Overview of the “Developed World ex-US Stocks” Lazy Portfolio
1. Background and Philosophy
The “Developed World ex-US Stocks” lazy portfolio is a simple, low-cost, and globally diversified investment strategy designed for investors seeking exposure to developed markets outside the United States. This portfolio is inspired by the principles of passive investing, which emphasize low fees, broad market exposure, and long-term growth. The philosophy behind this portfolio aligns with the ideas of renowned investors like John Bogle, the founder of Vanguard, who advocated for index investing as a way to achieve market returns with minimal costs and effort.
The portfolio is particularly suitable for investors who believe in the growth potential of developed international markets and want to diversify their holdings beyond U.S. equities. By focusing on developed markets, the portfolio avoids the higher volatility and risks associated with emerging markets, while still providing exposure to global economic growth.
2. Asset Allocation and Holdings
The portfolio is entirely allocated to a single ETF: VEA (Vanguard FTSE Developed Markets ETF), which represents 100% of the portfolio. VEA tracks the FTSE Developed All Cap ex US Index, providing exposure to large-, mid-, and small-cap stocks in developed markets outside the United States, including countries like Japan, the United Kingdom, Canada, and Germany.
Diversification: VEA offers broad diversification across developed international markets, with holdings in over 3,900 companies across multiple sectors and countries. This reduces the risk associated with investing in a single country or region.
Risk Level: The portfolio is considered moderate-risk due to its focus on developed markets, which are generally more stable than emerging markets. However, it is still subject to currency risk, geopolitical risks, and market volatility associated with international investing.
Pros:
- Low expense ratio (0.05% for VEA), making it cost-effective for long-term investors.
- Broad diversification across developed international markets.
- Exposure to global economic growth outside the U.S.
- Simple and easy to manage, requiring minimal rebalancing.
Cons:
- No exposure to U.S. stocks, which may limit growth potential if U.S. markets outperform.
- Currency risk due to fluctuations in exchange rates.
- Lower dividend yields compared to U.S. equities.
3. Application for Retirement 401(k) and IRA Investors
This portfolio can be an excellent addition to a retirement account, such as a 401(k) or IRA, for investors looking to diversify their holdings internationally. For 401(k) accounts, investors should check their plan’s investment options for funds that track developed international markets. Common alternatives to VEA include:
- Schwab International Equity ETF (SCHF)
- iShares MSCI EAFE ETF (EFA)
- Fidelity International Index Fund (FSPSX)
If the exact ETF or index fund is not available, investors can look for similar international equity funds with low expense ratios and broad market exposure. For IRA accounts, investors can directly purchase VEA or other similar ETFs through their brokerage platform.
This portfolio is particularly suitable for investors who already have significant exposure to U.S. equities and want to balance their portfolio with international holdings. It can serve as a core component of a globally diversified retirement strategy, complementing U.S. stock and bond allocations.