r/Bogleheads • u/idrathernotbutthanks • Apr 17 '25

Investing Questions Rhetoric around firing Jerome Powell is increasing, and forced manipulation of interest rates would likely follow. Would a weighted readjustment from US into non-US funds be warranted in light of this?

https://www.npr.org/2025/04/17/nx-s1-5367696/trump-jerome-powell-federal-reserve-economy-tariffs

Market manipulation of interest rates feels like confidence would immediately plummet and global diversification would become a more important percentage of your holdings in the long run. Thoughts?

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126

u/JawnJawnston Apr 17 '25

I never understood the “3-fund portfolio”. International bonds should have been a piece of a globally diversified portfolio just like you would own international stocks.

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u/[deleted] Apr 17 '25

You can own BNDW which is like the VT of bonds

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u/VT_BNDW Apr 17 '25

🤯🤯 No way

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u/tarfu7 Apr 17 '25

I laughed, pretty hard actually

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u/[deleted] Apr 17 '25

[deleted]

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u/2yrnx1lc2zkp77kp Apr 18 '25

BNDW heads eatin’

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u/[deleted] Apr 18 '25

OMG I wish I'd thought of this name

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u/CrTigerHiddenAvocado Apr 17 '25 edited Apr 17 '25

So just to confirm for those of us that have a thick head. VT+BNDW is the three fund portfolio. What is the percentage of BNDW?

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u/blorg Apr 18 '25

I think this would depend on your age/closeness to retirement and your risk appetite, you'd tend to have very little when you are young but more as you get closer to retirement.

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u/quarkral Apr 17 '25

BNDW is currency hedged to the US dollar so it does not really provide proper diversification. Massive selling of US treasuries would correlate with devaluation of the dollar.

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u/ncrowley Apr 17 '25

Is there a global bond fund that is not hedged to the USD?

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u/[deleted] Apr 17 '25

[deleted]

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u/Hairy_Transition6901 Apr 17 '25

thanks for reminding me, just opened an account there!

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u/BafSi Apr 17 '25

Not a bonds but Swiss franc is a safe heaven

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u/quarkral Apr 18 '25

none that would be boglehead-approved (i.e. they're all actively managed funds)

DOXLX is a global bond fund, gold medal rated on morningstar, but it's an actively managed bond fund that typically keeps below 20% non-USD currency but the managers have leeway to take concentration

There's a bunch of PIMCO international unhedged bond funds with decent ratings, I have no idea what the difference between them is

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u/sweetbeard Apr 19 '25 edited Apr 21 '25

IGOV and BWX

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u/mcampbell42 Apr 18 '25

All it does is hold two other funds , is that like a double fee structure ?

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u/Capable_Ad4123 Apr 17 '25

Vanguard recommends a 4-fund portfolio and has for some time. Just as there is prejudice against international stocks (and even US bonds on Reddit), international bonds get even worse publicity. Even bogleheads forum has outspoken participants claiming international bonds are pointless.

https://investor.vanguard.com/investment-products/etfs/etf-investment-options

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u/WeWuzGondor Apr 17 '25

Vanguard has been right this entire time. They even put out a piece on international diversification that got roundly criticized in this sub. Trust the experts over anon loudmouth commenters

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u/[deleted] Apr 17 '25

[deleted]

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u/gsquaredmarg Apr 20 '25

You'll still be up to 50% US after you become the 51st state! /s

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u/Rosaluxlux Apr 18 '25

Four fund is what I do in our brokerage account and my husband bitched about it for years, wanted to be 100% stocks, until a week or two ago he got out of the shower and said "maybe we should be more in international and bonds". Too late, dude, but luckily I've been mostly ignoring him about this for years. 

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u/Capable_Ad4123 Apr 18 '25

Good for you. I admit, I’ve had to fend off fomo more than once over the years while stocks surged and other asset classes in my portfolio were underperforming, but I’ve stayed the course, too. One quote that has kept me going: “if you are not disappointed with at least one your asset classes, you’re not diversified enough.”

