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Re: International (Non-US) versus US Equities (The “Arguments”)
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by CraigTester »
coastFIREdude wrote: ↑Sat Sep 14, 2024 1:09 pmCraigTester wrote: ↑Sat Sep 14, 2024 12:59 pmcoastFIREdude wrote: ↑Sat Sep 14, 2024 12:49 pmCraigTester wrote: ↑Sat Sep 14, 2024 12:34 pmBeensabu wrote: ↑Sat Sep 14, 2024 12:21 pmIt is doing that preliminary break up after which permitting drift in order that the allocation adjustments over time in accordance with altering market capitalization with out you doing something.
The comparative change in value is predicated on that. Rebalancing (resetting again to unique allocation when drift happens) is predicated on sustaining a constant threat profile over time.
Valuation adjustments will finally result in rebalancing, as a result of threat issues.
Rebalancing is a kind of neat ideas that has loads of different ideas baked into it, and also you needn’t know, perceive, or agree with them so as to get the profit.
What are your ideas on updating the OP’s 20% Int’l class….
It at the moment says, “Valuations aren’t actionable”…. But this group makes use of adjustments in valuations to take care of their static 20-80 break up….
This “inconsistency” could also be resulting in confusion, like above….
Right. In case you do not consider valuations are actionable, I do not know how one can keep a goal allocation.
Sure, altering valuations is the market’s instrument for adjusting to altering threat.
So if somebody repeatedly rebalances again to some arbitrary static ratio like 20-80, they’re really undoing the market’s adjustment to threat….
They’re “combating the market” (shopping for and promoting primarily based on altering valuations)….
So it’s extremely complicated for them to state that “Valuations aren’t actionable”
Once more, perhaps I am dumb, however do not valuations decide the composition of indexes within the first place? Aren’t indexes merely composites primarily based on relative valuations of various shares and bonds?
Columbo wasn’t dumb both….
So do you could have a proposal to replace the language within the OP…
As a rule, so as to scale back my biases from affecting the record within the OP, I prefer to have another person suggest the language….After which let different’s weigh in earlier than doing an replace….
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Re: International (Non-US) versus US Equities (The “Arguments”)
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by coastFIREdude »
CraigTester wrote: ↑Sat Sep 14, 2024 1:15 pmcoastFIREdude wrote: ↑Sat Sep 14, 2024 1:09 pmCraigTester wrote: ↑Sat Sep 14, 2024 12:59 pmcoastFIREdude wrote: ↑Sat Sep 14, 2024 12:49 pmCraigTester wrote: ↑Sat Sep 14, 2024 12:34 pmWhat are your ideas on updating the OP’s 20% Int’l class….
It at the moment says, “Valuations aren’t actionable”…. But this group makes use of adjustments in valuations to take care of their static 20-80 break up….
This “inconsistency” could also be resulting in confusion, like above….
Right. In case you do not consider valuations are actionable, I do not know how one can keep a goal allocation.
Sure, altering valuations is the market’s instrument for adjusting to altering threat.
So if somebody repeatedly rebalances again to some arbitrary static ratio like 20-80, they’re really undoing the market’s adjustment to threat….
They’re “combating the market” (shopping for and promoting primarily based on altering valuations)….
So it’s extremely complicated for them to state that “Valuations aren’t actionable”
Once more, perhaps I am dumb, however do not valuations decide the composition of indexes within the first place? Aren’t indexes merely composites primarily based on relative valuations of various shares and bonds?
Columbo wasn’t dumb both….
So do you could have a proposal to replace the language within the OP…
As a rule, so as to scale back my biases from affecting the record within the OP, I prefer to have another person suggest the language….After which let different’s weigh in earlier than doing an replace….
I suppose it’s best to market weight your allocation primarily based on the present market weighting of worldwide equities. If the US is 30% of worldwide market cap, it ought to get 30% of your fairness investments. The identical guidelines can doubtless apply to bonds.
I am new to investing, that is simply my restricted understanding.
Re: International (Non-US) versus US Equities (The “Arguments”)
coastFIREdude wrote: ↑Sat Sep 14, 2024 12:48 pm
I am unable to even inform if you’re for or in opposition to rebalancing.
Do I’ve to be for or in opposition to?
In case you do not rebalance, you might be letting the winners run and your portfolio turns into riskier than initially meant. Good whereas the winners are profitable.
In case you do rebalance, you might be sustaining the danger stage initially meant and taking earnings. Good when the winners cease profitable.
That is simply how it’s. You resolve what you need, and you reside along with your choice.
