International Diversification of the Endowment Fund

[Michael Fisher]

The US dollars appears to be collapsing.

Brian, do you think we should be considering international diversification of our investments in the near future?

These companies may be helpful in finding foreign investments:
Euro Pacific Capital
Templeton
Fidelity
Vanguard

[toowm]

This is your call, but this is what I do for a living if you want my advice.

The Vanguard Total International Stock Index will give you broad market exposure, including emerging markets, cheaply.

Another thought for down the road is Harry Browne's stocks/bonds/cash/gold idea. There are some newer funds, like PIMCO All Asset, that give you diversifed real asset exposure.

In joke for the MVP crowd: "What would Harry Browne do?" 

[Fluff and Stuff]

It doesn't matter if the dollars falls apart if all of the funds are coming from America and going to American schools.

[aries]

It doesn't matter if the dollars falls apart if all of the funds are coming from America and going to American schools.

But the value of the donations will inflate with the dollar, and the price of providing an education will not drop. We do not want a $1000 donation today being worth $100 when the kid actually gets it.

[Russell Kanning]

Also .... companies can raise their prices.

[toowm]

Again, based on my experience:

A completely mutlinational investment pool would be 50% US / 50% foreign based on market capitalization.

A US-based, US dollar-denominated pool should diversify internationally, but only to 25-33% of the total. This gives you the best combination of enhanced return & risk reduction.

One other reason to increase international investments is that active investors overseas beat market returns much more often than US investors. However, my earlier post suggested the Vanguard fund, which is passive.

[Michael Fisher]

If all of your investments over the past five years were denominated in US dollars, and you somehow managed to make an average of 12% per year on all of those investments...

...then you only reached the point of breaking even. 

If you merely saved that money in cash and did not invest it for the last five years, then your money is now worth about 60% less due to the plummeting value of the US dollar.

Do you see where I'm going with this?   

[toowm]

More fodder, from Bridgewater (attachment).

[attachment deleted by admin]

[Russell Kanning]

Over the recent past 80-90 years. I think stocks ride about 7-8% above inflation. If you invest in other companies that mostly transact business in say Euros..... their money gets inflated too.

My best inflation proof advice is to buy gold, real estate, and Walmart stock with borrowed funds that are payable in the future in ...... dollars. And guess which part you would be the most happy with?

[tracysaboe]

I believe it's an extremely good idea to be diversafied into international.

Ric Idelman (A Financial advisor. You can find many of his books at Barnes and Noble)  says you really should have about 20% -25% of your portfolio in foreign investments.  You don't want too much more because the high volitivity (risk) starts to make it less worth it. But with that ratio, you get higher returns for really not much more risk at all.

Of course, if you're doing earned income averaging and investing it periodically and you aren't planning on touching it for awhile, you want volitility, so you might want a higher percentage.

I'd fully support investing in international funds.

TRacy

[Russell Kanning]

I hope the Liberty Scholarship Fund does not elect you to manage its endowment. Walmart stock has been a terrible performer since the turn of the century. A share of Walmart (symbol WMT) actually costs less today than it did in 2000. In nominal terms. In real terms, it is worth a lot less.

Compare that miserable performance to the performance of a blue chip gold mining corporation like Goldcorp (GG):

http://finance.yahoo.com/q/bc?t=5y&s=WMT&l=on&z=m&q=l&c=gg

At this point GG doesn't look horribly overpriced, but not a great bargin:
Their P/E is about 50 and up to 125 if you look at past years earnings. (ouch)
Their P/Book is only about 4 and is not full of fake assets and they are not loaded with debt.

WMT shares are not too high at all:
P/E of about 18.
P/Book of 4. Not horrible
I think I would still choose Walmart at today's prices.

I look at it as buying slices of companies not lottery tickets.
If the dollar keeps inflating, gold prices will probably go up, but walmart can raise it's prices also. (wash)
If the price of gold goes down, then gg grinds to a halt and waits. If it goes up, then party time.
If the government seizes all of walmarts US assets to punish for their political incorrectness .... then bad times for my choice.

Over the last 5 and 10 years (when GG went public I guess) gg stock has gone up faster than WMT. Maybe it will keep it up, but I understand Walmart's business better and feel more comfortable holding it for the next 50 years.

Did you not also get the joke quality of my answer? I recommended heavy borrowing of $s if there is going to be hyperinflation.

If you are concerned with how the LSFunds endowment is invested, I would recommend holding the money yourself and then giving it to them later, so you do not have to worry in the meantime.

[FSPinNY]

Sorry, I didn't catch this thread...

The Endowment Fund is currently invested in Capital Income Builder - a balanced global fund. It is a current Morningstar Analyst Pick and it won Lipper's 2006 award for Best Income Fund over 3 years (awards as of 3/31/06). An excellent low-risk starting Fund that had a minimum to open of just $250. The Fund's beta risk score is just .52 compared to a comparable index, the MSCI Wd xUSN. This means that the Fund is just 52% as volatile as that Morgan Stanley global index. It's portfolio is invested as follows:

  - 42.1%  non-U.S. equities
  - 27.2%  U.S. equities
  - 18.5%  U.S. bonds
  -   1.8%  non-U.S. bonds
  - 10.4%  cash

We've just started - most of the money has been invested less than a year, with a sizable chunk just invested in April.  This is a broad based, solid, global investment Fund. As Director of the LSF Endowment Fund, I take this job very seriously, and as the Endowment Fund grows in size, we can carefully diversify further. Protection of the assets, while seeking diversified, balanced growth is my approach.

Brian Sullivan

[Dreepa]

  - 18.5%  U.S. bonds

Isn't this against Mike's rules?

[FSPinNY]

  - 18.5%  U.S. bonds

Isn't this against Mike's rules?

Unknown.

This is United States based bonds.  It is mostly corporate bonds, with 3.4% U.S. government and agency bonds and notes.