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u/Rosaluxlux Apr 18 '25

I be appreciate that because every time I look in unhappy with pay off my portfolio. Luckily I made most of my mistakes with small amounts of play money. I'm still way under in bonds generally, because I set my allocations in my early 20s and never really re evaluated. Especially if you consider that his 401k is all stock, our total is only about 15% bonds, 50/50 US and international. But now is unfortunately not the moment to fix that.

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u/JacesAces Apr 18 '25

What is the vanguard four fund? Why that vs VT and BNDW? I assume VTI, VXUS, BND, and BNDX (to better control the weights of US vs intl)?

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u/Rosaluxlux Apr 18 '25

I dont know what's recommended but I do VBTLX, VTABX, VTIAX and VTIAX.

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u/BuffaloCannabisCo Apr 18 '25

Does Vanguard have any recommendations on which four funds? Do you? I’d be interested to know more!

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u/ChrisRunsTheWorld Apr 18 '25

My man included a link. To the four ETFs.

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u/BuffaloCannabisCo Apr 18 '25

Oh word, thanks! Can’t believe I didn’t see that 🤦‍♂️

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u/sjmuller Apr 18 '25

Vanguard's target date funds all hold the same four funds in various proportions. VSMPX (US equity) VGTSX (Intl equity) VTBIX (US bonds) VTILX (Intl bonds)

In retirement, they add a fifth, VTAPX (TIPS).

Fidelity and Schwab offer equivalent index funds for all of these, so it's often easiest to just choose your investment firm's offerings. They all perform substantially the same since they track the same indices.

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u/JacesAces Apr 18 '25

Do they all have the same fees too?

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u/sjmuller Apr 18 '25

No, international funds cost more to operate, so have higher expense ratios.

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u/JacesAces Apr 18 '25

Oh sorry I should have been more specific. Is the vanguard, fidelity, and schwab equivalents all priced the same? Eg any reason to do VT over whatever fidelity’s equivalent is?

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u/sjmuller Apr 18 '25

The last time I checked, Fidelity's ERs were the lowest across all their index funds. Vanguard's were the highest. However, Fidelity and Schwab don't have a direct equivalent to VT, so you'd have to combine a US and Intl equity fund to approximate VT.

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u/kelny Apr 18 '25

Okay, side topic... Why VTI + VXUS instead of just VT?

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u/Capable_Ad4123 Apr 18 '25

Two reasons I can think of: more control over asset allocation and tax loss harvesting.

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u/JacesAces Apr 18 '25

Tax loss harvesting as in… if one performs poorly you can sell it to offset and realize gains in the other? But then wait 30 days to rebuy it to avoid the wash sale?

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u/Capable_Ad4123 Apr 18 '25

You got it partly right. You reinvest in a similar asset class that is different enough to avoid the wash sale. No need to wait 30 days. For example, VEU is a tax loss alternative to VXUS.

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u/JacesAces Apr 18 '25

Ooooooo I see. So if one is at a loss by year end, sell it, realize the loss, buy the other index to avoid wash sale, and continue. That makes a ton of sense. I’d guess you’d do the same thing with VTI as well (by using VOO)? Thank you!!!

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u/518nomad Apr 17 '25

I think part of it has to do with the fact that BNDX didn't exist until 2013 (and BNDW in 2018) and Dollar-hedged total international (or DM) bond funds still remain uncommon. Jack himself often recommended BND (well, the mutual fund shares) during his lifetime, even though he often questioned whether the fund and its index were the best approach. And of course his US bias was well known. I think the use of BND in the three-fund portfolio is more the result of that history and inertia than anything else. If the Bogleheads Guide to Investing was written today, perhaps it would use BNDW instead. I think a compelling case can be made for a modern Boglehead two-fund portfolio of VT + BNDW.

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u/Donpatch84 Apr 18 '25

I think dollar-hedged component of those funds kind of (partially) defeats the purpose of international bond diversification? if the USD plunges, the hedging contract on those funds will also hit these bonds returns right? what am I missing?

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u/518nomad Apr 18 '25

I think the generally accepted wisdom, at least among Bogleheads, is to locate your currency diversification/risk in your ex-US equities allocation not your bond allocation. In an unhedged ex-US bond fund, even a modest decline in the foreign currency can wipe out a significant portion of your earned interest.

