To Go Global or Bet on Your Country?

[hedgehog]

1st, I don't quite understand why the thread titled Global Equity Portfolio is placed under the Variable Portfolio folder (http://gyroscopicinvesting.com/forum/ht ... ic.php?t=7) but the main issue is still there is no solution to that thread?

Going global vs. betting on your country seems like a sensible idea to me - for a permanent portfolio, precisely.

We have plenty of historical data on our side: http://www.investmenteurope.net/digital ... al_web.pdf
though it's a question how well diversified Credit Suisse's selection is or how arbitrary - or from a practical standpoint - how good for our purposes?

In the Credit Suisse Global Investment Returns Yearbook 2013 you can find individual country data from page 35, the US on page 57 and the world index on page 58.

Assuming backtesting has any value at all - if not then what is our starting point or why does everyone backtest if it has no use? - http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2

[koekebakker]

I'm not sure if it really matters much if you only have 25% in stocks anyway. Stock markets are highly correlated nowadays and most domestic companies are operating globally. But I still think it's a good idea for US-investors to diversify beyond the US-stock market. You don't want to get stuck in a second Japan.

For non-US investors it's often very simple. They have to invest in global equities as most domestic markets are completely undiversified.

[Coearth]

I'm not sure if it really matters much if you only have 25% in stocks anyway. Stock markets are highly correlated nowadays and most domestic companies are operating globally. But I still think it's a good idea for US-investors to diversify beyond the US-stock market. You don't want to get stuck in a second Japan.

For non-US investors it's often very simple. They have to invest in global equities as most domestic markets are completely undiversified.

I think global bonds markets are highly correlated with U.S. right now also. I don't understand why Korea and Singapore bonds are lowering together with U.S. bonds right now due to expectation of U.S. QE tapering.

I am non-US investor and fully invested in local currency assets for my PP. Probably because I am comfortable enough with local stocks and bond markets.

[Ad Orientem]

If you want some global diversification, which I have no issues with, I'd stick with either a foreign or global stock index fund / ETF. A good way to do it is to go 90% HB Permanent Portfolio and the remaining 10% in a VP consisting of either VT or VEU. If you are really bullish on stocks you could even go 80/20. And of course one can always just substitute VT for the stocks in your Permanent Portfolio. The risk there however is that during a period of intense domestic prosperity your portfolio is likely to underperform.

With bonds I am a bit more leery of going global, though I have mentally toyed with funds like TGBAX. The problem with global bonds is that there are no acceptable index funds. That leaves you with having to create your own bond portfolio or using an actively managed fund with all of the drawbacks that come with those approaches.

My best advice is to stick with the conventional permanent portfolio and if you want to add some global diversification, which I think is a good idea, do it in your VP.

[Aught_1]

...The problem with global bonds is that there are no acceptable index funds. That leaves you with having to create your own bond portfolio or using an actively managed fund with all of the drawbacks that come with those approaches.

Some pretty big news on this front.  Vanguard has just started up two international bond funds.  One is the Emerging Markets Government Bond Fund (VGAVX), also available as an ETF.  One of the nice things about this fund is it invests in government bonds denominated in dollars, so there's no currency risk.  The other one is the Total International Bond Index fund (VTABX), also available as an ETF.  This one invests in not just government but also corporate and agency bonds.  The difference is that not all the bonds are denominated in dollars, but the fund managers employ hedging strategies to minimize exchange rate risk.  This one invests mostly in developed countries but also in some emerging markets, so there is probably some overlap with the emerging markets bond fund.

I'm probably not going to use these in the Permanent Portfolio, but it may be interesting in a VP.

[Ad Orientem]

...The problem with global bonds is that there are no acceptable index funds. That leaves you with having to create your own bond portfolio or using an actively managed fund with all of the drawbacks that come with those approaches.

Some pretty big news on this front.  Vanguard has just started up two international bond funds.  One is the Emerging Markets Government Bond Fund (VGAVX), also available as an ETF.  One of the nice things about this fund is it invests in government bonds denominated in dollars, so there's no currency risk.  The other one is the Total International Bond Index fund (VTABX), also available as an ETF.  This one invests in not just government but also corporate and agency bonds.  The difference is that not all the bonds are denominated in dollars, but the fund managers employ hedging strategies to minimize exchange rate risk.  This one invests mostly in developed countries but also in some emerging markets, so there is probably some overlap with the emerging markets bond fund.

I'm probably not going to use these in the Permanent Portfolio, but it may be interesting in a VP.

Now that is one of the more interesting developments I have read about in a  while. I will check back in a couple of years and if VTABX is doing what it should be, I might consider a small position along with VEU as a VP. Maybe 80-90% in an HB Permanent Portfolio and the balance in a VP split between those two funds.

[hedgehog]

If you want some global diversification, which I have no issues with, I'd stick with either a foreign or global stock index fund / ETF. A good way to do it is to go 90% HB Permanent Portfolio and the remaining 10% in a VP consisting of either VT or VEU. If you are really bullish on stocks you could even go 80/20. And of course one can always just substitute VT for the stocks in your Permanent Portfolio. The risk there however is that during a period of intense domestic prosperity your portfolio is likely to underperform.

With bonds I am a bit more leery of going global, though I have mentally toyed with funds like TGBAX. The problem with global bonds is that there are no acceptable index funds. That leaves you with having to create your own bond portfolio or using an actively managed fund with all of the drawbacks that come with those approaches.

My best advice is to stick with the conventional permanent portfolio and if you want to add some global diversification, which I think is a good idea, do it in your VP.

Pls. resolve your acronyms: VT, VP, VEU. Thank you.

[Pointedstick]

Pls. resolve your acronyms: VT, VP, VEU. Thank you.

VP = Variable Portfolio
The others are all ETFs.