Vanguard Recommends Investors Increase Non-U.S. Holdings to 40%

Investors should put about 40 percent of their portfolios in non-U.S. stocks and bonds to diversify their holdings, according to top executives at Vanguard Group, the fund giant that manages $4.9 trillion.

Global stock markets are likely to outperform the U.S., which the firm expects to return roughly 4 percent to 6 percent annually over the coming decade, Chief Executive Officer Tim Buckley and Chief Investment Officer Greg Davis said Thursday during a webcast.

Vanguard formerly recommended allocating about 30 percent of portfolios to non-U.S. assets, the executives said. One reason for the increase: Fees have fallen on international funds, improving net returns.

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What do you guys think?

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I think they’re right. Therefore I invest in VT ETF.

I don’t know …
Where is the growth supposed to come from?

Certainly not from China or Europe

Maybe Pacific and India or other parts of the world?

Correlation between GDP and stock market is somewhat ambiguous. @hedgehog once post here a link to MSCI paper that showed that it can be even inversely correlated. I think one has to look at how much space companies have to expend their operations instead of macroeconomic oulook of a given country where they’re located.

I think that Bloomberg is right but their advise comes a bit too late.
Growth is not the only important matter, price to book value (p/b) or price to earn ratio (p/e) show what for return you can expect.
Two examples:

S&P500: p/e~20 p/b~3.0
DAX30: p/e~12 p/b~1.5

The German index seems to be a real bargain compared to the US index. From the numbers above I can expect 8% return from my German shares but only 5% return from my US positions, if the earning growth rate is 0.


NB: the advice is from Vanguard executives, not from Bloomberg !

I love the 2nd point:

Stay invested. “Going all cash is way too risky,” Buckley said.

If a “fund giant that manages $4.9 trillion” did recommend to go all cash, they would for sure crash the market !

3rd point:

Long-term U.S. Treasury yields are likely to rise as supply grows with an expanding deficit and foreign buyers diminish.

Not mentioned there, on the supply side: the Fed is now unloading its balance sheet, while at the same time hiking interest rates (which expands the deficit even more) - ouch !

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