Why own International at all?
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Why own International at all?
In the era of globalization why own greater than a smudgeon of international?
The long-term performance of the total international index is much lower than the total stock market index. Seems like all the risks without the returns.
Thanks
The long-term performance of the total international index is much lower than the total stock market index. Seems like all the risks without the returns.
Thanks
Re: Why own International at all?
Diversification.
- arthurdawg
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Re: Why own International at all?
Well... the long term may include international stocks returning at a greater clip than US stocks.
You certainly don't have to have international stocks. However, they have grown in value to make up close to 50% of the world market. And who knows what the future holds.
Diversify! 20% International is a reasonable allocation according to many.
You certainly don't have to have international stocks. However, they have grown in value to make up close to 50% of the world market. And who knows what the future holds.
Diversify! 20% International is a reasonable allocation according to many.
Indexed Fully!
Re: Why own International at all?
You're suffering from recency bias --- taking the last few years results and projecting them into the future. You might want to take a look at the Callan Periodic Table of Investment Returns.
Re: Why own International at all?
If you believe that the US total stock market will always outperform international stocks, then limit your equity exposure to one single country - the US.BreakfastTaco wrote:In the era of globalization why own greater than a smudgeon of international?
The long-term performance of the total international index is much lower than the total stock market index. Seems like all the risks without the returns.
Thanks
On the other hand, you might want to consider that international stocks more than doubled the total return of US stocks a decade ago.
Re: Why own International at all?
I don't hold any. But, there aren't many like me around here.
Along with the listed reasons ( although I think total stock and total international are close to even since the 70's or so), I'm also small time, as in small $$ and all tax advantaged accounts. So, I don't really see 20-30% international doing much good or bad for me. I haven't been convinced it's needed, so I pass on it.
Along with the listed reasons ( although I think total stock and total international are close to even since the 70's or so), I'm also small time, as in small $$ and all tax advantaged accounts. So, I don't really see 20-30% international doing much good or bad for me. I haven't been convinced it's needed, so I pass on it.
Re: Why own International at all?
I keep the equity portion of my investment portfolio to 50% international because I figure:
a)It approximates the ratio of the global markets vice a home-country approach.
b)I can't predict the future so I hedge my bets.
a)It approximates the ratio of the global markets vice a home-country approach.
b)I can't predict the future so I hedge my bets.
- SimpleGift
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Re: Why own International at all?
Because Japan:
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Re: Why own International at all?
Why hold bonds?
Why hold international?
Why hold precious metals or mining?
The answer is diversification and the benefits outweigh chasing asset classes that have risen in recent past. Also, under-performance is a reason to include international in your portfolio if you believe in reversion to the mean.
Why hold international?
Why hold precious metals or mining?
The answer is diversification and the benefits outweigh chasing asset classes that have risen in recent past. Also, under-performance is a reason to include international in your portfolio if you believe in reversion to the mean.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
- whaleknives
- Posts: 1238
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Re: Why own International at all?
This link seems to be working better right now, with higher resolution here.Ken Schwartz wrote:You're suffering from recency bias --- taking the last few years results and projecting them into the future. You might want to take a look at the Callan Periodic Table of Investment Returns.
"I'm an indexer. I own the market. And I'm happy." (John Bogle, "BusinessWeek", 8/17/07) ☕ Maritime signal flag W - Whiskey: "I require medical assistance."
Re: Why own International at all?
I'm not sure what the future returns of International vs. U.S. will look like. They have certainly traded back and forth over time, a lot of that difference has been the effect of relative currency exchange rates. It does appear that the markets expectations for growth in the U.S. are much higher going forward from here. Lots of people are quick to point out how International looks a lot more "value"-y at current price/x multiples (without consideration of expected growth).
Whether or not you can out-guess the markets valuation, or expected growth (or lack of growth) comes to fruition is always up for debate. The future is always unclear.
I'm inclined to Mr.Bogle's unpopular belief that U.S. investors can do well without international investments.
IMO, the decision should probably be based on your beliefs about the risk. Many people believe the increased diversification reduces their risk, I'm of the opinion that the unique risks associated with international aren't adding additional diversification it's just increasing risks you wouldn't otherwise be exposed to (not to mention an extra pinch of expenses and complexity to a portfolio).
