I currently have an asset allocation of around 60% stocks (100% VT) and 40% stocks (2nd pillar, 3rd pillar). Now although VT is already quite broad in terms of diversification as it covers the whole world I wonder which direction I should better diversify my portfolio.
After looking a while I am under the impression that I should either go for an ETF in emerging markets and / or an ETF in real estate investments. I was thinking of an allocation of around 10% of my portfolio in on of these types of ETF. What do you think?
As I am with DEGIRO for broker I am inclined to the following two ETFs which are free of transaction charge:
Regarding REIT I chose the European one based on lower riskiness but they also have Asia (IE00B1FZS244), Global (IE00B1FZS350) and US (IE00B1FZSF77) available. But I am not scared of taking more risk here for better performance as this would only be a 10% part of my portfolio and I am anyway in for the long-term.
Maybe I should skip REIT as a diversification class for my portfolio…
Then another alternative type would be small caps ETFs such as VBR (Vanguard Small-Cap Value ETF-> https://institutional.vanguard.com/iippdf/pdfs/FS937R.pdf) because as far as I understand VT has no small cap stocks included. Meaning both VT and VBR should not have the same stocks.
American Towers corp, the second biggest position of VGSIX is part of VT (~89th position). Crown Castle International Corp, the 3rd position of VGSIX is ~113th of VT.
If you pay some wealth tax (~0.3% or more), you can buy swiss real estate mutual funds that owns directly the buildings. But if you don’t, then it is not for you because you clearly want to buy 70 companies, not 70 buildings.
Thanks @yakari for the video about REITs, I will stay away from REITs… and consider EM or small cap ETF instead.
Now regarding VT has no small cap you sent me a link to the portfolio of VT which shows that VT includes large and mid cap. So by sending me this link did you mean to confirm that VT has no small cap in its porftolio?
I am now more focused on going for a small cap ETF which, if possible, is more towards value stocks than growth stocks. It seems to me like VBR (Vanguard Small-Cap Value) it the best fit and has a low TER on top of that. But it covers “only” the US market.
My two other alternatives would be the following two European ETFs:
Interesting picks VIOV although there does not seem to be much “movement”.
Maybe I should formulate my initial question differently: does anyone have an idea in VT which stock class/category/etc is not at all or most underrepresented?
Thanks @djabsil that’s a nice feature morningstar offers… I was now trying to calculate the “emerging markets” exposre of VT using the very same tool (region) and would it be correct to say that VT has an emerging market exposure of 6.9% ?
I calculated that 6.9% by adding the two regions “Europe Emerging” with 0.69% and “Asia Emerging” with 6.21%. Or should I also add “Latin America” and “Africa/Middle East” to this number? Not totally sure if these should be considered as emerging markets within VT… but then that would sum up to 9.09% exposure to emerging markets.
I just don’t see the point in disecting this ETF. It’s basically the whole world (8400 stocks that make up 99% of the global free float market cap) with neutral weighting of all factors, regions etc.
Thanks @Cortana for the link to the vanguard website, I should have directly looked at the source like you say. All the information I am looking for is there and in fact it is 9.8% exposure to emerging markets.
My point of dissecting the VT ETF still remains to simply find out what class is mostly underexposed in VT in order to complement that underexposure with another ETF as I am currently 100% in with VT I would like to diversify.
Knowing now that VT has an 9.8% exposure in emerging markets I conclude more and more that small (value) cap is what is mostly underexposed in VT. Except if I am missing something else… hence the discussion in the forum post.
How do you define underexposed? By definition VT has the market based exposure to (almost) all equities. What you seem to seek is to overexpose yourself, I assume based on some criteria like potential for higher reward (with more volatility) for small caps and emerging.
Right, I should have expressed myself from the other way round: I am looking into overexposing me to a specific type/class of ETF which is the least covered by VT.
Interesting forum post read on bogleheads.org thanks for sharing. I do understand from that article that some people think value investing is sort of dead… that makes things even more confusing.
But as mentioned earlier, by definition everything in VT is (mostly) correctly covered.
From what you’re saying you could pick any asset class (pharma, real estate, finance, small cap, south america, …), and decide to overexpose. It’s fine if you want a less passive approach, but maybe you should have at least some kind of justification why.
I see, well it reassures me to know that having 100% of my stocks in VT is so well diversified. Basically my only justification for adding some other class of ETF is to add more risk and get back some risk premium out if it in the best case.
I have been playing a bit with the portfolio visualizer web tool and I can’t find any combination of VT + VSS or VBR or AVDV portfolio which beats 100% VT portfolio… Is 100% VT sort of unbeatable, or am I using this tool wrongly or missing something?
Value and small value underperformed the market in the last 25 years. While it’s still possible that small value has a positive premium, you might need decades to really capture it. I’m not sure if it’s worth the hassle. Even if SCV outperforms the market 1%/year, what would that mean for your overall portfolio if you invest 10% in it? 0.1%/year performance boost? Would this really make a difference for reaching your goals?
Better to keep it simple and just invest in VT. That way you’ll never underperform the market. After 15 years you will outperform 90% of all market participants. After 25 years probably 95-98%.
Thanks for your insight @Cortana that totally makes sense and so I will keep it simple with 100% VT. I still have some excess cash in my portfolio to put into it so it’s buying time
My last concerns with 100% VT are having 1) everything in one single product (VT) 2) everything in an American company (Vanguard) 3) everything in USD. But on the other hand I would not trust UBS more than Vanguard and I have to place my money somewhere to make it “work”…
VT is just a basket, not really a “product”. You are literally owning 8400 different stocks from 46 different countries. USD is just the trading currency of the basket, the underlying assets are still in many different currencies. It’s like buying physical gold in CHF, USD or EUR. The currency will just affect the FX costs, but the asset (gold) will determine the value. With VT: 58% is invested in US, so that part is in USD. 7.7% is invested in Japan, so that part is in YEN. 4.2% in UK, so that part in GBP. 2.7% in Switzerland, so that part in CHF. And so on. It gets even more complex because we are talking about highly globalized companies. Nestle for example makes 98% of it’s revenues outside of Switzerland, all around the world. So by owning Nestle stocks, are you really investing in CHF and Switzerland or are you investing in all sorts of currencies and all around the world? See, this is the beauty of owning the whole market. You don’t have to think about any of that in detail. You are just participating in the growth of the whole world, wherever this happens to be. And you’ll never have to worry about underperforming. Even Warren Buffet underperformed the market for the last 20 years and he admitted that the best thing you could do is just buy the index fund.
And don’t worry about Vanguard. They have 6000 billion USD assets under management and they were founded by John Bogle. The father of the index fund. He who gave us the possibility to invest in a extremely cheap and efficient way. We as investors will always be their top priority.
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