Gyroscopic Investing

In 2011, Vanguard's Total Stock Market Index was up about 1%, while their Total International Index was down about 14.5%, mainly due to problems with the Euro I believe.  Does this have anyone else rethinking their allocation to international stocks?  Why should I be exposed to problems with the Euro when I live in the US?  Is it worth getting rid of international to eliminate any type of currency risk?  Is it true that there is no expected reward for taking on this risk?

In addition to this, I split my stock allocation 20% US and 5% Intl.  How big of an effect does 5% have on my portfolio?  Not much in my opinion.  If the US returned 0% and Intl returned 20%, then my overall stock allocation would be up 4%, which equates to a 1% increase for the whole portfolio.

Perhaps I'm just getting antsy because I haven't made any changes to my portfolio for awhile lol.  Due to the choices I have in my 401k, I hold 16% S&P 500, 4% US Smallcap, 5% Total Intl.  Would it make much difference to just switch to 100% S&P500?  Should I at least keep the 80/20 S&P500 / US Smallcap split?  The S&P 500 mostly moves in lockstep with the Total Stock Market, but there's occasional over or under performance due to the smallcaps.

rhymenocerous wrote: Why should I be exposed to problems with the Euro when I live in the US? 

You shouldn't.

rhymenocerous wrote: Would it make much difference to just switch to 100% S&P500? 

Do it. 

rhymenocerous wrote: In 2011, Vanguard's Total Stock Market Index was up about 1%, while their Total International Index was down about 14.5%, mainly due to problems with the Euro I believe.  Does this have anyone else rethinking their allocation to international stocks?  Why should I be exposed to problems with the Euro when I live in the US?  Is it worth getting rid of international to eliminate any type of currency risk?  Is it true that there is no expected reward for taking on this risk?

I think it would depend on the concentration of the Total International Index, i.e. heavy Euro exposure or not (it sounds like it is as most such indexes are).  Ideally you want something the least correlated to U.S. stocks, i.e. frontier.  You'd have to weigh suffering another 10-years of sideways action in U.S. stocks while non-U.S. stocks continue to growth.

MG

Anyone rethinking international allocation?

I've never been excited about it.
Sold all my VEU at breakeven a year or two ago.
I have some of Vanguard's international index- not even enough to qualify for admiral shares- and it's the one loser in the indexed core of my stock allocation. No plans to sell it, but no plans to add to it either.

IMO international stocks should never be included in the PP: http://gyroscopicinvesting.com/forum/ht ... 248#p13248

I think an S&P 500 index is close enough to the total stock market.  If it were me I'd keep things simple and use that fund by itself and ignore the small caps.

I like to split my Equities 50-50 between US and International. In doing so, I essentially have 37.25% of my portfolio in non-US assets. Otherwise, I'd only have 25% in non-US Assets (i.e. gold).

The point of equities is to gain during times of prosperity. I believe during prosperity, both international and US stocks will increase.

Here's a question for you. If US Stocks were down 15% last year and international stocks gained 1%, how would you feel then? Your decision should be based on looking forward, not back. Otherwise you might think to overexpose to international if you analyze the situation in years when international does great.

I don't look at it as international did -15% and US did +2%. I look it as my equities did -6.5% for the year.

I respect the opinion of other's such as CraigR who prefers to avoid international entirely. Figure out what works for you and stick with it. If the Global Equity fund had a lower ER (And it's 45% US, 55% International), then I'd like use that. Instead I find a 50-50 split is close enough.

TripleB wrote: I like to split my Equities 50-50 between US and International. In doing so, I essentially have 37.25% of my portfolio in non-US assets. Otherwise, I'd only have 25% in non-US Assets (i.e. gold).

I respect the opinion of other's such as CraigR who prefers to avoid international entirely. Figure out what works for you and stick with it. If the Global Equity fund had a lower ER (And it's 45% US, 55% International), then I'd like use that. Instead I find a 50-50 split is close enough.

It seems like we ought to be treating some portion of a domestic equity index as international as well, since a signficant percentage of earnings come from foreign markets.

TripleB wrote: I like to split my Equities 50-50 between US and International. In doing so, I essentially have 37.25% of my portfolio in non-US assets. Otherwise, I'd only have 25% in non-US Assets (i.e. gold).

I'm with you, TripleB, in that I am bullish on international in the long run, particularly the Pacific Rim. Only problem is it can mess up the inverse correlation between assets in a US-based PP, IMO. Could make a global PP by put together a 50-50 mix of US vs international bonds and a 50-50 mix of US vs foreign currencies, I suppose. But what I prefer is to keep the international assets in a separate VP.