The risk-free interest is unusually low across the developed world and the US equity market looks expensive, but equity valuations in the non-US developed market are close to historical averages, and equity valuations in emerging markets are below average. So IMO it is reasonable to expect near-historical equity returns by investing outside the US. See https://mebfaber.com/2019/01/25/the-biggest-valuation-spread-in-40-years/
The case for giving sort-of-later depends on the current interest rate, but the case for giving much later only depends on the difference between the long-run interest rate and the long-run discount rate. As Phil Trammell argues in the post linked by OP, the long-run interest rate most likely exceeds the philanthropic discount rate, which means we should give later.
1. Agree that equity valuations outside the US are much less extreme. But if you’re building a diversified portfolio, global fixed income and US equities are probably going to play a large part. So avoiding lower expected returns in those asset classes would require an element of active management, which I think raises the hurdle for this project significantly since active management is both expensive and hard to do well. Given the goals of this fund, I would think a passive Risk Parity strategy (which includes a lot of fixed income) would make a lot of sense.
2. Good point. I would still argue that if there’s an intention to deploy money when “market changes make investing much less attractive”, it makes sense to try and define those types of conditions ahead of time. And if you were going through that exercise a couple of hundred years ago, I’m pretty sure “widespread negative real yields” would have made the list.
The risk-free interest is unusually low across the developed world and the US equity market looks expensive, but equity valuations in the non-US developed market are close to historical averages, and equity valuations in emerging markets are below average. So IMO it is reasonable to expect near-historical equity returns by investing outside the US. See https://mebfaber.com/2019/01/25/the-biggest-valuation-spread-in-40-years/
The case for giving sort-of-later depends on the current interest rate, but the case for giving much later only depends on the difference between the long-run interest rate and the long-run discount rate. As Phil Trammell argues in the post linked by OP, the long-run interest rate most likely exceeds the philanthropic discount rate, which means we should give later.
1. Agree that equity valuations outside the US are much less extreme. But if you’re building a diversified portfolio, global fixed income and US equities are probably going to play a large part. So avoiding lower expected returns in those asset classes would require an element of active management, which I think raises the hurdle for this project significantly since active management is both expensive and hard to do well. Given the goals of this fund, I would think a passive Risk Parity strategy (which includes a lot of fixed income) would make a lot of sense.
2. Good point. I would still argue that if there’s an intention to deploy money when “market changes make investing much less attractive”, it makes sense to try and define those types of conditions ahead of time. And if you were going through that exercise a couple of hundred years ago, I’m pretty sure “widespread negative real yields” would have made the list.