An amazing thing happened earlier this week: Vanguard -- the arch-conservative, non-profit fund issuer -- made a massive switch in its central recommendation of what investors should hold as a core allocation.
The news was hidden inside a press release trumpeting the launch of the new Vanguard Total International Bond Index Fund. In fact, it was so hidden, no one noticed. I haven’t seen a single news story; a single tweet; nothing.
And yet, the impact is absolutely massive. It’s a clarion call that you, as a financial advisor, should quickly consider shifting your asset allocation policy in a significant way. Right now.
What’s the news?
Hidden at the bottom of its press release touting the new International bond fund was the following statement:
Because of the diversification benefits international bonds offer, we've added Vanguard Total International Bond Index Fund to our 12 Vanguard Target Retirement Funds, 4 Vanguard LifeStrategy® Funds, and 2 Vanguard Variable Insurance Funds. The new international bond fund represents 20 percent of the fixed-income allocation for each of the funds listed.
Twenty percent of your fixed-income allocation! Bam!
Welcome to the new era.
The average U.S. investor has just about 0 percent exposure to international fixed-income, so Vanguard suggesting 20 percent is a big deal.
Should you adjust your asset allocation program today? What ETFs can you use to do the job? Let’s consider the case.