If it's something you're undecided about and might regret later on, maybe the moderate approach is best. If one camp is saying to invest globally at full market weights, but you give credence to the idea that maybe there are additional risks you don't want that much exposure to, split the difference: Instead of a 50% US/ 50% Intl. global portfolio, maybe split the International allocation in half for a 75% US / 25% Intl.
Vanguard seems to advocate for a 30% International, Mr. Bogle has said for those who think they need it 20% should be the max... 25% seems to be right in the middle there too...
Whether or not you can out-guess the markets valuation, or expected growth (or lack of growth) comes to fruition is always up for debate. The future is always unclear.
I'm inclined to Mr.Bogle's unpopular belief that U.S. investors can do well without international investments.
IMO, the decision should probably be based on your beliefs about the risk. Many people believe the increased diversification reduces their risk, I'm of the opinion that the unique risks associated with international aren't adding additional diversification it's just increasing risks you wouldn't otherwise be exposed to (not to mention an extra pinch of expenses and complexity to a portfolio).
If it's something you're undecided about and might regret later on, maybe the moderate approach is best. If one camp is saying to invest globally at full market weights, but you give credence to the idea that maybe there are additional risks you don't want that much exposure to, split the difference: Instead of a 50% US/ 50% Intl. global portfolio, maybe split the International allocation in half for a 75% US / 25% Intl.
Vanguard seems to advocate for a 30% International, Mr. Bogle has said for those who think they need it 20% should be the max... 25% seems to be right in the middle there too...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
- Steelersfan
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Re: Why own International at all?
I'm at 20%, low by many bogleheads' standards.
I think international exposure is important for the reasons stated above, but U.S. multi-nationals rely so much on international business, and have investments in so many countries, I keep it at the low end.
I think international exposure is important for the reasons stated above, but U.S. multi-nationals rely so much on international business, and have investments in so many countries, I keep it at the low end.
Re: Why own International at all?
15 - 20% here. Unashamedly admit to home country bias. My wife has about the same in her rollover IRA, but zero international in her 401K (poor options with high ERs).
Last edited by john94549 on Fri Nov 14, 2014 8:08 pm, edited 1 time in total.
- ruralavalon
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Re: Why own International at all?
"Smudgeon"?BreakfastTaco wrote:In the era of globalization why own greater than a smudgeon of international?
The long-term performance of the total international index is much lower than the total stock market index. Seems like all the risks without the returns.
Thanks
Why own anything that's currently not doing well? Because it might do well in the future, aka "revert to mean". Because of an historical diversification benefit of 65 basis points. Because you might want to not be underweight global automotive, auto parts, consumer electronics, or mining.
We are about 25% of stocks in international stocks. That Vanguard paper, p. 6, says that almost all of the historical diversification benefit is at the low end of their 20 - 40% range.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: Why own International at all?
Merely a neologism, accurately reflecting the smudge made this year by VTIAX on our portfolios.ruralavalon wrote: "Smudgeon"?
Re: Why own International at all?
I'm at the low end ( 15-20%).The outsized gains of international in the past were due primarily to the devaluing dollar.That situation appears to have reversed.
All the Best, |
Joe
Re: Why own International at all?
That reversal may or may not be permanent. Place your bets.joe8d wrote:I'm at the low end ( 15-20%).The outsized gains of international in the past were due primarily to the devalued dollar.That situation appears to have reversed.
.
Last edited by kenner on Fri Nov 14, 2014 8:28 pm, edited 1 time in total.
Re: Why own International at all?
if you believe in globalization, you believe in Indexing....hence you should own a piece of International in your portfolio...the amount can vary ( or be subject to 20,000 opinions on this board)..Cheers
..
..
- ruralavalon
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Re: Why own International at all?
If we're are just look for recent winners, how about Vanguard REIT Index Fund, up 24.49% YTD, and definitely not a smudge on our portfolio .john94549 wrote:Merely a neologism, accurately reflecting the smudge made this year by VTIAX on our portfolios.ruralavalon wrote: "Smudgeon"?
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: Why own International at all?
Buy international equity while it suffers. The AA strategy is on exhibit, even at US market highs. Currency risk helps present that opportunity. Take advantage IMO.BreakfastTaco wrote:
The long-term performance of the total international index is much lower than the total stock market index. Seems like all the risks without the returns.
