Why do I buy more world index fund now?

“The desire to perform all the time is usually a barrier to performing over time.” – Robert Olstein

As a reader of this blog, you most probably should have known by now, I am a three-portfolio Boglehead index funds investor. There are only three ETFs in my portfolio- VUSD ( tracks S&P500), VWRD ( world index fund), and VDTY ( US Government Treasury bond). You can read about my asset allocation HERE.

VSUD is the major holding in my USD portfolio. I allocate 65% of my USD fund into buying VUSD, 20% goes to VWRD, and 15% into bond ETFs. Since 56% of VWRD are US stocks, basically I am holding 89.6% of US stocks and only about 10.4% of non-US stocks.

What are my risks?

So basically, I have two risks of buying these ETFs, of course, some readers might think I am putting all eggs in only three baskets. Just to remind you that VWRD holds more than 3000 companies in the world, even though I buy only VWRD and VUSD, actually I am a small shareholder of more than 3000 companies in the world ( including the Malaysia market which is only 0.2% of the fund). Therefore I think I am diversified enough.

Am I worried about the possibility of Vanguard or Interactive Brokers go bust? Actually, I am not and there are many bloggers out there discussing these possibilities, you might want to read JL Collin’s post on ‘What if Vanguard gets Nuked?‘ and ‘What happens if my broker goes bust?”

These are the two important risks I am having while buying these ETFs,

1. Country risk ( I bet too much on the future of the USA)
2. Currency risk ( USD risk)

What am I doing?

I put too much money in one country. According to Jack Bogle, Founder of Vanguard, there is no point in owning non-US stocks (ETFs). For me, it is obvious because from historical data the US stocks always outperform non-US stocks. If you look at the performance of VUSD and VWRD since inception back in 2012, VUSD outperformed VWRD by almost 80%!!

It might be the case based on past performances and not necessarily hold true for the next 10-20 years. I am just not very comfortable to bet all my money in only one country.

I am worried too about USD performance for the last few years. For Malaysians, USD appreciates against MYR for years and it is not the case for SGD. Putting all my money in US stocks might make me having sleepless nights if the USD keeps on dropping in future.

Even though all my ETFs are denominated in USD, for VWRD, only 50% are US stocks and another 50% are non-US stocks. So theoretically if USD drops, other currencies might appreciate ( and so non-US stocks), hopefully, this ying-yang action will smoothen the price of VWRD during the devaluation of USD.

Currently I am buying 50% of VUSD and 50% of VWRD that puts me in a position of holding 75% of US-stocks and 25% of non-US stocks.

As for my bonds ETFs, I switch to buy IGLO ( iShare Global Government Bond) more but still hold on to my VDTY. If you prefer a non-distributing equivalence- you can go for IGLA. Why bet on one country ( USA) instead of 7 countries? The minus point of IGLO is the expense ratio is 0.20% instead of 0.07% if you were to purchase VDTY. Besides, mind you that VDTY distributes dividends every month and it is a wonderful bond ETFs to have during retirement!

And yes, iShare is not Vanguard, I am a hardcore Vanguard supporter!

Conclusion

It is always very important for you to have a good night’s sleep when you invest in any stock. By changing my strategy a bit, I find that I sleep better at night. I don’t bother about people around me talking about the depreciation of USD or the collapse of US bonds anymore.

#Addendum ( March 2021)- If you sign up an IBKR account using my link HERE, you can get a reward up to USD 1000!