Efficient Market Austrian Investment Advice

Most Austrians argue that because of the US's huge budget and trade deficits and low savings rate, the US dollar will decline against foreign currencies and the US stock market will underperform. But most Americans, investing through their 401(k)s or IRAs, buy equities through a generic mutual fund which invests zero or ten percent in international stocks. Those few who have read the research know that 70% US and 30% international is the "optimum" reward versus risk allocation. But even that allocation invests too little in international.

According to Vanguard, the US accounts for 44% of the world's market capitalization with 56% being international. This 44-56 allocation should be the "optimum" allocation. Efficient market theory claims you cannot beat the market. This allocation does not attempt to beat the market. In fact, the standard 70-30 allocation tries to beat the market by speculating that the US market and dollar will outperform foreign markets. This allocation should also satisfy Austrians, like myself, who believe that foreign markets offer better investment opportunities and that most Americans need to increase their international investments.

Speculators can deviate from this baseline, but the average investor does not want to have to do research, place trades, or monitor their investments too closely. This 44-56 allocation is a good allocation for investors and a good baseline to start from for speculators.

Vanguard Total World Stock Index Fund Investor Shares (VTWSX) has this exact allocation, but has a 0.25% up front fee and a 0.45% expense ratio. It is actually cheaper to do it yourself with Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) which has no up front fee and a low 0.15% expense ratio and Vanguard FTSE All-World ex-US Index Fund Investor Shares (VFWIX) which also has no up front fee and a 0.40% expense ratio. In total, you'll have worldwide exposure at a cost of just 0.29% per year. You can also trade the ETFs which are VT for the world, VTI for the US, and VEU for the world excluding the US.