Thanks
Jerry
Re: Why own International at all?
The converse is true too, which would suggest increasing your international exposure.Steelersfan wrote:I'm at 20%, low by many bogleheads' standards.
I think international exposure is important for the reasons stated above, but U.S. multi-nationals rely so much on international business, and have investments in so many countries, I keep it at the low end.
Re: Why own International at all?
Smudgeon or smidgen...who cares!
Re: Why own International at all?
Jack Bogle himself says "stay away from Emerging Markets". The risks are NOT WORTH IT.
So as far as 'international' goes, I would do international DEVELOPED nations such as:
Developed Europe (mostly western Europe)
HK
Singapore
NZ
Australia
Canada
Africa, South America, Easter Europe, Middle East, Russia/Ukraine are all areas that to me are just not worth the risks involved....
So as far as 'international' goes, I would do international DEVELOPED nations such as:
Developed Europe (mostly western Europe)
HK
Singapore
NZ
Australia
Canada
Africa, South America, Easter Europe, Middle East, Russia/Ukraine are all areas that to me are just not worth the risks involved....
Re: Why own International at all?
I don't recall this quote from Mr. Bogle. In Common Sense on Mutual Funds, he states you do not need to own International due to currency risk and gives a nice explanation (probably the most clear I have heard) as to what currency risk really is. However, in his portfolio recommendations at the end of chapter 5 (or maybe 6 - I can't remember off the top of my head) - he recommends keeping international to no more than 20% of your total equity holdings and recommended at least 50% of that in EM. In fact, (I forget the exact line and do not have the book handy right now) he makes it sound that if you were going to do international - he would recommend EM since the developed markets are developed. I may be misinterpreting what he wrote and please correct me if I am - I would like to understand that better - thanks in advance...YellowJoe wrote:Jack Bogle himself says "stay away from Emerging Markets". The risks are NOT WORTH IT.
So as far as 'international' goes, I would do international DEVELOPED nations such as:
Developed Europe (mostly western Europe)
HK
Singapore
NZ
Australia
Canada
Africa, South America, Easter Europe, Middle East, Russia/Ukraine are all areas that to me are just not worth the risks involved....
Re: Why own International at all?
Diversification. I believe the US dollar will crash in my lifetime. This is why I keep a lot of assets in Europe, where I was born. Home country bias counts also I guess.
"The two most important days in someone's life are the day that they are born and the day they discover why." -John Maxwell
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Re: Why own International at all?
Questions like this scream recency bias.
Easiest way to find out if one is being influenced by recent events is ask if you would be asking the same question if international equities were are up 20%+ for the last several years. My guess is no.
Funny how very few want to add MORE to asset when it is out of favor.
I don't remember anyone in the early 80's wanting to eliminate Japan equities.
Good luck.
p.s. This is the reason I split equities 50/50 between U.S. and Ex U.S. as it insures I don't fall for behavioral issues.
Easiest way to find out if one is being influenced by recent events is ask if you would be asking the same question if international equities were are up 20%+ for the last several years. My guess is no.
Funny how very few want to add MORE to asset when it is out of favor.
I don't remember anyone in the early 80's wanting to eliminate Japan equities.
Good luck.
p.s. This is the reason I split equities 50/50 between U.S. and Ex U.S. as it insures I don't fall for behavioral issues.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
Re: Why own International at all?
I was 20% international when I built my retirement portfolio, but due to criticism from few bogleheads i increased my total international by 5% and added emerging markets 5% for total international/domestic equity split of 33.33/66/67. So far, looks like it was a mistake since international is lagging US big time, since I made the move anyway.Ged wrote:The converse is true too, which would suggest increasing your international exposure.Steelersfan wrote:I'm at 20%, low by many bogleheads' standards.
I think international exposure is important for the reasons stated above, but U.S. multi-nationals rely so much on international business, and have investments in so many countries, I keep it at the low end.
Re: Why own International at all?
I think some comments are needed on this.ArthurO wrote:I was 20% international when I built my retirement portfolio, but due to criticism from few bogleheads i increased my total international by 5% and added emerging markets 5% for total international/domestic equity split of 33.33/66/67. So far, looks like it was a mistake since international is lagging US big time, since I made the move anyway.Ged wrote:The converse is true too, which would suggest increasing your international exposure.Steelersfan wrote:I'm at 20%, low by many bogleheads' standards.
