I have been reading this forum for a few months now and found extremely interesting topics written by people who seem to understand finance much more than I do, people like @hedgehog@1000000CHF@Bojack@nugget only to name a few.
I started investing on IB a couple months back (living in Switzerland) and I’m up to almost 20K invested in VT. The problem I have is I can’t see with what other ETF(s) I should pair it with, as I find it quite balanced as it is, and straightforward tax-wise (for a Swiss resident).
The question is in the title: how viable would it be to build a portfolio around a single ETF?
In case of such worries, I recommend a few blog posts by JLCollins. He basically recommends to invest 100% in VTSAX, which is the mutual fund equivalent of VTI (he only invests in USA, because he is American).
it is per se viable to have 100% VT, just as it is to have 100% bonds/cash. it is not more or less viable than any other portfolio, it is even (more or less) listed here:
beyond that, you will have to find out if the associated risk it tolerable for you, i.e. when the big market crunch of -70% comes, will you hold on to your shares or realize the losses?
once you have clarity on that, you can answer your question on validity with respect to you personally as investor.
The ETF equivalent to VTSAX would be VTI, basically 100% US Stocks. For a US Investor this might make sense, for us not.
Imo investing all in a single world fund is a viable strategy. Lots of people “replicate” a world fund/exposure by combining multiple funds. Dont be dissuaded by the fact its only one single fund! An added bonus is also no rebalancing necessary
@Bojack Thanks for the 3 links to jlcollinsnh forum, Seems to provide a lot of valuable material, I’ll need to dig more into that for sure.
@nugget “when the big market crunch of -70% comes, will you hold on to your shares or realize the losses?”
I guess I will just hold on to them and wait for the market to recover. I did not mention it in my post (my bad) but I am not investing 100% of my monthly savings, I will always keep an emergency cash pillow.
@San_Francisco thanks for your input. Why would you not consider VT as fairly balanced? I’m very curious to know your opinion. I do realize 58+% of it is North America but from what I read on this forum the world stock market itself is heavily linked to the North American market (specially USA) and the USD.
Thanks for noticing this mistake, I corrected my post. Yes, he is an American, and for some reason he believes he doesn’t need to invest in foreign stocks.
Oh give us a break. You’re talking to a beginner investor here. He is for sure not (yet) smarter than the average across the market. And the current balance is set by market forces, smarter and dumber, balancing out, finding compromise between return and volatility, reaching the current price levels and allocations. For me that is good enough. If you start saying e.g. that “oh, there are far too many banks and financial institutions in the market-capped mix”, they you’re making things complicated.
You’d be allocating over half of your portfolio to one single country. Globalisation and international revenue/earnings exposure or not, it’s still just one jurisdiction, run by just one president, one parliament, and one foreign and (federal) policy. That does present cluster risk - think, for instance, the political “trade war” with China.
I am not saying this is necessarily a “bad” thing or one you shouldn’t do. Especially given your opening question though, it is maybe one you would want to give a few thoughts and some consideration - and then decide on consciously and opt for what you feel comfortable with.
That’s just to the high share of market capitalisation of US companies. So partly just because IPOs and having their stock traded on stock exchanges are so popular among US companies, that so many choose to do so. Does this make them “better” (performing) companies? Maybe there’s a correlation or you believe in one - but not per se.
Market cap is a simple meassure and doesn’t require active decisions. If the US market does worse, it will lose marketshare. If it continues to do better, it will gain some more. Acording to EMH both scenarios are equally likely and betting on one outcome is a zero sum game.
It is probably a better use of time to include factors that offer an additional risk premium over the market such as value, size and profitability.
This graph is totally misleading anyway. You know why international beat US so badly in the 80s? Because of the absurd bubble in Japan which resulted into a 40% CAGR over 4 years. If the bubble of all bubbles is your best argument to underweight the US, than it’s a rather bad argument.
(…though you would have already known or found out without me bringing it up, I’m sure )
Of course it’s not.
Now I certainly won’t be calling the valuation U.S. (especially tech) stocks a bubble to rival Japanese asset price inflation in the 1980. But the facts still remain:
U.S. equity enjoys very high valuations, historically
and it’s much higher valued than most of the (developed) world
Is it overalued? Or is the valuation justified? Why?
I am just advocating that - before putting more than half of one’s portfolio into that one market - one would maybe want to try to answer these question. To himself at least. Though I would (honestly) welcome opinions on the forum here.
I think there is a strong tendency in markets to revert to the mean, in the longer term. I also believe that U.S. economic dominance and the U.S. share of the total market cap won’t greatly expand above what it is today. If any, it might rather decline. This leads me to the conclusion that other markets might outperform U.S. equity in the future - though it won’t necessarily be today’s developed economies in the EU (with its problemativ currency) or Japan.
Thank you for this very interesting discussion. I believe that many investors wondered about the original question of this thread.
Personally, I have read a lot about it here, the bogleheads forum and other places - and although people have different opinions on this topic, a lot of it comes down to personal situation and valuation.
The way I see it, as swiss investors we have not only our direct investments in the stock market but we also have the Säule 2 and (most of us) Säule 3a which we need to take into account. E.g. the VIAC 100 Säule 3a has a large portion of swiss stocks (37%, therefore overweighting Switzerland and underweighting other countries like the US) which should surely play a role in the discussion whether you are actually overweighting the US in your personalized overall investment strategy.
I believe that 100% VT is a reasonable and informed decision, at least in my case.
However, I am open to having my mind changed…
I would say, that unless you want to trade professionally, or at least make it your serious hobby, you should not deviate from the market capped allocation. Yes, you may paste som charts that suggest that the exUS is due to start catching up with the US. But for some reason the market still thinks otherwise, and I’m sure they all know this chart, and many other charts. It’s an incredibly complicated issue and to me it seems bold or naive to believe that you know better.