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General_Magician Special user United States 707 Posts |
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Dannydoyle wrote: Here is what the Intelligent Investor says about it: Quote:
Intelligent Investor wrote: So one of the reasons to invest abroad is that the US is not going to always be the best place to invest your money and you can't foretell the future and know where the best place to invest will be (which is why my International Index fund is the Total International Index Fund which invest in all the economies and emerging markets around the world except the US).
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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Dannydoyle Eternal Order 21219 Posts |
Do you think information from more than one source would be of any use?
Danny Doyle
<BR>Semper Occultus <BR>In a time of universal deceit, telling the truth is a revolutionary act....George Orwell |
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Aug 7, 2014, General_Magician wrote: That depends on the rate of inflation for the currencies in which those stocks and bonds are denominated. If US inflation is 15% per year and Eurozone inflation is 20% per year, investing in EUR-denominated stocks and bonds won't help a USD investor, but USD-denominated stocks and bonds may help a EUR investor. |
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General_Magician Special user United States 707 Posts |
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That depends on the rate of inflation for the currencies in which those stocks and bonds are denominated. If US inflation is 15% per year and Eurozone inflation is 20% per year, investing in EUR-denominated stocks and bonds won't help a USD investor, but USD-denominated stocks and bonds may help a EUR investor. I agree and it makes perfect sense. It seems the best way to hedge against inflation is using Inflation Adjusted US Treasury Bonds and perhaps an investment in an REIT index fund. My Fund of Index Funds is invested in the Total Vanguard Stock Market fund, which I think it includes REITs. However, if I add a fund for Inflation Adjusted US Treasury Bonds to my Roth provision of my 401(k) that would incur an additional annual $20 administrative cost. I would only use that fund in a tax advantage account because the IRS would regard any inflation adjustments as a taxable event. I really appreciate you taking the time to respond to my posts. It has given me a much better understanding of currency risk. Foreign currency MIGHT help hedge against inflation at home, but foreign currency is not immune to inflation at home. The big reason for foreigns stock and bond investments is to hedge against the risk that the US market is not the best place to invest at any given time.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
If the returns on foreign stocks and bonds have less than perfect positive correlation with the returns on domestic stocks and bonds, then you'll likely see a diversification benefit (lower risk for a given level of return, or higher return for a given level of risk). Historically, the correlations of returns have been low, but they've risen over the years. Nevertheless, a well-designed global portfolio generally does better than a well-designed domestic portfolio.
Best of luck! |
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General_Magician Special user United States 707 Posts |
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On Aug 8, 2014, S2000magician wrote: Thank you. With my current portfolio, I would like to add Inflation Adjusted US Treasury Bond fund, but then by doing so, it adds an additional $20 per year administrative cost to my 401(k) account. So, if I did so, the administrative costs over the long term could eat away at my returns, so, I think it's best not to add the Inflation Adjusted US Treasury Bond fund even though it could do a good job of hedging against the risks of inflation. I couldn't use Inflation Adjusted US Treasury Bonds in investing towards owning a home because if these investments are outside of a tax advantaged account, then any adjustments in inflation to the principle of the bonds would be regarded by the IRS as taxable, which defeats the whole purpose of having them. So, in my view, as long as you don't have additional administrative cost that I have, adding these bonds to a tax advantaged account like an IRA or 401(k) would be a big defense against inflation. But again, no investment is a guarantee as we saw with the gridlock and political dysfunction in Congress coming close to defaulting on it's obligations and if that happened then you could lose money on those bonds too. The bonds carry credit risk. REITS are another good defense from what I have read, but they are not fool proof. Better than the common stock of non REIT companies, but still not foolproof against inflation. Right now, I haven't lost not one single penny despite the recent downturn surprisingly enough and I think it's because I well diversified (meaning that I have not lost any PRINCIPLE of my original investment) and because of dividend payouts which helps to hedge volatility. So I still have a return on investment and have made money, though it's not a high return as of right now. I took advantage of the downturn and made an additional purchase of shares about a day ago to take advantage of cheaper share prices. So, I am pretty happy and what I have read and learned so far and putting it into action and practice seems to have served me well.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Aug 8, 2014, General_Magician wrote: You're starting to agree with me often enough that it's making me nervous. Quote:
On Aug 8, 2014, General_Magician wrote: There are several kinds of REITs. Some invest directly in real estate (i.e., they own real property), others invest in mortgages, and others invest in a combination of ownership and mortgages. Some REITs invest in residential, others in commercial property, and within commercial REITs there are further specialized categories (e.g., hotel REITs, medical REITs, and so on). REITs generally have low correlations of returns with stocks and bonds, so they are good diversification vehicles for traditional portfolios: adding a REIT can reduce the volatility (risk) in your portfolio while maintaining or enhancing your return. However, to maintain their tax-free status (in the US), REITs have to distribute at least 90% of their profits to their investors. Thus, as an investor you will be taxed on these receipts unless your investment is held in a nontaxable account (as an IRA or a 401(k)). |
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General_Magician Special user United States 707 Posts |
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There are several kinds of REITs. Some invest directly in real estate (i.e., they own real property), others invest in mortgages, and others invest in a combination of ownership and mortgages. Some REITs invest in residential, others in commercial property, and within commercial REITs there are further specialized categories (e.g., hotel REITs, medical REITs, and so on). My current investment in VASGX, the Vanguard Life Strategy Fund https://personal.vanguard.com/us/funds/s......tExt=INT has the index fund, Vanguard Total Stock Market Index Fund Investor Shares ticker symbol VTSMX https://personal.vanguard.com/us/funds/s......NT#tab=2, which this fund invests in the overall US stock market. Given this is the case, it would seem I am invested in REITs, so investing in an index fund that specializes in REITs doesn't seem smart because I would simply be investing in companies I am already invested in. Seems that Vanguard's Total Stock Market Index Fund provides some hedge against inflation given that it is invested in the overall total US stock market and that the overall US stock market has REITs publicly traded with stock being bought and sold publicly. Warren Buffet's company, Berkshire Hathaway is also one of it's top ten holdings, so that's a good thing.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Aug 9, 2014, General_Magician wrote: Here's a brief summary of the holdings in VASGX: http://finance.yahoo.com/q/hl?s=VASGX+Holdings 1.36% cash 79.01% stocks 18.92% bonds 0.54% other Your portfolio has about 3.5% invested in real estate. Whether it's REITs or something else isn't clear. But it isn't much in any case. |
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General_Magician Special user United States 707 Posts |
It probably be a good idea to add another 7-10% in real estate. I saw that Vanguard now has an REIT index fund that is available to non-rich investors like myself. But then, their is that dreaded administrative cost of $20 per fund per 401(k) provision per year. That sucks! The reason I chose the fund I chose is because it is well diversified and is one fund so it would save me on administrative costs (get charged only for one fund even though I invested in several different index funds). I would like to see a little bit more inflation defense in that fund and I haven't seen any offerings by Vanguard that has a fund of index funds that doesn't also include some sort of inflation defense.