I think international exposure is important for the reasons stated above, but U.S. multi-nationals rely so much on international business, and have investments in so many countries, I keep it at the low end.
Not recalling the thread, I would hope that something like 20 vs 25+5 would not be a decision that would be based on "criticism." Inevitably when people ask questions about what is advised there will be many comments. Some comments will be general in nature and often suggest the choice is not very important. Other posters will suggest specific ideas that may or may not be based on some analysis. In any case for someone to take an actually negative view of 20% and suggest that 25% would "fix" the problem would be out of line for sure, even more so for the idea of adding emerging markets. But I doubt that is what anyone really intended. I do agree some threads can end up sounding like a person is stupid for not accepting some view or another, but we should try to avoid that (awarding mea culpas to myself when needed).
So now the other comment actually is kind of a "don't be stupid" comment, and that comment is that lots of investment decisions look like they should be called mistakes in hindsight, but that is not how investing works. Investment strategy is based on average expectation understanding that one should not expect to get what is expected. That is a kind of "clever" way to point out that investment results are variable and that one needs to take into account both the expected average and the uncertainty that one will not get the expected average in any particular period of time. It is still intelligent to make ex ante decisions based on expectations considering also uncertainty. It is not possible to invest any other way. Not getting what is expected doesn't have the nature of being a mistake. The statement is often made that one should not confuse outcome with strategy, meaning that what actually happens in the short run does not establish that a strategy was/is good or bad.
- backpacker
- Posts: 1620
- Joined: Mon Sep 22, 2014 2:17 pm
Re: Why own International at all?
Eh? Developed international stocks have beat US stocks since 1972. A 50/50 split between domestic and international did better yet. The full results are here.BreakfastTaco wrote: The long-term performance of the total international index is much lower than the total stock market index.
Re: Why own International at all?
^^ Great comments, as usual, dbr.
Also, I would say it's wrong to confuse strategy with either short term or long term outcome. No one knows the optimum AA before hand.
--Peter
My only comment is to reinforce the last point. Unless the AA shift was intended as some sort of market timing move, short term consequences are meaningless -- or should be. Actually, non-correlation is typically a desired part of the strategy, and any effects of unlucky timing should be overcome in the long term.dbr wrote:The statement is often made that one should not confuse outcome with strategy, meaning that what actually happens in the short run does not establish that a strategy was/is good or bad.
Also, I would say it's wrong to confuse strategy with either short term or long term outcome. No one knows the optimum AA before hand.
--Peter
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
Re: Why own International at all?
hello.
Jack Bogle didnt mention this in his book. He mentioned this in one of his latest interviews with Morningstar.com. Check it out on the morningstar.com site, it'll be worth your while.
He goes on to mention, that he wouldnt put more than 10% into emerging markets if you really really felt the need to diversity into EM. He says all the experts say EM is worthwhile and they should be far smarter than he is, however bogle is steadfast saying "the risks just aren't worth it" over at least a 10 yr outlook....
My take...diversify globally outside of USA, no more 50% of your equity position; and I would only diversity into developed nations for a long term hold. much lower risk and should be able to at least be on-target with Bogle's stance of 7% annualized growth in the foreseeable future. And yes, Bogle in his recent interviews is saying 7% annualized is a safe conservative return moving forward.....
Jack Bogle didnt mention this in his book. He mentioned this in one of his latest interviews with Morningstar.com. Check it out on the morningstar.com site, it'll be worth your while.
He goes on to mention, that he wouldnt put more than 10% into emerging markets if you really really felt the need to diversity into EM. He says all the experts say EM is worthwhile and they should be far smarter than he is, however bogle is steadfast saying "the risks just aren't worth it" over at least a 10 yr outlook....
