Why foreign stocks?

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Gaston
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Why foreign stocks?

Post by Gaston »

Educate me pls. I own an S&P 500 index fund. Many of the companies in the index, such as Apple, have a large proportion of international sales. So by owning an S&P 500 index fund, I feel I already have a significant (perhaps 30%) international exposure. So what benefit is there to also own foreign stocks or an international equity fund? Thx.
scout1
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Re: Why foreign stocks?

Post by scout1 »

The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
UpperNwGuy
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Re: Why foreign stocks?

Post by UpperNwGuy »

scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
scout1
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Re: Why foreign stocks?

Post by scout1 »

UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
It depends on the skewness of returns. If returns are highly positively skewed and you don't own the few things that outperform you really miss out. The market cap of stocks (a proxy for returns) shows that they're highly skewed with just a few companies being much larger than everything else. If you didn't own those few companies, you missed most of the market's returns.

Here's an example:
There are 100 stocks and 99 stay the same and one goes up 100x. If you didn't own that one stock, you missed out big time.

How likely is that scenario? Fairly likely, look at the market cap of stocks. If you were active and decided to never own AAPL and a few other top companies that we only know about in hindsight, you did really poorly.
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climber2020
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Re: Why foreign stocks?

Post by climber2020 »

Would you still be asking this question if International stocks had outperformed US stocks for the last 10 years?
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BolderBoy
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Re: Why foreign stocks?

Post by BolderBoy »

Gaston wrote: Mon May 10, 2021 12:55 pmEducate me pls. I own an S&P 500 index fund. Many of the companies in the index, such as Apple, have a large proportion of international sales. So by owning an S&P 500 index fund, I feel I already have a significant (perhaps 30%) international exposure. So what benefit is there to also own foreign stocks or an international equity fund? Thx.
Maybe no benefit. It is an often discussed question. I have no specific international stocks so in essence have a two-fund portfolio. But many others choose to have international exposure and use a three-fund portfolio approach.

John Bogle said he saw little benefit in going with international for the very reason you give. But he also said if you do want international, limit it to 20% of your total portfolio.
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Re: Why foreign stocks?

Post by UpperNwGuy »

scout1 wrote: Mon May 10, 2021 1:15 pm
UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
It depends on the skewness of returns. If returns are highly positively skewed and you don't own the few things that outperform you really miss out. The market cap of stocks (a proxy for returns) shows that they're highly skewed with just a few companies being much larger than everything else. If you didn't own those few companies, you missed most of the market's returns.

Here's an example:
There are 100 stocks and 99 stay the same and one goes up 100x. If you didn't own that one stock, you missed out big time.

How likely is that scenario? Fairly likely, look at the market cap of stocks. If you were active and decided to never own AAPL and a few other top companies that we only know about in hindsight, you did really poorly.
Got it. How does that help answer the OP's question?
scout1
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Re: Why foreign stocks?

Post by scout1 »

UpperNwGuy wrote: Mon May 10, 2021 1:26 pm
scout1 wrote: Mon May 10, 2021 1:15 pm
UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
It depends on the skewness of returns. If returns are highly positively skewed and you don't own the few things that outperform you really miss out. The market cap of stocks (a proxy for returns) shows that they're highly skewed with just a few companies being much larger than everything else. If you didn't own those few companies, you missed most of the market's returns.

Here's an example:
There are 100 stocks and 99 stay the same and one goes up 100x. If you didn't own that one stock, you missed out big time.

How likely is that scenario? Fairly likely, look at the market cap of stocks. If you were active and decided to never own AAPL and a few other top companies that we only know about in hindsight, you did really poorly.
Got it. How does that help answer the OP's question?
Stock returns are highly skewed, so you should own foreign stocks because math.
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Wiggums
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Re: Why foreign stocks?

Post by Wiggums »

It’s a global economy, so why not get a piece of that?
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Re: Why foreign stocks?

Post by Thesaints »

Gaston wrote: Mon May 10, 2021 12:55 pm Educate me pls. I own an S&P 500 index fund. Many of the companies in the index, such as Apple, have a large proportion of international sales. So by owning an S&P 500 index fund, I feel I already have a significant (perhaps 30%) international exposure. So what benefit is there to also own foreign stocks or an international equity fund? Thx.
Why do you hold ALL the 505 components of the S&P500 ? You could very well randomly avoid 10, 20, or even 30% of them without giving up much diversification.
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Re: Why foreign stocks?

Post by Anon9001 »

scout1 wrote: Mon May 10, 2021 1:15 pm How likely is that scenario? Fairly likely, look at the market cap of stocks. If you were active and decided to never own AAPL and a few other top companies that we only know about in hindsight, you did really poorly.
LEXCX shows this argument is false. The fund hasn't changed it's holdings since 1930s yet it's performance is very similar to S&P 500 since January 31st 1941. How do you explain that if skewness is really a issue?
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Re: Why foreign stocks?

Post by scout1 »

Anon9001 wrote: Mon May 10, 2021 1:49 pm
scout1 wrote: Mon May 10, 2021 1:15 pm How likely is that scenario? Fairly likely, look at the market cap of stocks. If you were active and decided to never own AAPL and a few other top companies that we only know about in hindsight, you did really poorly.
LEXCX shows this argument is false. The fund hasn't changed it's holdings since 1930s yet it's performance is very similar to S&P 500 since January 31st 1941. How do you explain that if skewness is really a issue?

