In this episode we answer emails from a Mysterious Visitor, Pal and Byron. We review our approach to international stock funds and how to improve their diversification, try to help out a Canadian nomad and discuss some new Vanguard funds.
And THEN we our go through our weekly and monthly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Additional Links:
US vs International Stocks In Strong And Weak Dollar Markets (link from Episode 393: us-dollar-strength-has-correlated-with-performance-03312023.pdf
Testfolio Analysis of VXUS vs. AVDV and IDMO: testfol.io/analysis?s=eDLfJ4jcFLK
Constructing a Golden Ratio Portfolio with International Components: We Built a 5% SWR Retirement Portfolio Using Fidelity in 48 Minutes (Golden Ratio Portfolio)
Byron's Link: Vanguard Launches a New Actively Managed Bond ETF | Vanguard
New Wellington ETFs: Vanguard to Launch First Stock-Picking ETFs With Wellington — at Its Highest Fees Yet
Breathless Unedited AI-Bot Summary:
Conventional wisdom about international diversification gets turned on its head as we explore what truly drives the performance difference between domestic and international stocks. Far from being about different economies or company headquarters, approximately 40-50% of this performance gap stems directly from currency fluctuations between the US dollar and foreign currencies. When the dollar weakens, international stocks surge; when it strengthens, US stocks lead.
For investors focused on building resilient portfolios with sustainable withdrawal rates, this revelation reshapes diversification priorities. Value versus growth diversification emerges as significantly more important than geographic diversification, followed by size factor (small versus large caps). This hierarchy challenges the simplistic notion that pairing a total US market fund with a total international fund provides meaningful protection.
Large US companies already operate globally, selling into worldwide markets regardless of headquarters location. This makes traditional total international funds less diversified from US large caps than many investors realize. Instead of blanket international exposure, we explore more effective approaches using specific international value, small-cap, and emerging market funds that provide genuine diversification benefits.
The episode also tackles practical implementation questions, including how expatriates and nomadic investors might construct globally resilient portfolios using Irish-domiciled ETFs for potential tax advantages. We briefly examine Vanguard's new ETF offerings and explain why their corporate bond funds hold limited appeal for investors seeking recession insurance rather than income.
Our monthly portfolio review highlights gold's stellar performance (up 31.56% year-to-date) amid dollar weakness, demonstrating the principles discussed throughout the episode. These eight real-world portfolios showcase different approaches to implementing risk parity principles, with performance and distribution data available at riskparityreview.com.
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