Instead of researching investing from a single portfolio and country perspective, the Global Explorer seeks out the worst-case scenarios for all possible asset combinations in a dozen different countries. Use this to study how portfolios performed in other markets, visualize what a globally consistent asset allocation looks like, and identify truly resilient options.
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Overview
When evaluating portfolio options for things like accumulation or retirement, it is very common for people to fall victim to home country bias. No matter whether it’s a result of visible national pride or a more subtle data availability bias, the result is the same. A portfolio that performed extremely well in one country may have benefited from unique local conditions while failing miserably somewhere else. Finding truly robust asset allocations that transcend local perspectives is trickier than you think.
The Global Explorer is designed to address this problem by casting the widest net possible. Rather than looking at a single portfolio and country at a time, it studies every possible combination of up to 9 unique asset classes (in 10% intervals) across a dozen different countries. For each metric it studies, it then finds the worst-case global scenario for every portfolio and ranks them in order from best to worst. The top portfolio options thus represent the asset allocations that were the most consistently good regardless of where one was lucky or unlucky enough to live.
When interpreting the results, don’t just look at the #1 option. The chart displays 100 portfolios at a time to help you get a feel for the overall types of portfolios that are globally consistent. Even if the absolute best portfolio may change from year to year with new data, the overall trends in portfolio construction should be reasonably consistent and reveal deeper truths about wise asset allocation.
The Global Explorer chart also allows you to eliminate individual asset options and home countries from consideration. So if you’re just not interested in a certain asset type, it’s easy to remove portfolios that contain it from the list. Eliminating countries can also help to isolate the specific countries that may be skewing the results, which can provide nice context for educated choices.
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Interpretation
The asset options in the Global Explorer are a limited subset of the larger asset class pool in the other charts on the site. They are chosen to expand the portfolio options to as many as possible while keeping the overall portfolio database manageable. They also use a unique variable domestic paradigm where you don’t select your own home country. This makes the portfolio definitions neutral to where you live, but the resulting portfolios do require a bit of interpretation.
The Domestic stocks, bonds, and bills always reference the home country assets in all calculations. So when looking at the domestic numbers in Germany it uses German stocks, and in Japan it uses Japanese stocks. Everything else is considered international.
For US investors, this means that a portfolio may contain both domestic US stocks/bonds and “international” US stocks/bonds. The distinction is important to investors outside the US, but US investors can combine those allocations into single US funds when building your own portfolio.
For investors outside the US, ex-US ETFs are not very common. When interpreting your own portfolio, just think of any ex-US slice as “every developed country outside of the US”. EAFE funds are a good example. Mixing Europe and Far East (especially Japan) is also very close. And if you want to keep it simple, a broad Europe fund should cover the majority of the developed ex-US markets.
Calculations
The Global Explorer computes portfolio performance for the following global metrics:
Global 30-Year SWR: The minimum 30-year safe withdrawal rate looking at the SWR for every home country in the list. This represents the worst-case global retirement scenario for each portfolio. Use this when evaluating portfolios for retirement performance.
Global 15-Year Baseline CAGR: The 15-year baseline return is the minimum 15th percentile (what I call the baseline return) 15-year rolling real CAGR looking at the compound returns for every home country in the list. Use this for evaluating portfolios for conservative long-term expected returns without trying to predict the future.
Global Ulcer Index: The ulcer index measures the overall pain of holding a portfolio by looking at the depth, length, and frequency of all drawdowns. The Global Ulcer Index finds the maximum (most painful) number across all countries to rank portfolios by the least amount of pain in the worst case. Use this for evaluating portfolios that are particularly resilient to anything very different markets can throw at them.
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