Home country bias?

[HavocXphere]

So I'm busy building a portfolio that is diversified both across various countries and across currencies. Thanks to IB that is very feasible.

Cool beans. (As one of my lecturers was fond of saying)

Problem is that even if I have a perfectly diversified global portfolio (in the theoretical sense) I could still get fk'd over: Suppose the world barely moves yet my home currency/country gains massively...suddenly my well-diversified portfolio doesn't buy me as much tomatoes as I'm used to.

The obvious answer is buy more investments in my home country. Cool. How much? 20%? 50? 90?

Bonus question - what if I'm not sure what my future home country is?

Anyway...curious what people's thoughts are on this, because I see no obvious "correct" answer.

 

[NarrowBandFtw]

That and many more concerns make cash and some precious metals something to consider.

"keeping your powder dry" basically, when things do go pear in your home country, you are as liquid as possible and you're not really missing out on much growth in the current market.

 

[bchip]

The best answer is really your home country is where you buy groceries.
Then value everything from there.
(eg Whilst in SA, value in ZAR, move to Texas, value in USD)

The alternative is to stick to 1 currency all the way like USD, the strategy that most companies take.
This way you value everything like on like, every year.

It does get complex when this moves around.

True diversification though is almost meaningless imo.
If you were truly diversified you would have 20% in stocks, 20% in bonds, 20% commodities, 20% cash, 20% collectibles
(if I didn't miss one).
Then this is further split into local and international.
Then you get the 7 major economies (Asia, US $, South America, Europe, Nordic, Pacific, Africa)
(this list is my view not anything official)

So you would have 5*7 portfolios, which then have to be diversified within the sectors...

 

[FrankieK]

Personally I focus on the USA only. The investment opportunities is just so much more diverse. If you can't find it in States it probably doesn't exist. I also think for a truly diversified global portfolio a good place to start is State Street Global Advisors (SPDR). Low cost and anything you can think of. From the behemoth SPY all the way down. And they cover almost anything in most major markets.

As bchip mentioned you simply can not cover all the bases. You'll end up with a shedload of funds.

https://global.spdrs.com/

What I do like about the SPDRs is that they are big and liquid and most of them are optionable. One can then buy insurance on your gains.

 

[HavocXphere]

20% in stocks, 20% in bonds, 20% commodities, 20% cash, 20% collectibles

Well this is in the context of personal investment so it'll have a strong equity bias. I do get your point that diversification across asset classes is missing though.

So you would have 5*7 portfolios, which then have to be diversified within the sectors...

On the stock & bond side it does strike me as feasible.

If I'm buying something every month or so then it won't take long to cover all the major currencies & markets. And since I'm buying broad ETFs it's sector diversified.

Personally I focus on the USA only.

But then you're 100% exposed to ZAR/USD? Surely that's a dangerous strategy for holding long term wealth.

 

[FrankieK]

/snip

But then you're 100% exposed to ZAR/USD? Surely that's a dangerous strategy for holding long term wealth.

The USD/ZAR doesn't bother me as cost of living is very cheap in SA. From June it will be EUR/USD seeing that we got residency in Europe a while back. Which is why I went long the Euro at ±1.05. Seeing as all my income and assets are in USD, if the Euro strengthens I profit from my long position. If the Euro weakens my USD is worth more in Euro.

 

[bchip]

If I'm buying something every month or so then it won't take long to cover all the
major currencies & markets. And since I'm buying broad ETFs it's sector diversified.

Cool.

Out of curiosity then which ETFs are you choosing for Asia, and with which broker?

I quite like O9P from Singapore, but its obviously considered junk bonds.


Also how do you do it every month?

If I'm buying something every month or so then it won't take long to ...

Whenever I transfer money over from local to USD account banks charge me a minimum
of R250 (around R450 round trip). So I just didnt find it feasible to do this,
I prefer lump some every 4 months.

250*12 = R 3000 per annum just seems excessive in fees.

 

[bchip]

Which is why I went long the Euro at ±1.05. Seeing as all my income and assets are in USD, if the Euro strengthens I profit from my long position. If the Euro weakens my USD is worth more in Euro.

I still believe long term EURUSD will see 1.20

Dollar should be weakening

...its just a trade idea, will see what happens.

 

[HavocXphere]

Out of curiosity then which ETFs are you choosing for Asia, and with which broker?

Using IB for everything. I just pick whatever vanguard or similar has broad coverage (top 100 or whatever) and has lowest fee.

Thus far I've only bought Australia & US. Next up UK, Canada, Japan and India.

Anyway - as per original thread idea. Home currency has indeed strengthened and no I'm down a fair bit. That's the way the cookie crumbles I guess. Still haven't worked out how much is appropriate to hold in home currency. Was thinking 20% but that might not be enough. 40%?

Also how do you do it every month?
Whenever I transfer money over from local to USD account banks charge me a minimum
of R250 (around R450 round trip). So I just didnt find it feasible to do this,
I prefer lump some every 4 months.

I earn decent coin so thankfully have enough scale to make fees a non-issue. I'm also funding this via GBP so only doing FX conversion once (e.g. when buying Aussie shares), not at point of funding. Seems to work out at 0.2% one way.

 

[patrick]

Any reason why you just don't buy the Vanguard All World fund (VWRD, not VT!) and call it a day?

 

[HavocXphere]

Any reason why you just don't buy the Vanguard All World fund (VWRD, not VT!) and call it a day?

Chasing more after currency diversification than geo here. I did briefly consider buying multiple World EFTs but denominated in various currencies, but that isn't available in all currencies & this way (Aussie geo in Aussie currency) has a certain simplicity about it.

Plus the World fund is mostly US. I get why that is but still don't like it.

Will probably cover the EMs via a EM ETF though.

 

[FrankieK]

Chasing more after currency diversification than geo here. I did briefly consider buying multiple World EFTs but denominated in various currencies, but that isn't available in all currencies & this way (Aussie geo in Aussie currency) has a certain simplicity about it.

Plus the World fund is mostly US. I get why that is but still don't like it.

Will probably cover the EMs via a EM ETF though.

If you are feeling adventurous have a look at Stone Harbor Emerging Markets Income Fund closed-end fund. IB ticker EDF. 13.4% monthly dividend.

Caveat emptor

 

[HavocXphere]

If you are feeling adventurous have a look at Stone Harbor Emerging Markets Income Fund closed-end fund. IB ticker EDF. 13.4% monthly dividend.

Caveat emptor

haha might just throw some money at it.

Actually looking for the opposite though - I don't pay capital gains tax, but I do get taxed on divs. So the further I can get from dividends the better.