The case for reducing exposure to US equities
Discussion
I know this has come up in threads but I am surprised it isn't talked about more.
On personal finance Reddit, you'll often encounter 'VWRP and chill' or 'VUAG and chill' as recommended investment strategies for amateur investors. VWRP being Vanguard's all-world (60%+ US) and VUAG being S&P500.
But Vanguard themselves are forecasting comparatively poor returns for US equities over the coming decade, compared to for example Europe and Developing World. Even here, returns are not forecasted to come close to matching the returns of the S&P500 in recent years. Figures which to my amateur eye could be beaten by a portfolio of safe-ish dividend stocks with a bit of a tailwind.
Is it the case that we are betting on US to outperform forecasts, benefitting from unprecedented retail investor inflows, just because of basically inertia?
I can't pretend I was completely non-plussed by the most recent rollercoaster, although I did manage to hold and buy more stocks rather than panicking. Is it time to consider dropping the world and S&P trackers and looking at individual stocks or other asset classes?
On personal finance Reddit, you'll often encounter 'VWRP and chill' or 'VUAG and chill' as recommended investment strategies for amateur investors. VWRP being Vanguard's all-world (60%+ US) and VUAG being S&P500.
But Vanguard themselves are forecasting comparatively poor returns for US equities over the coming decade, compared to for example Europe and Developing World. Even here, returns are not forecasted to come close to matching the returns of the S&P500 in recent years. Figures which to my amateur eye could be beaten by a portfolio of safe-ish dividend stocks with a bit of a tailwind.
Is it the case that we are betting on US to outperform forecasts, benefitting from unprecedented retail investor inflows, just because of basically inertia?
I can't pretend I was completely non-plussed by the most recent rollercoaster, although I did manage to hold and buy more stocks rather than panicking. Is it time to consider dropping the world and S&P trackers and looking at individual stocks or other asset classes?
If other regions do better than the US, the weighting of the US in a global index will reduce over time (in the same way it's increased over time as the US has done well).
The problem is no one can tell you in advance what regions are going to do better ahead of it happening.
If you look at how a global index did after the Japan bubble burst, returns look strong. So the hope is something else picks up the slack and you just get on with life whilst it plays out.
As for Vanguard's future return forecasts, if you dig out any of their old ones you'll see they are a big pile of s
t 
The problem is no one can tell you in advance what regions are going to do better ahead of it happening.
If you look at how a global index did after the Japan bubble burst, returns look strong. So the hope is something else picks up the slack and you just get on with life whilst it plays out.
As for Vanguard's future return forecasts, if you dig out any of their old ones you'll see they are a big pile of s
t If you want to have developed markets focus but without the US, Vanguard offer VEA (you might need a non-US domiciled equivalent in the U.K.). I have a chunk of my allocation in that. To date it’s underperformed the world tracker I have (VT), although in USD is significantly better off YTD.
Hustle_ said:
Thanks for that.
Somehow I have ended up with half of my (small, non-pension) investments in MSCI AWI and half of it in Barclays shares. I need to come up with a strategy because clearly this is a silly place to be. I have waited ten years for those Barclays shares to come good.
This raises an interesting investment point - how long one waits for a dog to 'become good', and at what point you bail out and switch to something which seems more likely to go up. I know that switching too much and crystallising losses is a bad thing, but equally you can lose a lot waiting for dogs to do anything. A friend of mine effectively 'lost' about half of what he might have had by clinging on to bank shares. Somehow I have ended up with half of my (small, non-pension) investments in MSCI AWI and half of it in Barclays shares. I need to come up with a strategy because clearly this is a silly place to be. I have waited ten years for those Barclays shares to come good.
Hustle_ said:
On personal finance Reddit, you'll often encounter 'VWRP and chill' or 'VUAG and chill' as recommended investment strategies for amateur investors. VWRP being Vanguard's all-world (60%+ US) and VUAG being S&P500.