“The one factor that makes life potential is everlasting, insupportable uncertainty; not realizing what comes subsequent.” ~Ursula LeGuin
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Re: International (Non-US) versus US Equities (The “Arguments”)
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by CraigTester »
Beensabu wrote: ↑Sat Sep 14, 2024 5:38 pmcoastFIREdude wrote: ↑Sat Sep 14, 2024 12:48 pm
I am unable to even inform if you’re for or in opposition to rebalancing.Do I’ve to be for or in opposition to?
In case you do not rebalance, you might be letting the winners run and your portfolio turns into riskier than initially meant. Good whereas the winners are profitable.
In case you do rebalance, you might be sustaining the danger stage initially meant and taking earnings. Good when the winners cease profitable.
That is simply how it’s. You resolve what you need, and you reside along with your choice.
You’re highlighting an vital choice level
Ought to we simply let the market accommodate for altering threat with its altering valuation ranges…, after which float together with it…
Or ought to we over-ride the market by rebalancing (primarily based on altering valuations) again to an arbitrary ratio like 20-80….?
Importantly, this motion means we’re stepping in and disagreeing with the market.
So if we select to override the market, we have to delete the Argument within the OP for 20% Int’l that “valuations aren’t actionable”….
Let’s resolve how greatest to proceed….and replace the OP to replicate our choice….
Re: International (Non-US) versus US Equities (The “Arguments”)
coastFIREdude wrote: ↑Sat Sep 14, 2024 1:09 pmCraigTester wrote: ↑Sat Sep 14, 2024 12:59 pmcoastFIREdude wrote: ↑Sat Sep 14, 2024 12:49 pmCraigTester wrote: ↑Sat Sep 14, 2024 12:34 pmBeensabu wrote: ↑Sat Sep 14, 2024 12:21 pmIt is doing that preliminary break up after which permitting drift in order that the allocation adjustments over time in accordance with altering market capitalization with out you doing something.
The comparative change in value is predicated on that. Rebalancing (resetting again to unique allocation when drift happens) is predicated on sustaining a constant threat profile over time.
Valuation adjustments will finally result in rebalancing, as a result of threat issues.
Rebalancing is a kind of neat ideas that has loads of different ideas baked into it, and also you needn’t know, perceive, or agree with them so as to get the profit.
What are your ideas on updating the OP’s 20% Int’l class….
It at the moment says, “Valuations aren’t actionable”…. But this group makes use of adjustments in valuations to take care of their static 20-80 break up….
This “inconsistency” could also be resulting in confusion, like above….
Right. In case you do not consider valuations are actionable, I do not know how one can keep a goal allocation.
Sure, altering valuations is the market’s instrument for adjusting to altering threat.
So if somebody repeatedly rebalances again to some arbitrary static ratio like 20-80, they’re really undoing the market’s adjustment to threat….
They’re “combating the market” (shopping for and promoting primarily based on altering valuations)….
So it’s extremely complicated for them to state that “Valuations aren’t actionable”
Once more, perhaps I am dumb, however do not valuations decide the composition of indexes within the first place? Aren’t indexes merely composites primarily based on relative valuations of various shares and bonds?
No.
You might hypothetically might have the very same relative market cap weightings between shares at a median PE of 15 as at a PE of 30.
Instance:
If all inventory costs fall by precisely 50%, the relative market cap weightings within the index will keep the identical, even when the PE will get minimize in half.
International shares, IG/HY bonds, gold & digital belongings at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: International (Non-US) versus US Equities (The “Arguments”)
CraigTester wrote: ↑Sat Sep 14, 2024 6:40 pmBeensabu wrote: ↑Sat Sep 14, 2024 5:38 pm
In case you do not rebalance, you might be letting the winners run and your portfolio turns into riskier than initially meant. Good whereas the winners are profitable.In case you do rebalance, you might be sustaining the danger stage initially meant and taking earnings. Good when the winners cease profitable.
That is simply how it’s. You resolve what you need, and you reside along with your choice.
You’re highlighting an vital choice level
Ought to we simply let the market accommodate for altering threat with its altering valuation ranges…, after which float together with it…
Or ought to we over-ride the market by rebalancing (primarily based on altering valuations) again to an arbitrary ratio like 20-80….?
It is not an arbitrary ratio, identical to a inventory:bond AA is not an arbitrary ratio if it does not match the ratio of worldwide inventory market capitalization to international bond market capitalization.
That is the danger profile that some individuals have chosen for varied causes that they’ve said beforehand on this thread.
Importantly, this motion means we’re stepping in and disagreeing with the market.
The market just isn’t some type of all-knowing and omnipotent entity. It is simply the market.
