Strategy for an amateur, other than sticking everything in a diverse index fund?

Bostonerimus1

Cus said:

Nebulous2 said:

Cus said:

Nebulous2 said:

Who knows what tomorrow will bring? 

Almost 4 years ago I found myself with a six figure sum to invest. I couldn't wrap my head around the fact that a passive world index fund was around 60% invested in US companies.

I wanted to pivot away from that. 

Despite the advice here not to, I diversified by selecting some other companies. UK smaller companies,  European companies and a Japanese fund. 

My best performer is an index fund and it is up 61%. Some of the worst ones, like UK smaller companies, are still down after 4 years or so.

So are you still not comfortable with 60% in one country? Are you saying that you should have stuck with just passive world indexes? If you had made more from the alternatives would you be saying that you know better?  What's the point?

I'm probably still not happy with 60% in one country, particularly one which now believes that everyone else in the world has to be defeated for them to win. However I no longer think I can second-guess that. 

There will be a turn when the 60% US share does worse than the rest, that's guaranteed, just when?..
I wonder if anyone has reduced their US exposure due to their new governments beliefs..are we allowed to apply emotions to our investment decisions?

The ethical dimension of investing has always been there and mutual funds have made it increasingly difficult to avoid some firms. There are ethical funds, but even those include some companies with questionable practices...are Amazon, Facebook, Google, Tesla ethical companies? Is capitalism ethical? or is that even a sensible question? I will never own anything made by Tesla and I'm not using Chrome or gmail anymore, but I own Tesla and Google etc. shares in an ETF. Even my DB pension is ultimately provided from a fund invested in some unethical stocks and bonds so it's a losing battle when we live in a capitalist society. So I just buy the index and maintain some cognitive dissonance, but vote and live the rest of my life according to my personal ethics.

If the US continues with it's current policies, ie. tariffs and !!!!!! off everyone, it will eventually be bad for the US economy and global indexes will reflect that and indexers will just ride that change.

greatkingrat

Personally geographical concentration in the US doesn't really bother me. I don't really consider Amazon/Google/Apple etc as US companies any more, they are global companies that happen to be listed on the US stock market. 

Bostonerimus1

greatkingrat said:

Personally geographical concentration in the US doesn't really bother me. I don't really consider Amazon/Google/Apple etc as US companies any more, they are global companies that happen to be listed on the US stock market. 

There are regional funds and you could have a portfolio that does not specifically include the US in the name of any funds. But any developed world fund is going to have US exposure in the end because economies and companies are so globalized.

GeoffTF

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

UncleK

"Your money is like a bar of soap – the more you handle it, the less you'll have." - I like that.

Linton

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

InvesterJones

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

Buying a global fund means they won't be investing to an equal degree to people just investing in the S&P 500 say. Those purely investing in the S&P 500 will, if sufficiently numerous and generous, help set the market price for said assets - but that's not a fake market price, someone - them - is willing to pay that price for it.

GeoffTF

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

Linton

+GeoffTF said:-+*-+*/9

-Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

More importantly there are many in the US who do not consider whether the US is over or underpriced compared with "International" investments but invest in the US regardless. So their choice in buying US does not give a non-US investor any guidance on the matter.

Cus

GeoffTF said:

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

I don't know how the above accommodates the fact that retail investors invest in market cap based passive trackers without consideration to a concept of value of the underlying components.

Edit to add: I guess in the past more people would give their money to an active fund who would make an assessment of value. Now they give their money to a passive fund that doesn't. This must create a distortion