My take...diversify globally outside of USA, no more 50% of your equity position; and I would only diversity into developed nations for a long term hold. much lower risk and should be able to at least be on-target with Bogle's stance of 7% annualized growth in the foreseeable future. And yes, Bogle in his recent interviews is saying 7% annualized is a safe conservative return moving forward.....
anil686 wrote:I don't recall this quote from Mr. Bogle. In Common Sense on Mutual Funds, he states you do not need to own International due to currency risk and gives a nice explanation (probably the most clear I have heard) as to what currency risk really is. However, in his portfolio recommendations at the end of chapter 5 (or maybe 6 - I can't remember off the top of my head) - he recommends keeping international to no more than 20% of your total equity holdings and recommended at least 50% of that in EM. In fact, (I forget the exact line and do not have the book handy right now) he makes it sound that if you were going to do international - he would recommend EM since the developed markets are developed. I may be misinterpreting what he wrote and please correct me if I am - I would like to understand that better - thanks in advance...YellowJoe wrote:Jack Bogle himself says "stay away from Emerging Markets". The risks are NOT WORTH IT.
So as far as 'international' goes, I would do international DEVELOPED nations such as:
Developed Europe (mostly western Europe)
HK
Singapore
NZ
Australia
Canada
Africa, South America, Easter Europe, Middle East, Russia/Ukraine are all areas that to me are just not worth the risks involved....
Re: Why own International at all?
This post made me stop and look at where my portfolio is today. INT is currently 27% ...my IPS says 30. I realize INT is down a bit for the year. So I will rebalance in January. I believe in a World Market. But we are all individuals, if you believe in your IPS you will Stay the Course!
Re: Why own International at all?
thanks!!!YellowJoe wrote:hello.
Jack Bogle didnt mention this in his book. He mentioned this in one of his latest interviews with Morningstar.com. Check it out on the morningstar.com site, it'll be worth your while.
He goes on to mention, that he wouldnt put more than 10% into emerging markets if you really really felt the need to diversity into EM. He says all the experts say EM is worthwhile and they should be far smarter than he is, however bogle is steadfast saying "the risks just aren't worth it" over at least a 10 yr outlook....
My take...diversify globally outside of USA, no more 50% of your equity position; and I would only diversity into developed nations for a long term hold. much lower risk and should be able to at least be on-target with Bogle's stance of 7% annualized growth in the foreseeable future. And yes, Bogle in his recent interviews is saying 7% annualized is a safe conservative return moving forward.....
anil686 wrote:I don't recall this quote from Mr. Bogle. In Common Sense on Mutual Funds, he states you do not need to own International due to currency risk and gives a nice explanation (probably the most clear I have heard) as to what currency risk really is. However, in his portfolio recommendations at the end of chapter 5 (or maybe 6 - I can't remember off the top of my head) - he recommends keeping international to no more than 20% of your total equity holdings and recommended at least 50% of that in EM. In fact, (I forget the exact line and do not have the book handy right now) he makes it sound that if you were going to do international - he would recommend EM since the developed markets are developed. I may be misinterpreting what he wrote and please correct me if I am - I would like to understand that better - thanks in advance...YellowJoe wrote:Jack Bogle himself says "stay away from Emerging Markets". The risks are NOT WORTH IT.
So as far as 'international' goes, I would do international DEVELOPED nations such as:
Developed Europe (mostly western Europe)
HK
Singapore
NZ
Australia
Canada
Africa, South America, Easter Europe, Middle East, Russia/Ukraine are all areas that to me are just not worth the risks involved....
- backpacker
- Posts: 1620
- Joined: Mon Sep 22, 2014 2:17 pm
Re: Why own International at all?
Adding 20% emerging markets has (over the last thirty-odd years for which I PV has reliable data) improved the risk/return (i.e. the sharp ratio) of a portfolio more than adding 20% developed markets. I'm not sure, then, why someone would think that the risk of EM "isn't worth it".YellowJoe wrote:[Jack Bogle] goes on to mention, that he wouldn't put more than 10% into emerging markets if you really really felt the need to diversity into EM. He says all the experts say EM is worthwhile and they should be far smarter than he is, however bogle is steadfast saying "the risks just aren't worth it" over at least a 10 yr outlook...
Re: Why own International at all?
The funny thing is that it all works out judging solely from the past. But we don`t know the future. It seems to me that a lot of responses to this site are widely diversified all over the world. Just because a country`s economy is doing poorly does not mean it cannot be the best stock performer and the reverse is true also. The magic best formula is never known till afterwards. So juggle your allocations to your hearts content but remember to stay true to your plan and give it plenty of time as it rains and is sunny.
Re: Why own International at all?