CraigTester wrote: ↑Sat Sep 14, 2024 6:40 pm
Let’s resolve how greatest to proceed….and replace the OP to replicate our choice….
As an alternative of specializing in valuations, perhaps make an try to deal with threat.
“The one factor that makes life potential is everlasting, insupportable uncertainty; not realizing what comes subsequent.” ~Ursula LeGuin
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Re: International (Non-US) versus US Equities (The “Arguments”)
Post
by CraigTester »
Beensabu wrote: ↑Sat Sep 14, 2024 7:43 pmCraigTester wrote: ↑Sat Sep 14, 2024 6:40 pmBeensabu wrote: ↑Sat Sep 14, 2024 5:38 pm
In case you do not rebalance, you might be letting the winners run and your portfolio turns into riskier than initially meant. Good whereas the winners are profitable.In case you do rebalance, you might be sustaining the danger stage initially meant and taking earnings. Good when the winners cease profitable.
That is simply how it’s. You resolve what you need, and you reside along with your choice.
You’re highlighting an vital choice level
Ought to we simply let the market accommodate for altering threat with its altering valuation ranges…, after which float together with it…
Or ought to we over-ride the market by rebalancing (primarily based on altering valuations) again to an arbitrary ratio like 20-80….?
It is not an arbitrary ratio, identical to a inventory:bond AA is not an arbitrary ratio if it does not match the ratio of worldwide inventory market capitalization to international bond market capitalization.
That is the danger profile that some individuals have chosen for varied causes that they’ve said beforehand on this thread.
Importantly, this motion means we’re stepping in and disagreeing with the market.
The market just isn’t some type of all-knowing and omnipotent entity. It is simply the market.
CraigTester wrote: ↑Sat Sep 14, 2024 6:40 pm
Let’s resolve how greatest to proceed….and replace the OP to replicate our choice….As an alternative of specializing in valuations, perhaps make an try to deal with threat.
Valuations and threat are intertwined.
When the market determines that threat has elevated or decreased, valuations modify to compensate.
So if an investor reacts to those altering valuations by shopping for and promoting, he’s merely undoing every thing the market simply did.
Why would an investor take such a step except they consider that adjustments in valuations are actionable, and the market is incorrect?
Re: International (Non-US) versus US Equities (The “Arguments”)
The chance is that valuations usually are not appropriate.
When the market determines that threat has elevated or decreased, valuations modify to compensate.
Valuation adjustments not related to fundamentals are speculative.
So if an investor reacts to those altering valuations by shopping for and promoting, he’s merely undoing every thing the market simply did.
The investor is managing the danger of some portion of fixing valuations being pushed by hypothesis.
Why would an investor take such a step except they consider that adjustments in valuations are actionable, and the market is incorrect?
Once more, the market just isn’t omniscient. It is simply individuals (or algos) deciding what value they wish to pay for varied securities, with both their very own or another person’s cash.
Edit: It is nearly such as you’re coming at this as market cap weighting vs. strategic asset allocation. These aren’t mutually unique. The three-fund portfolio is strategic asset allocation that makes use of market cap weighted index funds…
“The one factor that makes life potential is everlasting, insupportable uncertainty; not realizing what comes subsequent.” ~Ursula LeGuin
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Re: International (Non-US) versus US Equities (The “Arguments”)
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by CraigTester »
Beensabu wrote: ↑Solar Sep 15, 2024 1:41 amThe chance is that valuations usually are not appropriate.
When the market determines that threat has elevated or decreased, valuations modify to compensate.
Valuation adjustments not related to fundamentals are speculative.
So if an investor reacts to those altering valuations by shopping for and promoting, he’s merely undoing every thing the market simply did.
The investor is managing the danger of some portion of fixing valuations being pushed by hypothesis.
Why would an investor take such a step except they consider that adjustments in valuations are actionable, and the market is incorrect?
Once more, the market just isn’t omniscient. It is simply individuals (or algos) deciding what value they wish to pay for varied securities, with both their very own or another person’s cash.
Edit: It is nearly such as you’re coming at this as market cap weighting vs. strategic asset allocation. These aren’t mutually unique. The three-fund portfolio is strategic asset allocation that makes use of market cap weighted index funds…
The disconnect comes when somebody is saying “valuations are NOT actionable”, but takes motion when valuations change.
You can’t maintain a hard and fast ratio like 80-20 US-Int’l, except you repeatedly take the motion of promoting the winner, and shopping for the loser, as valuations change.
