Q; I follow your recommended Vanguard portfolios and wonder what you think about the recent addition of two International Bond funds – the Vanguard Total International Bond Index Fund and the Emerging Markets Government Index Fund?
A: I do not recommend international bond funds for the Vanguard portfolios. The purpose of the bond funds is to reduce the volatility of a portfolio. Bonds for stability and stocks for growth. Due to the currency differences, the international bonds will increase the volatility of the bond portion of the portfolio. Of course, as you know, half of the equity portion of the portfolios is in international stocks, and that is enough currency diversification. In fact, adding international equities reduces the equity volatility, while adding international bonds increases volatility.