Couple of comments,
The problem is this a period dependent event. If you move the dates around just a little bit you can get a completely different outcome. Even longer periods show the U.S. outperforming a global portfolio... but those longer periods also include entire countries being devastated by war or communist take overs. Some might say that's a reason to diversify because "it can happen here", others might not be so certain that if such events were to unfold that your brokerage accounts holdings would be protected.backpacker wrote:Eh? Developed international stocks have beat US stocks since 1972. A 50/50 split between domestic and international did better yet. The full results are here.BreakfastTaco wrote: The long-term performance of the total international index is much lower than the total stock market index.
Again, it's period dependent. Some people believe markets work, there's a tendency for the market to "arbitrage away" excess returns. Some assets seem to violently swing from highs to lows and frequently "return to the mean". Obviously that presents an opportunity for someone that believes they have some understanding of when it's priced "high" or "low", but if you're not in the camp that believes they have that ability (it's harder than it looks), and you've seen how persistently the market tends to "return to the mean" ( i.e. the excess returns are not persistent), then the more dramatic ups and downs don't really offer you anything unless your premise is based on some sort of diversification benefit.backpacker wrote:...Adding 20% emerging markets has (over the last thirty-odd years for which I PV has reliable data) improved the risk/return (i.e. the sharp ratio) of a portfolio more than adding 20% developed markets. I'm not sure, then, why someone would think that the risk of EM "isn't worth it".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: Why own International at all?
Buy International you cannot predict which geographic region of the equity market will outperform over any period of time. Diversification/volatility reduction is not a reason to invest in International.
- backpacker
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Re: Why own International at all?
Thanks Jo! I suspect that we agree on quite a bit. I don't think international stocks persistently outperform domestic stocks. I was just objecting to the opposite view that domestic stocks can be relied on to outperform international stocks.JoMoney wrote:Couple of comments,backpacker wrote: Developed international stocks have beat US stocks since 1972. A 50/50 split between domestic and international did better yet. The full results are here.
The problem is this a period dependent event. If you move the dates around just a little bit you can get a completely different outcome. Even longer periods show the U.S. outperforming a global portfolio...
backpacker wrote:...Adding 20% emerging markets has (over the last thirty-odd years for which I PV has reliable data) improved the risk/return (i.e. the sharp ratio) of a portfolio more than adding 20% developed markets. I'm not sure, then, why someone would think that the risk of EM "isn't worth it".
Again, it's period dependent.[...] the more dramatic ups and downs don't really offer you anything unless your premise is based on some sort of diversification benefit.
As far as the very long term goes, about the best data we have is data used for Triumph of the Optimists. Here's one of their charts that I recently ran across:
Returns and volatility are from the perspective of a US investor (i.e. they are in dollars). As you can see, you're right that the US market had higher returns than the world market over the 100 year period. The US market, however, was also significantly more volatile. This pattern is repeated in both the first half and the second half of the century. This is some good evidence that holding the world market reduces risk compared to holding just the US market.
The results from 1900-1950 are especially interesting I think. The world market was less volatile than the US market despite communist takeovers in China and Russia (which are included in the DMS world index) and two world wars fought on foreign soil. Even though the US was safer militarily and politically, that didn't translate into safer overall stock returns. I would not have guessed that!
As it turns out, because the US market had surprisingly good returns for the century, its sharp ratio is virtually identical to the sharp ratio of the world index (.34 for the world and .33 for the US). Higher returns made up for higher volatility. Since I'm not confident that there will be higher returns for US stocks going forward, I'm not confident that the higher volatility of a US-only portfolio will be rewarded.
None of this is make or break for investors. An extra three points of standard deviation is not going to kill anyone and there is no guarantee that the world market will be less volatile than the US market going forward, especially over short periods of time. Correlation are also rising, so the volatility of the world index should rise as well. Foreign taxes are a real issue so, for investors not getting the foreign tax credit, there may be good reason to not hold the world market portfolio.
I'm mostly worried that new investors will avoid international stocks for all the wrong reasons. Then, when international stocks inevitably have a good run, the arguments for diversification will sound much more convincing. The bad behavior of switching back and forth is the main thing investors need to avoid.
Re: Why own International at all?
