Would you feel comfortable...

barnstar2077

Having read as much of that as I could manage it would seem that Vanguard don't think it is a good idea to have too much in your home market, but offer it anyway as that is what people want.  I guess it is no different than McDonalds giving you a hundred percent of your daily calories in a snack, because it is what people want.

sixpence.

If they are invested in so many funds and assets, I don't see an issue with them weighted to the UK. That's my personal view anyway; it's still ultimately a global fund. 

I don't think I would have an issue with 7 figures being invested in a VLS, if the 85K loss coverage thing is a negligible risk. Not sure if this is naive though.

EthicsGradient

Albermarle said:

barnstar2077 said:

AnotherJoe said:

Like Albermarle id have no qualms about the amount but qualms about a fund that has an artificial concentration in a few industries and will remain so due to the arbitrary so-called UK weighting. 

I know that it is considered prudent to to be invested globally according the size of each market, but I heard somewhere that there is an argument for being overly weighted in your own country because it offsets currency risk?

I just tried googling it but I couldn't find what I was looking for.  Your thoughts on the idea?

https://personal.vanguard.com/pdf/icrrhb.pdf

The way I read figure 1, from 1988 to 2011, a British investor would have got the highest return from holding 100% UK stocks, but that would also be more volatile than holding 80% UK, 20 other - which had only a marginally smaller return. The more you held under 80%, the lower return *and* the more volatile it was.

Chickereeeee

I asked almost the same question in the Pensions forum on the 26th June!
(Title: Transfer medium size pot entirely to VWRL (or similar)?)

Chickereeeee

The way I read figure 1, from 1988 to 2011, a British investor would have got the highest return from holding 100% UK stocks, but that would also be more volatile than holding 80% UK, 20 other - which had only a marginally smaller return. The more you held under 80%, the lower return *and* the more volatile it was.

Interesting that, for all the countries shown, international  diversification  reduced returns: it would have been more rewarding to have 100% home bias.

Voyager2002

Chickereeeee said:

The way I read figure 1, from 1988 to 2011, a British investor would have got the highest return from holding 100% UK stocks, but that would also be more volatile than holding 80% UK, 20 other - which had only a marginally smaller return. The more you held under 80%, the lower return *and* the more volatile it was.

Interesting that, for all the countries shown, international  diversification  reduced returns: it would have been more rewarding to have 100% home bias.

How is that possible?

bowlhead99

Voyager2002 said:

Chickereeeee said:

The way I read figure 1, from 1988 to 2011, a British investor would have got the highest return from holding 100% UK stocks, but that would also be more volatile than holding 80% UK, 20 other - which had only a marginally smaller return. The more you held under 80%, the lower return *and* the more volatile it was.

Interesting that, for all the countries shown, international  diversification  reduced returns: it would have been more rewarding to have 100% home bias.

How is that possible?

There are only 4 countries shown and the other 40+ countries in the MSCI All Countries World Index are not included. Some of them will have done quite badly and been a drag on performance for people who diversified to follow the world allocations. Japan for example was a large part of the global index in the late 1980s (start of the period under review was 1988 - its all time peak was late 1989) and it had a terrible couple of decades thereafter. 

There are also some currency effects because each of the country / ex-country returns figures are in their own base currencies. 

If you look at the UK figures on the table, you can see that the annualised returns for Australia, Canada and US were all better than what we got. However if you were a UK investor who diversified to use the MSCI ACWI or an ex-UK index instead, you would pick up relatively little allocation to Australia and Canada (because they're tiny) and a decent allocation to USA (but not as much as the high proportion of the world index as it represents today), and also some allocation to emerging markets which did even better than USA (but is tiny as a proportion of ACWI, as it was originally just a few countries - China, India, South Africa not added until mid 90s), but you would also have allocations to places like Japan (terrible index performance, somewhat offset by strengthening yen against pound) and Europe which was not as good as other parts of the world.   

The figures don't really seem to be unreasonable when you consider them individually.  Obviously it is only particular timeframe used based on easily-available data for that 24 year period up to when they were doing the report, and they note that alternative starting and ending dates can alter the outcome in favour of either foreign or domestic investment, depending on the market environment over the selected period, and give some examples of that.

sixpence.

So, what I'm getting from this conversation is that most people wouldn't feel anxious about having 6-7 figures in a VLS BUT they might not be comfortable with it for other reasons... mainly, it seems, for diversification reasons. 

Albermarle

sixpence. said:

So, what I'm getting from this conversation is that most people wouldn't feel anxious about having 6-7 figures in a VLS BUT they might not be comfortable with it for other reasons... mainly, it seems, for diversification reasons. 

Exactly !

k6chris

So is there a better "single fund" than VLS for diversification purposes??