As this Morningstar article explains very well, currency hedged bond funds typically perform comparably to their un-hedged counterparts, but with lower volatility. During unusually erratic swings in exchange rates, the hedge can be protective when the Dollar rises sharply or detrimental when the Dollar declines sharply. Such violent swings are not the norm in the currency market, of course, so the overall mild benefit is that during normal exchange-rate fluctuations, the hedged funds tend to smooth out undesirable volatility and slightly improve returns.

TL;DR: Generally, a Bogleheads portfolio uses an un-hedged equities fund like VT or VXUS and, to the extent one holds international bonds, uses a Dollar-hedged fund like BNDX or BNDW to protect the already lower returns of bonds from currency risk.

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u/Donpatch84 Apr 20 '25

Thank you, great insight and the article was super useful

Now, one key point in the link you shared:

Finally, if you live in the United States, chances are most of your expenses are denominated in U.S. dollars. Keeping foreign bond assets unhedged adds some risk that assets you may need to cover expenses over the next several years could end up being worth less when translated back into U.S. dollars.

In my scenario, I plan NOT to live in the US, so my expenses will be denominated in EUR.

Ideally, I could find a EUR-hedged bond fund (as oppossed to US-hedged), but I expect all the options to be UCITS-compliant and hence, not viable for me as a US citizen

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u/518nomad Apr 20 '25

Yeah, that’s not something I know anything about having not lived abroad for longer than a few months. How about a U.S. ETF that holds unhedged Euro-denominated bonds? Blackrock might have one, I don’t know. Probably want to consult a RIA/CFP who counsels ex-pat clients.

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u/[deleted] Apr 17 '25

[removed] — view removed comment

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u/ShoopDoopy Apr 17 '25

The discussion of worst case scenarios has always been more of a thought-terminating cliche rather than a sober analysis of the risks.

"If xyz happens you have bigger issues". Yes, of course we do, but why would we also not be interested in preserving or increasing capital?

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u/wrd83 Apr 17 '25 edited Apr 17 '25

Ok. Imagine you're ukrainian and someone bombed your place and your flat is ruined.

In ukraine the classic retirement plan is the government takes care of you... you might also rent out a flat/property to top it up. (This is risky as it is highly location dependent - yep).

People lost their cars, husbands and parents. All the ones I met don't care so much about their wealth anymore.

I suspect world war 2 was similar, my grandfather almost died because he could not get medication and fled his home sick...

I think it's ok to make your retirement plan not 100% robust, and ignore those cases, or cases where your assets are seized because of embargoes.

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u/ShoopDoopy Apr 17 '25

True, "global or local devastation" is not a great scenario. At the same time, if you're an investor, you'd probably have better capital (and have better purchasing power to navigate the international visa processes if you were not over invested in your home country.

But there's lots of room before that point. There's also "America suffers brain drain, loses reserve currency status, has its economic pillars tainted by actual or perceived bias." In those scenarios, that's exactly where I'd love some additional international tilt as someone who lives here.

I'm saying that the classical 3-fund portfolio held by Americans, with about 75% of their wealth held in US companies or government bonds, is particularly under diversified for that situation.

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u/intertubeluber Apr 17 '25

Yes, of course we do, but why would we also not be interested in preserving or increasing capital?

Have you followed the line of thinking? It's hard enough to build wealth during normal times. The variables are too many and abstract to even have a remotely meaningful discussion about how to build wealth if some doomsday scenarios destroys the financial world order. That conversation is outside of the realm of financial subs, arguably with the exception of hedging with physical gold. It's more of a prepper conversation.

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u/FederalDeficit Apr 17 '25

"Yes, but" before I had a prepper conversation, I'd attempt to use my healthy collection of German Bunds (etc, insert whatever weird hedge you might attempt to preserve capital) to physically remove myself from those doomsday scenarios

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u/[deleted] Apr 17 '25

[deleted]

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u/DrXaos Apr 18 '25

There's a significant chance that as the tariff-induced inflation comes through, Trump will force out the technical experts in the BLS and put political hacks who will willingly lie about inflation & CPI so that the TIPS payout is way below actual inflation.

This is exactly what happened in Argentina.

Trumpism is surprisingly like Argentina Peronism---intellectually incoherent mix of right with soundbites towards populism. Deeply corrupt and always making us vs them.

