Stock Allocation ?

[hrux]

I am close to finally establishing a position in a PP however would appreciate any insight into the stock allocation.  I will be investing in a taxable account and am considering the following:

25% in Gold via IAU
25% in LT Treasuries via TLT
25% in ST Treasuries via SHY
25% in Equity (75% in VTI and 25% in either VWO or EWX)

My question:  what does everyone think about allocating 20% of the stock portion to an Emerging Small Cap ETF such as EWX or Vanguard's Emerging Large Cap ETF VWO?  I realize the currency risk that one assumes and is my understanding that Craig prefers VEU for broader exposure however I was thinking it would improve diversification by investing in an emerging small cap etf.  Thoughts? 

[KevinW]

IMO the stock portion of the PP should be 100% total domestic stock market.  The arguments for adding foreign stocks to a portfolio have been made in the context of a domestic stock / domestic bond portfolio, which has no currency hedge and hence benefits greatly from the currency diversification that comes with a dash of foreign stocks.  The PP already has a finely tuned currency hedge in the form of the gold allocation.  Substituting foreign stocks in place of domestic stocks only adds complexity, expenses, and a speculative tilt away from domestic currency which can cut both ways.  IMO.

[craigr]

My question:  what does everyone think about allocating 20% of the stock portion to an Emerging Small Cap ETF such as EWX or Vanguard's Emerging Large Cap ETF VWO?  I realize the currency risk that one assumes and is my understanding that Craig prefers VEU for broader exposure however I was thinking it would improve diversification by investing in an emerging small cap etf.  Thoughts?  

I don't think anyone should invest a large chunk of money into any emerging market stock fund unless they've been to a least a couple emerging market economies. I have and what I learned is that I want to put as little of my money there as possible except as a pure speculative play. There are a great many risks involved in emerging markets. Currency risks are huge along with lack of transparency in their markets.

If you want to hold international, I'd do it with a broadly based total index fund that holds some Emerging markets, but has most of the money focused on industrialized first world countries. If you just have to buy EM stocks then do it with the variable portfolio with money you can afford to lose.

Also be aware that many US companies have huge exposure to overseas markets where they sell their products. You may not have stock in Brazil for instance, but you can be darn sure Coca Cola is selling product there giving you profits from that economy.