Let’s Get This Portfolio Party Started


The New Year may already be a few weeks old, but from my perspective 2019 is just getting started. It’s new data time! And this year I have an extra surprise, as not only do I have another year of portfolio results to share but I’ve also designed a much improved way to navigate all the different asset options. So let’s all raise a glass to portfolio returns of years past and get this party started.

To kick things off, I think it’s important to start at the foundation and talk about the data. Contrary to what you might think from browsing your favorite big-name financial website with fancy and expensive data feeds, updating lots of charts with year-end asset data takes quite a bit of time. And it’s not simply a matter of individual bandwidth, as several important public sources likely won’t post final 2018 numbers for another few weeks or even months. But I’m just as excited as you are to see the most up-to-date portfolio data possible, and I’ve managed to scrape together enough approximate data to tide us over until formal numbers become available. While the results are only preliminary and may change as I get more info, everything is now updated for 2018 and the results should keep you busy while I continue working on things behind the scenes.

Speaking of data, along with adding the numbers for 2018 I’ve also tweaked my model for intermediate bond funds. While intermediate bonds on the site used to cover maturities between 1 and 10 years, they now represent maturities between 3 and 10 years. I did this for two reasons. First, it makes the various bond fund options non-overlapping which allows detail-oriented investors to mix and match if they like. And second, it better matches the methodologies of the index funds listed on the site and subsequently tracks them a little more accurately. All intermediate bond numbers regardless of year now follow the new model, and while it shouldn’t significantly change anything some of your favorite portfolios may show slightly different results than before.

But the bigger news is less about the raw numbers and more about the charting tools. When you visit any of the chart pages, you’ll notice that the asset allocation interface is significantly slimmed down.

Remember how the International section used to have four full columns of asset options? Don’t worry! All of that data is still there and is simply organized in a much more useful and intuitive way without any confusing waste. I think the best way to explain it is to start with a simple question:

What asset options does an individual investor really need to build a well-diversified portfolio?

Experienced investors may intuitively think that’s easy to answer, but once you think beyond your own home country it actually gets kinda complicated. Here are just a few examples:

  • US investors are spoiled with a wide variety of style-based US funds like mid cap growth and small cap value and often assume that’s the norm in every country. But it doesn’t really work like that even in large markets like the UK, and real-world fund options can actually be quite sparse outside of a good total market fund. For many investors it takes purchasing a broad regional fund to gain access to the same asset types that the US takes for granted.
  • Europe funds are very popular among European investors for a good reason beyond simple variety. For reference, the UK stock market as a whole is a little smaller than the California market. Just as I imagine most Californians consider the full United States to be their domestic stock market rather than just the companies next door, I would argue UK investors can realistically think of Europe as their larger domestic market*. The same argument can be made for Germans investing in Europe and Canadians investing in the United States. While I do believe investing at least a portion of your portfolio in your own home country is important and unique financial differences and shifting treaties will always complicate things, sometimes your broader home is larger than the nearest geographic border.

(*) BTW, I appreciate the feedback I’ve received on this point from UK investors since this was first written. I understand the statement that Europe can be thought of as the UK’s larger domestic market may not match local sentiment, and Brexit certainly complicates things. While I think my larger point about market sizes and regional influence is important in terms of fund choices (which I believe is reflected by the market in the number of Europe funds available in the UK), my main goal is simply to find the “next closest thing” to certain stock indices when data and funds aren’t available in a particular country. If that came across as a broad political or economic statement it really wasn’t my intent.

  • Put yourselves in the shoes of a US investor looking at regional international markets such as Europe or Pacific. There’s really no reason for any US investor to own either of those funds alongside a World ex-US fund as it already covers both markets entirely.
  • If the point of US investors purchasing a Europe fund is to gain access to a broad new market, then the equivalent option for a European investor is not to plow more money into Europe but to invest in the United States. Rather than using fixed international definitions when translating portfolio ideas between countries, it’s philosophically much more important to focus on diversification away from home.

So long story short, when thinking about geographic diversification it’s important to look at the big picture and adjust your perspective based on your own individual situation. The new chart interface is designed to make that easy by contextually changing the asset options and only presenting relevant assets based on your home country and international diversification strategy. Let’s look again at the default interface.

See that country setting under Domestic? Click it and you’ll get a dropdown with several other country options to choose from. For this example, let’s choose the United Kingdom.

As you can see, that changed several asset options across the board. Under domestic stocks it added the total UK market as well as a wide variety of European options. Under international stocks it switched each World ex-US fund to true World options that include the United States, which is something much more appropriate for a UK investor. Under bonds it switched each option to local UK Gilt funds. And as you can see in the note just below the pie chart, every calculation now accounts for UK inflation and expresses the results in pound sterling.

Next, let’s go back to a US investor and change the International setting from Global to Regional.

While the vast majority of portfolios stick to global international diversification, a few such as the Coward’s Portfolio get a little more detailed about percentages in each region. If that level of control is important to you, the Regional setting replaces World ex-US with Europe and adds an extra option for Pacific to go along with Emerging Markets. Between those three options, you should be able to cover the vast majority of world market cap outside of the US. But what if you live in the UK?

Overall, the regional options are very similar to those a US investor will see but with one critical exception — the United States is the major international region. “International” means very different things to different people, and I’ve done my best to dispense with typical US bias in investing tools and think like a local.

Beyond simply cleaning up the tools and making them look nice, I personally really like how the new design responsibly curates the asset options and makes the idea of international diversification lot less overwhelming for new investors. It also refines the way the tools translate portfolio ideas between countries and takes a more local view of what “international” even means. And once you get down to the process of selecting an index fund for your own portfolio, doing it this way helps focus investors on the types of assets where real-world index funds are plentiful rather than hypothetical options that make no sense (like World ex-US for European investors). In general, there are just as many asset options as ever but never more than you need.

As you play with the new interface, astute observers may notice one more bonus surprise contained in all of the new charts. As part of the wide-ranging site update, I also took the opportunity to bring back a completely revamped Target Accuracy chart. I’ll save a detailed explanation for another post, but I’m pretty happy with the new interpretation and hope you like it as much as I do.

Before you go explore, I have two quick requests. First, if you find something that doesn’t look right please don’t hesitate to contact me. I’ve updated a lot and I appreciate your help identifying any bugs. And second, if you find the information useful please spread the word! My ultimate goal is to educate as many people as possible about investing and hopefully make their financial lives a little better, so anything you can do to get the word out is greatly appreciated. Let’s work together and see how many people we can reach.

New year, new data, new interface, new tools — 2019 is already off to a great start!