Any idea how many people recommending this approach were invested this way from 2000-2010?Hustle_ said:
I can't pretend I was completely non-plussed by the most recent rollercoaster
Depending on how much an investor studies market history, they may perceive recent events as:https://www.youtube.com/watch?v=vunkLZOuwLs
when in reality, it's more like
https://www.youtube.com/watch?v=ZMNrG7zC0ds
(BTW, that first one is genuinely unsettling)
Edited by Derek Chevalier on Wednesday 21st May 18:15
Simpo Two said:
Hustle_ said:
Thanks for that.
Somehow I have ended up with half of my (small, non-pension) investments in MSCI AWI and half of it in Barclays shares. I need to come up with a strategy because clearly this is a silly place to be. I have waited ten years for those Barclays shares to come good.
This raises an interesting investment point - how long one waits for a dog to 'become good', and at what point you bail out and switch to something which seems more likely to go up. I know that switching too much and crystallising losses is a bad thing, but equally you can lose a lot waiting for dogs to do anything. A friend of mine effectively 'lost' about half of what he might have had by clinging on to bank shares. Somehow I have ended up with half of my (small, non-pension) investments in MSCI AWI and half of it in Barclays shares. I need to come up with a strategy because clearly this is a silly place to be. I have waited ten years for those Barclays shares to come good.
Oh wait
So we’re agreed that it’s recency bias then- but the S&P500 thread is still everybody’s favourite in the finance sub-forum.
Barclays was the first investment I made, on somebody’s recommendation. For about nine of the years it wasn’t a good investment- but at this point it’s up 100% which is similar to what an all world index has done over the same period. So I have been lucky.
I have realised that I’m not so much over-exposed to the US as I am to Barclays
Barclays was the first investment I made, on somebody’s recommendation. For about nine of the years it wasn’t a good investment- but at this point it’s up 100% which is similar to what an all world index has done over the same period. So I have been lucky.
I have realised that I’m not so much over-exposed to the US as I am to Barclays
Not so much those.
The bottom three in particular and I'm also surprised the top ETF on a UK investment platform like HL is an S&P 500 tracker.
To me it all hints of recency bias and trading much more than long term investing.
I'd half expect it if it was Trading 212 or a platform like that but I'm surprised to see that on HL.
The bottom three in particular and I'm also surprised the top ETF on a UK investment platform like HL is an S&P 500 tracker.
To me it all hints of recency bias and trading much more than long term investing.
I'd half expect it if it was Trading 212 or a platform like that but I'm surprised to see that on HL.
Hustle_ said:
So we’re agreed that it’s recency bias then- but the S&P500 thread is still everybody’s favourite in the finance sub-forum.
Barclays was the first investment I made, on somebody’s recommendation. For about nine of the years it wasn’t a good investment- but at this point it’s up 100% which is similar to what an all world index has done over the same period. So I have been lucky.
I have realised that I’m not so much over-exposed to the US as I am to Barclays
A mate of mine recently sold his Barclays shares after holding them for well over 20 years from employment schemes. I worked out that he made a £5k loss even after selling then for above £3 per share. Barclays was the first investment I made, on somebody’s recommendation. For about nine of the years it wasn’t a good investment- but at this point it’s up 100% which is similar to what an all world index has done over the same period. So I have been lucky.
I have realised that I’m not so much over-exposed to the US as I am to Barclays
Three main question to ask yourself is whether you'd buy them at the current price if you had the cash value.
Edited by LeoSayer on Wednesday 21st May 20:57
I've learned the hard way not to invest based on forecasts or what I think one country, industry, currency or company will or won't do.
For over 5 years it has seemed obvious to me that the US is overvalued and yet it keeps surprising me, so I'll stick with my unhedged market-cap weighted global equity index fund.
For over 5 years it has seemed obvious to me that the US is overvalued and yet it keeps surprising me, so I'll stick with my unhedged market-cap weighted global equity index fund.
Derek Chevalier said:
Hustle_ said:
but the S&P500 thread is still everybody’s favourite in the finance sub-forum.
It probably wouldn't be if we had another lost decade. "We show that US outperformance since 1990 primarily reflects richening relative valuations"
We suspect that the recent high valuations and predicted abnormal growth edge partly reflect investors mistaking the richening-driven return outperformance for growth-driven outperformance (which would be more reasonable to extrapolate).
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