ETF World Portfolio - which stock exchange? Vanguard vs. iShares?

Your risk assessment has changed and you are adapting your allocation to match your risk tolerance. I’d take the time to get sure that this is really the allocation I want and that it is a long term change, then sell/buy assets to match my new allocation and not look back.

In case you experience second guessing right after having matched your new allocation, this is normal. When it happens to me, I focus on reminding myself of the reasons why I have applied the change in the first place and stick to the new course.

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Thanks guys, this was very helpful. Special thx to Cortana, I really liked the differentiated and research-based Youtube video! Maybe EM, especially at “only” 20%, are not that much of risk after all. But obviously this issue occupies me too much, so I haven’t got enough risk tolerance for 20% EM I guess.

Still, I wonder how Dr. Kommer (“Weltportfolio”) and other German experts could seriously recommend 30-40% allocations to EM based on the GDP/“growth potential”-argument alone… My bad, I should have done more homework before allocating…

VT seems the best solution after all: simple, market cap weighted, low cost. Just wish there were an accumulating non-US-domiciled VT without 15% withholding tax lost…

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How about leaving EM as it is and doing cashflow rebalancing? Put your monthly investments only in exEM till your EM allocation gets down to 10%? That way you don’t have to sell anything.

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You have to consider some things: Kommer published the first version of his book already in 2002. Back then, I assume that either a) EM had a bigger marketshare or b) EM had better returns and therefore the allocation was increased.

The classic 70/30 model was a quite common approach 10 years ago, and was promoted by a lot of Finance blogs.

Also, please note that the original portfolio from Kommer included 10+ positions and was set up at a time where the TERs for ETFs was still much higher. I read the book in 2012/13, and I found his approach too overcomplicated back then. The newer versions of the book have been adapted, and as far as I can remember he’s now promoting multi-factor ETFs.

VT is the easiest solution. Yes, you can further optimize the TER a little bit, but come on: 0.07% TER is something people 5 or 10 years ago could only dream about.

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China is an authoritarian regime. But would you dispute that it’s becoming a developed market? (though their stock market maybe less so, due to being so closed).

The U.S. may just as well turn into a hybrid regime after the next elections - but does that necessarily mean bad business?

The growth potential has been and still is real.

I think it may be less a lack of growth but rather the depreciation of EM currencies that hurts investors.

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But isn’t that what matters for investing purposes? Return of capital before return on capital and these kinds of things? The Evergrande crisis is showing that the chinese authorities aren’t averse to seizing company assets (example : Chinese city takes back two plots of land from Evergrande - Nikkei Asia) and the way investing “in” chinese companies for foreign investors is set up shows a distrust of foreign investors and a willingness for the government to keep things in their own hands.

Some emerging markets may have stock markets mature enough to offer foreign investors a stable and regulated framework for their investments but it not being the case is usually part of what defines an emerging market vs a developed one.

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Coming back to the topic with further information, further inputs very much appreciated!

So basically I’d like to bring down my 20% Emerging Markets (EM) allocation to a market-weighted 10% EM in my 3a account. The other part, 80%, is in Developed Markets (DM, MSCI World). The 3a portfolio rebalances automatically.

One option would be to simply readjust the EM allocation to 10% in my 3a account. However, I’d like to avoid this at the moment, because currently that would mean “selling low” for EM (in relation to DM and to my initial price). I swore to myself to never sell, and much less to sell low.

Second option would be to temporarily stop the rebalancing-function in my 3a account and wait for EM to rise before I readjust it to 10%.

What do you think? Is this just a (stupid) market timing move, or a reasonable strategy?

You may hold on to your EM position, get lucky in EM rising more than DM, so you don‘t feel „stupid“ upon selling.
You may also make a prudent assessment that EM are currently undervalued relative to developed markets, hold on to your position and then feel clever when that assessment turns out to be correct.

Either way, yes, you’d be timing the market (though that may not necessarily be stupid).

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THIS Exactly - 100%!

