Arthur Dent wrote:Don't international investments, on average, carry more risk for the at equivalent returns because of currency risk? Diversification from the non-correlation to the U.S. will still improve portfolio risk-adjusted returns, but because of the added risk, couldn't you bring down portfolio risk with age on the foreign/domestic axis as well is the bonds/equities one? Have not looked into whether it makes sense to proceed on just one or both of those.Michael wrote:Eyeballing the chart, it also appears sometimes the fund's domestic to international ratio tilts toward domestic as it ages, which I don't completely understand. With Vanguard's target fund the domestic to international ratio is static, while equities to bond ratio adjusts over time, which makes sense to me. Maybe my eyes are playing tricks on me.
You might be right, but it appears the fund ends with the same 34 to 66 ratio so I'm not sure that's it. It's in the middle where it looks different. Again, maybe my eyes are tricking me and the ratio is actually static. FWIW, over the long run currency risk with international equities has been minimal, but to your point, it can add short term volatility.
Honestly, I'm not convinced international bond indexes are worth the hassle. I do have some international bonds because of the vanguard target date fund I own, but that's it. Here's Vanguard's perspective on the matter. I may change in the future, but right now I think the upside is limited and I like to keep things simple by owning only 3 funds.Arthur Dent wrote:Somewhat relatedly, do you know anything about Vanguard's international bond allocation in their target funds? Seems like international bonds would be a worse deal than international stocks as the exact same currency risk gets added on but at a lower average return.
Vanguard and other target funds have been upping their international equity and bond allocations in the past few years. I think it's an interesting topic that I might post about some day.