]

I have proposed this as a potential global PP for current US investors:

25% VT
25% BWX
25% TLH
25% GLD

Testing the proposal of melveyr vs. 25/25/25/25 - VT/TLT/GLD/SHV in Etfreplay.com gives in the last 3 years exactly the same return and a difference in volatility of 0.8.
Good to know!