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international stock exposure for a semi-nomadic American

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George Rivers:
Hmmm... I'm still swirling this around in my head-- old habits die hard.  Let me take the contrarian position for a second-- mostly because I'm trying to convince myself :).

I just read Vanguard's take on international exposure:
https://personal.vanguard.com/pdf/icriecr.pdf

If I understand correctly, the sweet spot is around 30-40% (75 basis points), but likely 30% because it captures 84% of the maximum benefit (63 basis points) without incurring higher expense ratios, etc.  That *sounds* like a lot but 63 basis points is 0.63% or 0.0063 in less volatility.  Unless I'm misreading something, 0.63% sounds like a fart in the grand scheme of things.  For a 1M portfolio that's $6,300.  I think we can do better by relocating to Thailand for that year ;-).

Also, although I'm interested in currency risk, the truth is that an international index has exposure to many currencies which all act independently.  So if I'm living in Vietnam and inflation flares up as you mentioned, the likelihood that the international index has a significant exposure to the Vietnamese Dong to make my 25% international stocks make a difference is slim.  And I'm not just picking on the Dong, Europe can't fare that much better if my actual portfolio has 25% of my 90% of stocks (22.5%).  How much of that actual 22% is hedging the dollar against the euro?  Will it make any measurable difference?

Ughhh... I think I've just sunk enough time into this that I can no longer say I'm passively investing :-/.  This definitely takes more time than my previous approach of 2 funds, go to sleep.

I'm not entirely convinced either way, but I think that as you have said, ultimately the best hedge is being flexible and having a low withdrawal rate.  Being able to move and spend less is likely to benefit us far more than 63 basis points.  In the meantime I'm doing some minor rebalancing in my tax advantaged accounts-- as I said, not convinced either way :).

p.s. I'm anxiously awaiting your international investing blog post.  I'm sure it'll blow my mind.

gocurrycracker:

--- Quote from: George Rivers on April 19, 2018, 11:00:23 AM ---
If I understand correctly, the sweet spot is around 30-40% (75 basis points), but likely 30% because it captures 84% of the maximum benefit (63 basis points) without incurring higher expense ratios, etc. 

--- End quote ---

Assuming there is a sweet spot. The ideal allocation will vary depending on when you pick your starting and end dates for the analysis. This analysis is also from the perspective of somebody living and spending in USD.

True, the international stock fund is in many currencies. If the Euro is your future, you probably want more of a Euro centric fund, e.g. VGK, or a combination.

To quote my younger self:

--- Quote from: gocurrycracker on April 17, 2018, 08:10:35 AM ---But how much? And what is the best way to do that? I dunno.

--- End quote ---

Often times people make this currency commitment through real estate, e.g. buying a house. Or purchasing an annuity hedged for a specific currency. Or as we have been discussing, holding other assets (stocks, bonds) in the target currency.

But there is also location flexibility. If you are committed to life in Spain (for example) with family, kids in school, long term housing, etc... then you might make a stronger commitment than if you are ready to up and move to Vietnam if the Euro gets too expensive for awhile.

In our case, although we have essentially setup Taiwan as a home base, I have no intention of moving funds into TWD or transferring assets here. If things go crazy we'll leave.

re: passive investing
If you were following the index approach philosophy in it's purity, you would hold all assets at market weight. So you would hold roughly 50% of equities as International. It's possible to passively have home bias or passively have poor asset allocation.


re: our asset allocation
I think I pulled the 75/25 target for our US/Intl equities from this chart (or related)
https://www.bogleheads.org/wiki/File:US-International.png#filehistory

George Rivers:
Dude, pure gold, pure gold!  I'm loving all this awesome advice.

I've migrated what I could in my tax advantaged accounts, and will use upcoming funds to reach an allocation of 20-25% over the next year or so.

Thanks so much for the feedback. 

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