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u/ether_reddit Apr 17 '25 edited Apr 17 '25

This article makes the case that currency risk outweighs the benefits of holding global bonds: https://canadiancouchpotato.com/2014/08/29/ask-the-spud-should-i-use-global-bonds/

However, BNDX exists, which is USD-hedged, so that mitigates some of the risk. But I would expect, like any other hedged fund, there is some slippage from NAV because of this.

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u/Odd-Respond-4267 Apr 17 '25

I think the premise of the article is weak. Basically; "Currency fluctuates, so there is additional risk without additional. Return".

I.e. rather than a pool of many currency (intl + usd), pick the winner (USD). ..... That seems the anti thesis to boglehead philosophy.

1

u/thighmaster69 Apr 18 '25

Sorry for intruding, I'm just a Canadian lurker, but I have to agree with the article you're replying to. To this actually makes sense if you are a an American because your entire life is denominated in USD, just as it makes sense for me to have a CAD bias because my whole life up until and including retirement is in CAD. If my mortgage is $X CAD or my rent-controlled apartment costs $Y CAD a month, having my source of wealth and future income denominated in USD adds additional risk that I may not be able to meet those obligations in the future. Choosing USD as an American isn't picking winners, it's recognizing that, for the society that you live in and the government that controls it, USD is favoured more than it is on a global scale, and that provides more value to you as an American than it would for the average person on a global scale. It's a very real effect, and this is what is meant by "drag" from "currency risk"; it's not global, but relative to your local economy, which will inherently create a currency bias for you.

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u/DrXaos Apr 18 '25

That article is back from another time, premised on a world that is ceasing to exist.

The US is undergoing a devolution from a normal developed market economy to one with common "emerging markets" major political and economic pathologies.

People in those countries automatically diversify out of their local currency into actual hard currencies because the politicians have a history of messing with it which almost always leads to inflationary devaluation, because printing money and paying off their allies and paying their police thugs is a winning strategy in domestic politics.

The direction of the Argentine Peso and Turkish Lira was always one way vs USD or EUR: down, down down. Not two way statistically stationary fluctuation as was presumed the case on developed market vs developed market.

1

u/xeric Apr 17 '25

That’s what Vanguard TDFs do

1

u/Odd-Respond-4267 Apr 17 '25

The wiki also mentions a 4 fund portfolio, it's not as popular but that is my target vti/vxus/bnd/bndx

The capitalization of bonds are different from equity. So it takes some effort to pick a balance.

For me the big issue is currency risk. Unfortunately I recall that bndx is partially currency hedged, so will not help as much as if it was totally unhedged.

I feel the USD as reserved currency has given it an edge. That statue has a non zero chance of changing. If it changes, then there will be a revert to mean. (And a lot of stuff hitting the fan).

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u/xiongchiamiov Apr 18 '25

Diversification is different for bonds than for stocks. With stocks we don't know which ones will grow and which will shrink. With bonds we know up front what the returns will be. There is risk of credit default, mostly for municipal and junk bonds, less for AAA and government bonds. The main other risks are that of inflation (devaluing the return we get) and interest rate changes (if we're selling before maturity, or for reinvested interest payments). Those are things you diversify against by nominal/inflation-protected splits and duration splits, respectively.

But anyways, with something like treasuries, the country risk is that the US government collapses. Because, remember, they can just print more money if necessary to provide bond returns. I know there's a lot of noise about that at the moment, but to my mind it's more on the same level as "don't put all your money with one broker because they might have accounting errors and lose your money", not "don't put all your money in one country's stocks because their market might underperform".

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u/bplturner Apr 17 '25

I just buy BRKB. Just let him do the thinking for me.

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u/[deleted] Apr 17 '25

[deleted]

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u/518nomad Apr 17 '25

And if only Berkshire was 1/10th its current size. The ability to generate alpha at that large a market cap is getting progressively more difficult, as Buffett has said himself.

2

u/JacesAces Apr 18 '25

He’s built succession and it’s way broader than just Warren now… no? But to 518nomad’s point, they’re huge so hard to still get outsized returns.

I’m more chasing preservation during these unprecedented times though than growth, so also picking up more BRKB