Asset Allocation

He means that a "global market cap weighted portfolio" that you are aiming for would have a similar regional allocation to that ETF (which tracks the MSCI World index).

i.e. US = 58.06%, Australia 1.84%

Here's an alternative ETF that follows the FTSE World index:

Vanguard ETF Profile | Vanguard

 

The median market cap you are listing and using for allocation calculation is the median size of the companies contained in the ETF, not the "total" market cap of the geography/market segment covered.

 

Thank you all,

Updated based on region allocation, still not sure if/how small caps fit.


For what it's worth, this is how my current vanguard wholesale account compares:


Any comments welcome

 

If you want to get something close to World All Cap you will need small caps in there. What are you looking to achieve though? something like Lars Kroijer's suggested portfolio?

 

I wasn't familiar with him until now, but essentially yes.

His 3rd video here explains my intent exactly - primarily reducing concentration/home country risk, and by not including certain markets, I am essentially betting that they will under-perform.


I like using the wholesale BPay for behavioral reasons, so if Vanguard had the right tool it would be great, but I want to ensure I am including as much of the world markets as possible.

 

Now I have no problem with a world cap portfolio as it is extremely bogglehead-centric, but to be honest, your portfolio is pretty much 90% VGS. Might as well do 40% VGS 50% VGAD 10% VGE and it will achieve the same outcome. Having 2% in VAS will make minimal difference. Nor will adding anything below the allocation of 5% of total portfolio.

What if the world cap changes? Will you be reviewing the world cap every year, and adjusting your portfolio? If you really want world cap, why not just buy the IWLD ETF by Blackrock?

In my view simplicity trumps complexity. It is far easier to implement a simple portfolio by buying a single ETF, or having a three fund set allocation portfolio of VGS VGAD and VGE, than to be monitoring world cap yourself and changing allocation.

All just my 2c.

 

Yes, I would review each year to adjust target, maybe even monthly if it as simple as checking a website. It takes minimal time, and something of interest in the otherwise "boring" index investing. I have no way of knowing, but in 30-40 years, the global weighting could move significantly.

IWLD is only developed - does not include Emerging Markets, and does not tackle the currency target.
So then it would be 40% IWLD / 50% IHWL / 10% IEM - much the same as the Vanguard options but with Australia built in.

Agree on the simplicity - if we had a single ETF that did above it would be a no-brainer.

 

If anything under 5% was excluded as it makes no difference - The World index would just be US and Japan

 

Individually they don’t matter very much, but the other smaller countries all add up to well in excess of 5%. All I’m saying is creating a separate holding for yourself just for a measly 2% allocation really isn’t worth it IMO.

Mind you there are plenty of US bogleheads that just buy the SP500, even Buffet and Bogle advocates for no international. I think the idea of world cap is sound, but the implementation can be tricky if you need to add multiple funds and monitor them yourself.

 

Combine China & Hong Kong and you just scrape in at 5% for a 3rd

 

US Bogleheads can get diversification for pennies but actively choose against it. Boggles my mind.

They're actually pretty similar to Thornhill followers in some ways. Appeal to authority is a strong force.

 

I understand them although I don't agree with them. I mean US has outperformed for so long those people would be feeling pretty good about themselves. It's like small cap value where it makes sense theoretically to have it but it's been absolutely crushed for a decade.

I still choose to diversify but I am happy with a healthy amount of home country bias. This is something that will let me stick through all the ups and downs.

 

Just to update, I found the institutional vanguard VT site has more detail on FTSE all cap breakdown, so I have decided to use the 8.8% small cap exposure.
Vanguard - Product detail -

I thought I should also compare cost of wholesale vs ETF for those interested, only 0.02% overall, so wholesale wins for me due to brokerage and behavioural aspects.


Thanks all for your input

 

The funds you listed use the MSCI index, which will be slightly different to the FTSE. And VISM doesn't include Emerging Markets small caps. You just can't get a direct replication using Aussie domiciled ETFs.

The closest thing to it is using VTS/VEU, which is what I do - or trying to, as I've now got a ton of IHWL, purchased when the AUD was low. I also include super in calculating my asset/region allocation. My emerging markets allocation (also thanks to IHWL) is low, so I make up for it within super thanks to Sunsuper's Vanguard index options.

 

Does the last 20 years of Japanese ZRIP provide some hints on possible future asset performance for the rest of the developed markets over the next 20 years?

Asset Allocation Beyond the Zero Bound

You'll have to read the article to see what the answer was but the teaser quote

"What’s perhaps most interesting about the performance of these different asset classes is that they were nearly perfectly predicted by the yields of the different asset classes in 1999."

 

Interesting to reflect on changes to asset allocation since Mar 2019 when I first posted.

Was:
Australian Shares 31%
International Shares 13%
Cash, Fixed Interest 9%
Property Trusts 3%
Infra & Private Equity 1%
Direct Property 44%

Is:
Australian Shares 48%
International Shares 16% (12% developed, 4% emerging)
Direct Property 36%

Australian Shares are a mixture of VAS and low fee LICs (AUI, ARG, MIR seem to be my preferred). International shares are effectively VAS and VGE for developed and emerging markets respectively. Direct property excludes our home.

Fortunately we seem to be making progress towards diversifying away from direct property and have re-balanced our cash & fixed interest into shares. We hold cash in our loan offsets but not as an investment class.

The plan continues to further build up our international shares allocation to roughly 30% of total invested assets

I'm a bit wary of the richly-valued, mega-cap components of the S&P 500 at the moment though. Any words of wisdom from the brains trust?

 

Not that I fit that, but D.C.A.

 

Good point (and fortunately what I've been doing regardless). I've got at least 5-10 years of further accumulation ahead of me.....

Funny how we're adept at jumping at shadows that we don't need to worry about.....

 

DCA for me.

I am not worried about the premium. Technology is the expensive part in the S&P500 but that is where all the growth has been and growth always costs more unless you buy during bear markets but then you would be waiting a long time for bear market since they don't happen that often and history has shown even if you timed the bottom (not possible without luck) your long term returns would be not much different to investor just DCA all the way. And if you didn't time the bottom your returns would be worse than DCA.

Below is list of top 50 S&P500 companies by weightage. Total percentage of top 50 comes to just under 55%.

1 Microsoft Corporation 6.047615
2 Apple Inc. 5.734512
3 Amazon.com Inc. 4.682433
4 Facebook Inc. Class A 2.170272
5 Alphabet Inc. Class A 1.705409
6 Alphabet Inc. Class C 1.656328
7 Johnson & Johnson 1.436093
8 Berkshire Hathaway Inc. Class B 1.344405
9 Visa Inc. Class A 1.276461
10 Procter & Gamble Company 1.156792
11 UnitedHealth Group Incorporated 1.093755
12 JPMorgan Chase & Co. 1.091712
13 Home Depot Inc. 1.033444
14 Mastercard Incorporated Class A 1.031817
15 Intel Corporation 0.968056
16 NVIDIA Corporation 0.914522
17 Verizon Communications Inc. 0.876663
18 AT&T Inc. 0.828714
19 Adobe Inc. 0.824122
20 Netflix Inc. 0.810986
21 PayPal Holdings Inc 0.804556
22 Walt Disney Company 0.7835
23 Merck & Co. Inc. 0.768663
24 Cisco Systems Inc. 0.748253
25 Pfizer Inc. 0.741238
26 Exxon Mobil Corporation 0.720675
27 PepsiCo Inc. 0.711991
28 Bank of America Corp 0.70316
29 Comcast Corporation Class A 0.691261
30 AbbVie Inc. 0.673817
31 Coca-Cola Company 0.670794
32 salesforce.com inc. 0.67075
33 Walmart Inc. 0.652694
34 Chevron Corporation 0.637517
35 Abbott Laboratories 0.630818
36 Amgen Inc. 0.587397
37 Thermo Fisher Scientific Inc. 0.55877
38 Eli Lilly and Company 0.532157
39 Accenture Plc Class A 0.531362
40 McDonald's Corporation 0.527637
41 Costco Wholesale Corporation 0.521974
42 Bristol-Myers Squibb Company 0.517427
43 Broadcom Inc. 0.48767
44 Medtronic Plc 0.483087
45 NIKE Inc. Class B 0.47138
46 NextEra Energy Inc. 0.466328
47 American Tower Corporation 0.452888
48 Oracle Corporation 0.450206
49 Linde plc 0.449328
50 Texas Instruments Incorporated 0.446469

I feel fairly comfortable to have invested my money in these companies (+another 450). I use products and services from most of the above companies and truly believe they are great companies.

Cheers,
Oracle.

 

I think it depends on your time frame, risk comfort and belief in your chances of beatIng the market.

In the Aughties (post dot-com crash) growth stocks lagged. Post GFC they out-performed.

During the CV19 slump they outperformed again.

Logically they have less room to advance further. But I would have said the same thing 18 months ago, 6 months ago, and 3 months ago.

No-one knows.

Meanwhile, the numerous predictions that value (or EM) would once again have its day in the sun have all proved wrong.

This could change tomorrow.

I lump summed a pretty large amount (to me) in January.

I felt clever up until mid-Feb. Anticipating the effects of a pandemic, I thought about cashing out. But I was on holiday and thus too hard.

Then the market tanked and it was too late.

With the current bounce I feel like I’ve been given a second chance to sell at a price (10% off the peak) I would have been happy to accept back in March.

Given I’m more concerned about capital preservation than growth, I took that chance and am currently 70% cash/bonds.

I plan to DCA back in, or if there is another big slump lump sum back in.

Of course doing nothing would currently have a pretty positive result.

But as I see it, if the market was nervously high in January when earnings were expected to be normal, it is scarily high now when my VAS returns, for example, were a quarter of what they were last year.

I figure if I am too pessimistic I risk missing out on $200k or so of capital gains over the next year or so.

But I’d rather that than the 4x higher loss that optimism would create if the market tanks again.

All of which is a roundabout way of saying I wouldn’t be scared to enter the market, but would most certainly DCA.

And I’d put the bulk of the DCA into a boring old diversified fund like VDHG as your core, with a satellite tilt to growth if you feel inclined.

I have a smallish chunk in a couple of active growth funds for just that reason, or you could plump for an ETF like IOO or QUAL. They’ve done well, but I wouldn’t be brave enough to go all in.