See, because of the regulatory compliance issues that come with 401(k)s Vanguard charges that administrative fee (which is probably much cheaper than what other brokers charge), which deters additional investment because that fee over time eats away at returns. I got to be able to make money too, otherwise, it's not worth my time. Right now, this is the only game in town for me and I like Vanguard and I certainly want to keep my money in the 401(k) rather than IRA for several reasons. One being asset protection in the event of lawsuits (I don't think I will be sued or anything but you still want to be prepared for the worst because you never know what the future may bring and it's not hard for anybody to be sued) plus I can contribute much more to a 401(K) than I can to an IRA and get the same tax advantages. 401(k)s also have stronger asset protection under the law at the federal level and at my state law's level than IRAs. IRAs, from what I understand, have some level of asset protection, just not as strong as the 401(k)s. I certainly wouldn't want to invest just to have to turn over it to the lawyers afterwards (not that I would do anything crooked or dishonest to make a living, but again, you can be sued for toe jam in this day and age and when you start making money you become a target). Given that Vanguard charges that administrative fee, once per year, per fund, per 401(k) provision, it might not be worth investing in an REIT index fund to hedge against inflation because the fee could eat away at returns as much as inflation, who knows, maybe more over the long term. What do you think s2000? It's not easy being an individual investor and having to keep costs down just so that you can see a return on investment after considering all the various risks you face as an investor.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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General_Magician Special user United States 707 Posts |
S2000,
It's in my judgement, given that I would end up with an additional $20 administrative cost for adding a REIT Index Fund or a Vanguard fund specializing in Inflation Adjusted US Treasury Bonds, it would not be worth that extra cost to hedge against inflation. Ideally, I would want my portfolio weighted about 10% in REITs or Inflation Adjusted US Treasury Bonds as some defense against inflation, but the additional administrative cost over the long term doesn't make it worth the investment in my opinion. What do you think? The annual administrative cost over the years add up. I think I would best be served to just stick to this one fund of index funds even though I would like to add an REIT Index fund and weight it about 10-15% of my portfolio (I think I would prefer an REIT index fund over the Inflation Adjusted US Treasury Bonds given the dysfunction and gridlock in Washington and how they put the full faith and credit of the US government at stake was a little too close for comfort for me) that way I wont' have any additional administrative costs eat away at my returns. I think if I had ALOT of money invested, then it might be worth incurring an additional administrative cost to hedge against inflation but in my case, I don't think it would be worth any additional administrative cost yet given that I don't have a lot of money invested yet and I am just saving and investing monthly. I am still interested in hearing your view on this though.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
It depends a lot on how much 7% - 10% of your portfolio is. If it's $1,000, then $20 is 2%, which is substantial. If it's $10,000, then $20 is 0.2%, which is far more reasonable. And even if it's $1,000 now, as your portfolio grows the percentage represented by $20/year will decline.
It's a decision you'll have to make, but these are some ideas I'd recommend that you consider. |
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Dannydoyle Eternal Order 21219 Posts |
So government regulation costs money? Whoda thunk?
Danny Doyle
<BR>Semper Occultus <BR>In a time of universal deceit, telling the truth is a revolutionary act....George Orwell |
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General_Magician Special user United States 707 Posts |
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On Aug 10, 2014, S2000magician wrote: I'll wait until 10% of my portfolio is $10,000 and then invest in an REIT index fund. That way the additional $20 admin cost doesn't take as big a bite out of my returns. It will still take some time before my portfolio is that large. Right now, with all the dysfunction in Washington, I would feel safer with an REIT index fund over the Inflation Adjusted US Treasury bonds even though the REIT is not a foolproof way to combat inflation, it still provides a good defense. With the dysfunction in Washington, you never know what those politicians will do given that they were willing to play chicken with the full faith and credit of the US government. You invest in Inflation Adjusted US Treasury bonds and next thing you know Washington defaults on those bonds because the politicians can't get their act together and do their job because they are too busy fighting with each other. I'll just have to stick with what I can control which is balancing the overall percentage costs (which includes the administrative cost along with the fund of index funds cost) of my portfolio versus the investment risks I am faced with as an investor.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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