I pretty much agree with everything you commented on, just for clarification, noone called me stupid for having 20% in international, but vast majority of people who were kind enough to critique my allocation mentioned that 20% international was on a low side and further comments were that emerging markets overweight have higher expectation of good returns. My 403b has access to institutional emerg. market fund with expenses of only 0.12 and total international is only investment series with expenses of 0.22 so I took this to consideration also when overweighting emerg. markets.dbr wrote:I think some comments are needed on this.ArthurO wrote:I was 20% international when I built my retirement portfolio, but due to criticism from few bogleheads i increased my total international by 5% and added emerging markets 5% for total international/domestic equity split of 33.33/66/67. So far, looks like it was a mistake since international is lagging US big time, since I made the move anyway.Ged wrote:The converse is true too, which would suggest increasing your international exposure.Steelersfan wrote:I'm at 20%, low by many bogleheads' standards.
I think international exposure is important for the reasons stated above, but U.S. multi-nationals rely so much on international business, and have investments in so many countries, I keep it at the low end.
Not recalling the thread, I would hope that something like 20 vs 25+5 would not be a decision that would be based on "criticism." Inevitably when people ask questions about what is advised there will be many comments. Some comments will be general in nature and often suggest the choice is not very important. Other posters will suggest specific ideas that may or may not be based on some analysis. In any case for someone to take an actually negative view of 20% and suggest that 25% would "fix" the problem would be out of line for sure, even more so for the idea of adding emerging markets. But I doubt that is what anyone really intended. I do agree some threads can end up sounding like a person is stupid for not accepting some view or another, but we should try to avoid that (awarding mea culpas to myself when needed).
So now the other comment actually is kind of a "don't be stupid" comment, and that comment is that lots of investment decisions look like they should be called mistakes in hindsight, but that is not how investing works. Investment strategy is based on average expectation understanding that one should not expect to get what is expected. That is a kind of "clever" way to point out that investment results are variable and that one needs to take into account both the expected average and the uncertainty that one will not get the expected average in any particular period of time. It is still intelligent to make ex ante decisions based on expectations considering also uncertainty. It is not possible to invest any other way. Not getting what is expected doesn't have the nature of being a mistake. The statement is often made that one should not confuse outcome with strategy, meaning that what actually happens in the short run does not establish that a strategy was/is good or bad.
So now I am 33% international which is closer to average between low and high... so happy with it, and yeah so far the decision to increase international allocation did not work out in my favor since YTD return is negative so if I kept it in 20% I would have made more YTD return, but as you say higher expectation has a standard deviation with it, and so I keep rolling with my decision of 33% international and plan to stay there for the foreseeable future with 5% emerging markets tilt...
Re: Why own International at all?
backpacker wrote:Adding 20% emerging markets has (over the last thirty-odd years for which I PV has reliable data) improved the risk/return (i.e. the sharp ratio) of a portfolio more than adding 20% developed markets. I'm not sure, then, why someone would think that the risk of EM "isn't worth it".YellowJoe wrote:[Jack Bogle] goes on to mention, that he wouldn't put more than 10% into emerging markets if you really really felt the need to diversity into EM. He says all the experts say EM is worthwhile and they should be far smarter than he is, however bogle is steadfast saying "the risks just aren't worth it" over at least a 10 yr outlook...
as i stated, Jack Bogle says so many genius experts who are much smarter than him say that EM is worth the risk-adjusted premium...
Bogle says they could be right, but to him, EM is just not worth the risk for a portfolio with at least 10 yr outlook....
I believe you can easily diversify without even touching EM.
MCSI World stock market index doesn't even touch EM while FTSE All-World index does include EM. Both are 50% USA and 50% international....
Re: Why own International at all?
upon even more thinking over this..."why own international at all"...
to include International or not; is marginal and doesnt really matter. Keep fees LOW and rebalance stocks/bonds every year is the key....
Bogle says 7% (2% dividends, 5% earnings growth) is a safe conservative annualized growth number moving forward from here....
But if you were to include International, I personally like "developed nations" that include the companies with the strongest international brands and diversified businesses (ie. nestle company). developed nations also have less corupt and stable goverments. Currency risks are also minimized since you are mostly dealing with USD, Euro and GBP.
EM..past historical data could support slightly better returns due to its risk premium, but to me, its doesnt really matter if you include it. I'm with Bogle here...
USA, International "developed nations": This to me for a long term hold is very safe and should keep up with the conservative 7% annualized returns Bogle is stating.
to include International or not; is marginal and doesnt really matter. Keep fees LOW and rebalance stocks/bonds every year is the key....
