50% VTI (US Total Market Index), 25% AVUV (US Small-cap value), 25% AVDV (Developed World Ex-US Small-cap value)
Important to note I still have, if I'm lucky, 35 years or more until retirement. I'm betting the value factor premium will re-emerge at some point during that time. As I get closer to retirement I'll rotate into more broadly diversified/conservative stocks, but I see little point in holding bond funds in a portfolio for my situation.
That's not to say I won't own bonds outright when it makes sense. A good chunk of my security fund is in T-Bills and I-Bonds. But I can say from having lived through market downturns that I don't panic-sell, so the "portfolio stability" argument for bonds is largely wasted on me. In retirement I plan to keep a multi-year cushion in a Federal Asset Money Market account (to avoid state/local taxes) and the rest 100% stocks to maximize total long-term returns.
I'm a recipient of modest generational inheritance myself, my grandparents were dirt poor, my parents made it to upper middle class. It's part of my job to keep the generational snowball rolling for my kids and (hopefully) future grandkids. Particularly if wealth inequality isn't going to get any better.
I ditched large cap international because of the example of the Japanese stock market, where from 1990 - 2019 the Japanese market as a whole stagnated but Japanese small cap value stocks delivered between 5.4% and 8% annualized depending on whose index you're using.
https://www.pwlcapital.com/wp-content/uploads/2020/12/Five-F... (Page 19)
Given population demographics, I see most of Europe and developed Asia going the way of Japan and am betting their equity markets will show similar characteristics. Never mind that even during good times there has been a historical small-cap value premium in most of those regions, although not as pronounced as in the US.
Ditching emerging markets is part practical part political. The practical aspect is most emerging market funds have a sizeable allocation to Chinese stocks. Chinese stocks have failed to produce reliable returns and are incredibly distorted by the Chinese government picking winners and losers, sometimes at gunpoint. I don't want to bet my financial future on how Xi feels about his breakfast on any given morning. Additionally, China is a geopolitical adversary. Yes it's impossible to completely cut them out of one's supply chain, but I can avoid directly boosting their financial markets.
As for the few emerging markets funds that don't include China, they include other nations such as Saudi Arabia that I'm hesitant to actively invest in for political reasons. I also think emerging markets in general are going to get screwed for the next few decades as globalization declines, climate change becomes more impactful, and the world generally becomes more dangerous and chaotic. There may be money to be made in EM, but I doubt it will be consistent or as simple as investing in an EM index fund.
Comments
50% VTI (US Total Market Index), 25% AVUV (US Small-cap value), 25% AVDV (Developed World Ex-US Small-cap value)
Important to note I still have, if I'm lucky, 35 years or more until retirement. I'm betting the value factor premium will re-emerge at some point during that time. As I get closer to retirement I'll rotate into more broadly diversified/conservative stocks, but I see little point in holding bond funds in a portfolio for my situation.
That's not to say I won't own bonds outright when it makes sense. A good chunk of my security fund is in T-Bills and I-Bonds. But I can say from having lived through market downturns that I don't panic-sell, so the "portfolio stability" argument for bonds is largely wasted on me. In retirement I plan to keep a multi-year cushion in a Federal Asset Money Market account (to avoid state/local taxes) and the rest 100% stocks to maximize total long-term returns.
I'm a recipient of modest generational inheritance myself, my grandparents were dirt poor, my parents made it to upper middle class. It's part of my job to keep the generational snowball rolling for my kids and (hopefully) future grandkids. Particularly if wealth inequality isn't going to get any better.
What's your reasoning for ditching VEA and emerging markets?
I ditched large cap international because of the example of the Japanese stock market, where from 1990 - 2019 the Japanese market as a whole stagnated but Japanese small cap value stocks delivered between 5.4% and 8% annualized depending on whose index you're using. https://www.pwlcapital.com/wp-content/uploads/2020/12/Five-F... (Page 19)
Given population demographics, I see most of Europe and developed Asia going the way of Japan and am betting their equity markets will show similar characteristics. Never mind that even during good times there has been a historical small-cap value premium in most of those regions, although not as pronounced as in the US.
Ditching emerging markets is part practical part political. The practical aspect is most emerging market funds have a sizeable allocation to Chinese stocks. Chinese stocks have failed to produce reliable returns and are incredibly distorted by the Chinese government picking winners and losers, sometimes at gunpoint. I don't want to bet my financial future on how Xi feels about his breakfast on any given morning. Additionally, China is a geopolitical adversary. Yes it's impossible to completely cut them out of one's supply chain, but I can avoid directly boosting their financial markets.
As for the few emerging markets funds that don't include China, they include other nations such as Saudi Arabia that I'm hesitant to actively invest in for political reasons. I also think emerging markets in general are going to get screwed for the next few decades as globalization declines, climate change becomes more impactful, and the world generally becomes more dangerous and chaotic. There may be money to be made in EM, but I doubt it will be consistent or as simple as investing in an EM index fund.