The only thing that matters is: Do you want to keep your money invested this way at the moment and in the future - yes or no.

Every try of forecasting the future performance, values of indices etc. is just nonsense that doesn’t work in most cases. “Sunk cost” is the key word here. If you don’t believe in EM anymore or your risk tolerance has changed you should rebalance right now (either through selling or through reducing the savings rate into the ETF).

But to be provocative: Stuff like Russia declaring war, China surprising minorities etc… Is not a reason against EM, it’s exactly why people invest in it. This political instability (paired with different value/growth valuations of their economi and various other instability and risk factors) is rewarded with extra performance over the long run… So @johndoe1 you need to ask yourself why you invested in there in the first place if that’s a problem for you.

EDIT: Don’t want to sound arrogant, just trying to throw in some arguments.

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Open a new 3a account where you invest only in developed countries, put new money inputs only in that account until your global 3a allocation matches the one you want, then transfer the new 3a account into the one you want to balance, change the allocation to 10% EM.

Alternatively, I would consider my 3a assets as a part of my global allocation and let the rebalancing occur outside of 3a.

On top of that, I would just rebalance right now and not worry about selling high or low. The purpose is to bring you at the allocation you feel comfortable with. Time spent outside of that is time where you take the risk of being disrupted in your investing habits by the risk a proper AA would have protected you against if it shows up.

Basically, when your risk assessment changes, the non-market timing way to handle it is to switch allocation right then. Tackling it in another way means market timing, which means you’re on your own (market timing is a very personal thing).

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Excellent responses, thank you guys, really appreciated! You might laugh, but the whole reason for changing my EM overweight is simply trying to be honest with myself: I am not and never will be smarter than the market.

However, I still do hope very much that EM grows and poverty in EM decreases. But wishful thinking has never been a good investment case I guess… :grin:

  1. On the matter of readjusting allocation: I assume you do agree that a long-term static EM allocation in 3a would be wrong aswell from a market weighted view, so when would you readjust the EM-DM balance? At 1,2,5 or even more percent deviation from e.g. MSCI ACWI IMI?

  2. Do you believe we can make the world a better place by investing in EM? I’d love to read up on studies, if there are any. Not so long ago, many (Western) experts thought that more trade and a liberal world order would automatically bring more freedom & democracy. That view seems to have changed considerably, and the global Democracy Index hasn’t been as bad since 2006.

  1. My rebalancing threshold is 5%. In fact: too much rebalancing costs money - even if transactions are free, you pay in the form of spread. That’s why I go with 5%. In order to make a difference, a position in my portfolio also has to be at least 5% and I would raise/shrink it within those increments. This number is also pretty easy to do math ;). Remember: Even a 10% outperformance with a 5% stake is only 1/20 = 0.5% on the total portfolio (which is nice to have ofc, but not a huge deal, especially since the outperformance isn’t guaranteed in the case of EM). So It really doesn’t make sense to stress about this too much.
  2. I don’t invest to make the world a better place and I don’t really thinks that investing is charity - and anyone who sais so is a liar lol. We invest to make money and we invest in broad indices to diversify and not care about who the money goes to, since we believe in the overall positivity of the economy on humanity.

On your last comment: Well I don’t see a big disruption in this concept. Russia has declared war - terrible… ok. But Russia isn’t back to Sowjet standards and China was always a repressive government. We made a lot of steps forward as humanity in the last century. It’s logical imho, that there will be countries that take a step back as well.

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The bold marked sentence was never true to begin with. I doubt that the bright minds really believed in this idea, and most probably the experts you refer to were just “so-called experts”. Yes, I get the whole idea about Adam Smith etc., but what we see is not a free market market nor libertarian at all.

If you are interested, read a little bit about NAFTA and other “free trade” agreements. What actually happens is still a lot of protectionism, including and especially from US side. Or do yourself a favor and check the long history of democratically elected governments which didn’t obey to US ideas.

Other than that, I think @CHRad has a point with his statement:

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