Bogle says 7% (2% dividends, 5% earnings growth) is a safe conservative annualized growth number moving forward from here....
But if you were to include International, I personally like "developed nations" that include the companies with the strongest international brands and diversified businesses (ie. nestle company). developed nations also have less corupt and stable goverments. Currency risks are also minimized since you are mostly dealing with USD, Euro and GBP.
EM..past historical data could support slightly better returns due to its risk premium, but to me, its doesnt really matter if you include it. I'm with Bogle here...
USA, International "developed nations": This to me for a long term hold is very safe and should keep up with the conservative 7% annualized returns Bogle is stating.
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Re: Why own International at all?
Performance chasing. It is unlikely this question would have been posted here if International had been outperforming domestic this year. There will be years when the opposite occurs. When the dollars weakens and China and Europe boom, it sure feels good to own some international.BreakfastTaco wrote:In the era of globalization why own greater than a smudgeon of international?
The long-term performance of the total international index is much lower than the total stock market index. Seems like all the risks without the returns.
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Re: Why own International at all?
In the 1950-2000 period, why does the world have lower averages than the world-ex US and US? I would think the world is some combination of the two.backpacker wrote:Thanks Jo! I suspect that we agree on quite a bit. I don't think international stocks persistently outperform domestic stocks. I was just objecting to the opposite view that domestic stocks can be relied on to outperform international stocks.JoMoney wrote:Couple of comments,backpacker wrote: Developed international stocks have beat US stocks since 1972. A 50/50 split between domestic and international did better yet. The full results are here.
The problem is this a period dependent event. If you move the dates around just a little bit you can get a completely different outcome. Even longer periods show the U.S. outperforming a global portfolio...
backpacker wrote:...Adding 20% emerging markets has (over the last thirty-odd years for which I PV has reliable data) improved the risk/return (i.e. the sharp ratio) of a portfolio more than adding 20% developed markets. I'm not sure, then, why someone would think that the risk of EM "isn't worth it".
Again, it's period dependent.[...] the more dramatic ups and downs don't really offer you anything unless your premise is based on some sort of diversification benefit.
As far as the very long term goes, about the best data we have is data used for Triumph of the Optimists. Here's one of their charts that I recently ran across:
Returns and volatility are from the perspective of a US investor (i.e. they are in dollars). As you can see, you're right that the US market had higher returns than the world market over the 100 year period. The US market, however, was also significantly more volatile. This pattern is repeated in both the first half and the second half of the century. This is some good evidence that holding the world market reduces risk compared to holding just the US market.
The results from 1900-1950 are especially interesting I think. The world market was less volatile than the US market despite communist takeovers in China and Russia (which are included in the DMS world index) and two world wars fought on foreign soil. Even though the US was safer militarily and politically, that didn't translate into safer overall stock returns. I would not have guessed that!
As it turns out, because the US market had surprisingly good returns for the century, its sharp ratio is virtually identical to the sharp ratio of the world index (.34 for the world and .33 for the US). Higher returns made up for higher volatility. Since I'm not confident that there will be higher returns for US stocks going forward, I'm not confident that the higher volatility of a US-only portfolio will be rewarded.
None of this is make or break for investors. An extra three points of standard deviation is not going to kill anyone and there is no guarantee that the world market will be less volatile than the US market going forward, especially over short periods of time. Correlation are also rising, so the volatility of the world index should rise as well. Foreign taxes are a real issue so, for investors not getting the foreign tax credit, there may be good reason to not hold the world market portfolio.
I'm mostly worried that new investors will avoid international stocks for all the wrong reasons. Then, when international stocks inevitably have a good run, the arguments for diversification will sound much more convincing. The bad behavior of switching back and forth is the main thing investors need to avoid.
Re: Why own International at all?
+1John3754 wrote:Diversification.
More companies in the Vanguard World index, over 6000, including the U.S.
Vanguard Total Stock market index has only 3700+ domestic companies.
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
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Re: Why own International at all?
Nice spot. That really strange and can't be right. Typo?HopeToGolf wrote:In the 1950-2000 period, why does the world have lower averages than the world-ex US and US? I would think the world is some combination of the two.backpacker wrote: