Many investors in the US will also be holding a global stock and bond portfolio like you. One force to keep in mind is that since global financial markets are fairly well integrated, an asset with the same risk-return characteristics should be priced the same in all markets. If for example Dutch bonds paid a higher real interest rate than US bonds, everyone would want to hold Dutch bonds rather than US bonds and will drive the price of the Dutch bond higher (and the yield lower) until the expected returns of both are the same. There are limits to this of course—tax treatment or home bias could allow for differences. But it's unlikely that the expected return of risk-free bonds are very different across countries. If bond yields in one country are high, it's more likely that the expected inflation is high or default risk is high, rather than the expected real return being high.Thanks for your reply. I have a couple of more questions. As we’re European and we invest to the global stock and bond ETF, not only US stocks and bonds, should we use the default expected returns as TPAW planner suggests (Stocks: Regression Prediction, 5.2%
Bonds: 20 Year TIPS Yield, 2.2%)?
Stocks are messier than risk-free bonds because risk differences come into play. International stocks currently have lower valuations (higher earnings yields) than US stocks. But is that because they have lower earnings growth, higher risk, or is it just mispricing? We can't say for sure. The expected return of US stocks can serve as a starting point. And if you have a belief about how international stocks are different from US stocks, you can change the expected return (and/or volatility) of your stock portfolio to incorporate that. You can do adjust the expected return using either custom or manual settings in "Advanced -> Expected Returns and Volatility -> Expected Returns." But do keep in mind that to the extent that global financial markets are well integrated and markets are efficient, international stocks cannot offer a higher expected return than US stocks without also having higher risk.
I can't speak to the tax and behavioral advantages. But the disadvantage is that the LifeStrategy funds have a fixed asset allocation. The optimal glide path will typically be downward sloping during working years and turns flat only at retirement (if no pension). In the planner, click on the dropdown next to the graph title and select the asset allocation graph. See how much that asset allocation deviates from the fixed asset allocation of the LifeStrategy fund. That will give some indication of whether the fixed asset allocation is good enough. If you decide that you want to go with a LifeStrategy fund due to convenience or tax or behavioral reasons, you can create a plan with a fixed asset allocation using the SPAW strategy (switch to SPAW in "Advanced -> Strategy").What do you think about using lifestrategy ETF? We’re considering to change our portfolio to the Vanguards 60% stocks 40% bonds lifestrategy ETF. We would use the accumulating version which would save us for paying capital gains tax when rebalancing. And it would also help with behavioural mistakes that I’m inclined to make. I know it’s pretty conservative as we’re only 40 years old, but we also do not have the need to be very aggressive. We plan to withdraw about 3-3,3% at the start. More than half of that are discretionary expenses which would be easy to cut if necessary. What do you think?
Statistics: Posted by Ben Mathew — Sat May 18, 2024 11:19 pm — Replies 761 — Views 217506