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Is This a Good Investment Strategy?
Comments
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"make sure your EM option also has some Japan in it too"
What do you mean by this? Japan is the 4th largest economy in the world. It is not an emerging market.1 -
of course it is and won’t be in a EM fund…my phrasing could have been better. But many EM funds still have major economies like China, India and Korea as emerging too so it’s a bit of an ambiguous term. Many new to investing still think EM means anything east of India. Merely pointing out to the OP to consider getting get some increased Japan representation either via an Asia Pacific incl Japan or preferably a stand alone Japan fund.
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The OP's Developed World option includes Japan at its market cap. That means they would already have more exposure to Japan than they would the UK.
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The one notable difference in classifications of 'developed' and 'emerging' is that the FTSE definition puts South Korea as developed, while MSCI puts it as emerging. So it's best not to mix the 2, if you want even coverage everywhere.
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Yes I spotted this when researching so I was careful not to mix MSCI EM and FTSE all world as it seemed like it would have crossed over somewhat.
Is this bad? Its nuances like this that I was worried I might be exposing myself to. But then again, if I simply select the ftse all world, this also happens. UK has 2.99% compared to Japans 5.55% its a bit higher on the MSCI ETFs.
What ETFs would you recommend for this? And what exactly is it IWFV and XDEV track? They seem weighted towards US albeit, around 40% compared to the 60%+ of some others but there appears to be a mix of industries in there and only 400 or so. Why should I try to get increased exposure to Japan?
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OP, the few previous posts are exactly the sort of thinking to avoid. Whether you have 5% or 10% in EM etc is really navel gazing and today's "nuance" will most likely wash out long term. Keep things simple and don't be tempted to slice and dice, constantly second guess your decisions or go with asset allocations on the recommendations of crystal balls.
You will never have the perfect portfolio. You'll end up with one of the almost infinite set of asset allocations that are just fine, so please worry about something else.
And so we beat on, boats against the current, borne back ceaselessly into the past.6 -
Most of the investing data and research information I read suggests that 10% Japan is not unreasonable at all. Similarly, up to 20% in EM is also considered to be quite reasonable. If you take your guidance from the composition of global trackers, you will arrive at a different set of answers, ones that are based on the historic size and value of markets rather than any potential for the future. To each their own.
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Is this bad? Its nuances like this that I was worried I might be exposing myself to. But then again, if I simply select the ftse all world, this also happens. UK has 2.99% compared to Japans 5.55% its a bit higher on the MSCI ETFs.
The point I was making was that I didn't see that there is a need for you to get increased Japan exposure, which was being implied in the post I was replying to, and it does not fit with your apparent strategy to own the global markets as cheaply as possible.
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I agree. I cannot see the point of investing in all 23 developed world markets when many are small, difficult to track and understand and in which I have little interest. Diversification is of course a good thing but surely it's better to achieve that using half a dozen or so well chosen major markets and to tilt within that selction. I have to wonder if a devloped world tracker doesn't carry correlation to an extreme and is uncessary…unsure.
Another argument in favour of markets selectivity is the correlation between markets. It is near certain that most investors will opt for some percentage of US holdings, in which case it will help to also invest in other markets that have a low correlation to the US, case in point, Japan and some developed Asia countries.
https://www.longtermtrends.com/msci-developed-markets/
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"surely it's better to achieve that using half a dozen or so well chosen major markets and to tilt within that selction"
That would seem opposite to the aim of not getting into the weeds. And over the long term I don't think any of us could outperform a cheap global tracker.
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