Archives for December 2014

Vanguard has announced that they now support two-factor authentication via SMS text messages when logging into your financial accounts. There should be a little blurb when you log in, or after logging in you can navigate to “My Accounts > Account maintenance > Security code” to activate it.

I definitely appreciate the availability of two-factor authentication, although my actual usage depends on how often I have to use it and the importance of the account. Since my Vanguard accounts contain a significant chunk of my assets and I usually log in less than once a week, I enabled it immediately. Here are the highlights:

• If activated, you’ll receive a unique 6-digit code via text message that can only be used once to gain access to your account. The code will expire after 10 minutes.
• Security codes sent via e-mail, phone call or other methods are not supported. No future plans are mentioned.
• You can choose to receive a security code every time you log in, or only when Vanguard doesn’t recognize the device that you’re using. This can be a good compromise if you log in frequently from the same computer.
• You’ll still need your current user name and password. You may also need to answer your previous security questions like “high school mascot?” when calling Vanguard.
• Security codes work with Vanguard.com and their official mobile apps. They do not work with Vanguard.mobi.
• Two-factor authentication may conflict with financial aggregation tools such as Mint.com, Personal Capital, or Yodlee.

Also: TwoFactorAuth.org is a nifty website that tracks which financial websites (and other services) offer two-factor authentication.

Here another data point on the topic of adding international bonds to your portfolio. The AllianceBernstein Blog has post on how adjusting the US/Global mix of your bond asset allocation affects risk-adjusted returns:

Using data from 1994-2013, you can see some trends as you go from 100% US bonds to 50/50 to 100% International ex-US (hedged). As you add more international the historical return drops a little bit, but the volatility drops even more. Thus, the risk-adjusted return actually goes up (dotted-line). The author suggests a 50/50 US/non-US mix as a “realistic target”, while reminding you that if you do add international bond exposure it should be currency-hedged.

Also note the fine print that the chart measures the performance of an index, while international bond funds usually have higher fees in the real world. For example, the Vanguard Total International Bond ETF (BNDX) has an expense ratio of 0.20%, while the domestic Vanguard Total Bond Market ETF (BND) has an expense ratio of 0.08%. The gap is smaller that it used to be, but it still exists.

So it is a critical asset class to include? International bonds are the world’s largest asset class by market cap. Since 2013, Vanguard has included international bonds in their Target Date Retirement and LifeStrategy all-in-one mutual funds – currently 20% of the total bond allocation.

I’m still not convinced myself. I think there may be a benefit in a real-world portfolio, but it likely will be small and even smaller after the higher fund fees and internal trading costs. I just don’t feel the need for such added complexity. As the cost gap shrinks further, I will reconsider.