Suppose it via, our OP must be corrected to accommodate for this logic inconsistency for 20% Int’l
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Re: International (Non-US) versus US Equities (The “Arguments”)
Post
by coastFIREdude »
CraigTester wrote: ↑Solar Sep 15, 2024 3:44 amBeensabu wrote: ↑Solar Sep 15, 2024 1:41 amThe chance is that valuations usually are not appropriate.
When the market determines that threat has elevated or decreased, valuations modify to compensate.
Valuation adjustments not related to fundamentals are speculative.
So if an investor reacts to those altering valuations by shopping for and promoting, he’s merely undoing every thing the market simply did.
The investor is managing the danger of some portion of fixing valuations being pushed by hypothesis.
Why would an investor take such a step except they consider that adjustments in valuations are actionable, and the market is incorrect?
Once more, the market just isn’t omniscient. It is simply individuals (or algos) deciding what value they wish to pay for varied securities, with both their very own or another person’s cash.
Edit: It is nearly such as you’re coming at this as market cap weighting vs. strategic asset allocation. These aren’t mutually unique. The three-fund portfolio is strategic asset allocation that makes use of market cap weighted index funds…
The disconnect comes when somebody is saying “valuations are NOT actionable”, but takes motion when valuations change.
You can’t maintain a hard and fast ratio like 80-20 US-Int’l, except you repeatedly take the motion of promoting the winner, and shopping for the loser, as valuations change.
Suppose it via, our OP must be corrected to accommodate for this logic inconsistency for 20% Int’l
I agree. There’s a disconnect. Right here is my present understanding:
1. In case you consider valuations usually are not actionable, you should not use market cap weighted indexes in any respect. You can purchase indexes with some kind of completely different weighting mechanism. You need to decide your US and ex-US allocation from some measurement apart from market cap weight.
2. In case you consider valuations are actionable, use market cap weighted indexes. Put money into international equities at their respective market cap weights. Let the market do the remaining.
It appears very unusual to me that almost all of posters right here spend money on funds like VTI however then maintain that valuations usually are not actionable. VTI is a market cap weighted index. However then in the case of the US vs. ex-US dialog, they are saying valuations usually are not actionable.
I believe there’s one other disconnect. Rebalancing is an motion – so just isn’t rebalancing. Holding is an motion.
Re: International (Non-US) versus US Equities (The “Arguments”)
coastFIREdude wrote: ↑Solar Sep 15, 2024 5:29 amCraigTester wrote: ↑Solar Sep 15, 2024 3:44 amBeensabu wrote: ↑Solar Sep 15, 2024 1:41 amThe chance is that valuations usually are not appropriate.
When the market determines that threat has elevated or decreased, valuations modify to compensate.
Valuation adjustments not related to fundamentals are speculative.
So if an investor reacts to those altering valuations by shopping for and promoting, he’s merely undoing every thing the market simply did.
The investor is managing the danger of some portion of fixing valuations being pushed by hypothesis.
Why would an investor take such a step except they consider that adjustments in valuations are actionable, and the market is incorrect?
Once more, the market just isn’t omniscient. It is simply individuals (or algos) deciding what value they wish to pay for varied securities, with both their very own or another person’s cash.
Edit: It is nearly such as you’re coming at this as market cap weighting vs. strategic asset allocation. These aren’t mutually unique. The three-fund portfolio is strategic asset allocation that makes use of market cap weighted index funds…
The disconnect comes when somebody is saying “valuations are NOT actionable”, but takes motion when valuations change.
You can’t maintain a hard and fast ratio like 80-20 US-Int’l, except you repeatedly take the motion of promoting the winner, and shopping for the loser, as valuations change.
Suppose it via, our OP must be corrected to accommodate for this logic inconsistency for 20% Int’l
I agree. There’s a disconnect. Right here is my present understanding:
1. In case you consider valuations usually are not actionable, you should not use market cap weighted indexes in any respect. You can purchase indexes with some kind of completely different weighting mechanism. You need to decide your US and ex-US allocation from some measurement apart from market cap weight.
2. In case you consider valuations are actionable, use market cap weighted indexes. Put money into international equities at their respective market cap weights. Let the market do the remaining.
It appears very unusual to me that almost all of posters right here spend money on funds like VTI however then maintain that valuations usually are not actionable. VTI is a market cap weighted index. However then in the case of the US vs. ex-US dialog, they are saying valuations usually are not actionable.
I believe there’s one other disconnect. Rebalancing is an motion – so just isn’t rebalancing. Holding is an motion.
You may even take a look at market cap funding as a type of efficiency chasing. You purchase proportionally extra shares that went up extra. It really works fairly nicely, so it is high quality. Nonetheless, shopping for market cap funds whereas claiming to be anti-performance chasing is a bit inconsistent.