No, the fund proves my point. Look at the holdings, it's more than 42% UNP. Almost ALL of the returns came from a single company which shows that returns are HIGHLY positively skewed (because they compound). If it didn't own that 1 name, it would have underperformed drastically, even while owning XOM, BRK, PG, etc.
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Re: Why foreign stocks?

Post by Anon9001 »

scout1 wrote: Mon May 10, 2021 2:01 pm No, the fund proves my point. Look at the holdings, it's more than 42% UNP. Almost ALL of the returns came from a single company which shows that returns are HIGHLY positively skewed (because they compound). If it didn't own that 1 name, it would have underperformed drastically, even while owning XOM, BRK, PG, etc.
Okay let's assume LEXCX matching US Stock Market is due to Union Pacific. DOW also tracks S&P 500 well even though it is having price weighting and only 30 stocks. I have also actually read one of the studies that people here link referencing this skewness problem and if you are looking at largest companies 43-45% of them out-perform market. I think due to this if you are owning large-caps which let's admit you are because indexes are cap-weighted it doesn't matter if you are owning 30 or 500 or 1 quadrillion stocks the difference will be miniscule. Including or excluding Ex-US stocks will likely make no difference long-term.
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Re: Why foreign stocks?

Post by ruralavalon »

Gaston wrote: Mon May 10, 2021 12:55 pm Educate me pls. I own an S&P 500 index fund. Many of the companies in the index, such as Apple, have a large proportion of international sales. So by owning an S&P 500 index fund, I feel I already have a significant (perhaps 30%) international exposure. So what benefit is there to also own foreign stocks or an international equity fund? Thx.
There has been a high correlation between U.S. and international stocks, the correlation has been increasing, and there has been a modest diversification benefit.
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vitaflo
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Re: Why foreign stocks?

Post by vitaflo »

Gaston wrote: Mon May 10, 2021 12:55 pm Educate me pls. I own an S&P 500 index fund. Many of the companies in the index, such as Apple, have a large proportion of international sales. So by owning an S&P 500 index fund, I feel I already have a significant (perhaps 30%) international exposure. So what benefit is there to also own foreign stocks or an international equity fund? Thx.
You could say the same about international stocks that have US exposure. This isn't really a reason to own or not own international stocks by itself.
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Kintora
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Re: Why foreign stocks?

Post by Kintora »

1. Reduction in overall portfolio volatility. A Vanguard study showed (IIRC) somewhere around 25% of equities being international as the sweet spot to reduce volatility. I hold 20% which is still in a good spot on that curve.

2. International has outperformed US for several periods in history. I want to capture some of that when it occurs again.

3. Rebalancing opportunities between domestic and international to sell the outperformer high and buy the underperformer low.

4. Additional diversification beyond the US. The US companies are not guaranteed to outperform forever. Sure, the US companies get a lot of revenue from outside the US, but so what? How much revenue do you think Japanese companies got from overseas before the Nikkei tanked hard and long? I am willing to bet a lot considering all their cars and electronics. Also, tax and regulatory factors specific to the US could negatively affect US companies regardless of revenue source.
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Gaston
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Re: Why foreign stocks?

Post by Gaston »

Thank you all for your responses. Very helpful.
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Re: Why foreign stocks?

Post by pokebowl »

I recommend searching against the forum here and look back through the several hundred threads on this topic. Many points are often repeated and the horse has long been beaten into dust. As both sides tend to talk over the other, you will not see an agreement reached, but you will see where the arguments for or against come from. For better results, search the forum during years of international outperformance and years of underperformance.
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retired@50
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Re: Why foreign stocks?

Post by retired@50 »

Gaston wrote: Mon May 10, 2021 12:55 pm Educate me pls. I own an S&P 500 index fund. Many of the companies in the index, such as Apple, have a large proportion of international sales. So by owning an S&P 500 index fund, I feel I already have a significant (perhaps 30%) international exposure. So what benefit is there to also own foreign stocks or an international equity fund? Thx.
What if Apple and Amazon were French companies, would you want to own international stocks then?

The trouble is, you never really know where the next great stock will come from, and if you assume it will be from the US, you could easily be wrong.

Regards,
This is one person's opinion. Nothing more.
Tattarrattat
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Re: Why foreign stocks?

Post by Tattarrattat »

Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
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Re: Why foreign stocks?

Post by RJC »

Tattarrattat wrote: Mon May 10, 2021 9:16 pm Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
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Re: Why foreign stocks?

Post by watchnerd »

scout1 wrote: Mon May 10, 2021 1:28 pm
UpperNwGuy wrote: Mon May 10, 2021 1:26 pm
scout1 wrote: Mon May 10, 2021 1:15 pm
UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
It depends on the skewness of returns. If returns are highly positively skewed and you don't own the few things that outperform you really miss out. The market cap of stocks (a proxy for returns) shows that they're highly skewed with just a few companies being much larger than everything else. If you didn't own those few companies, you missed most of the market's returns.

Here's an example:
There are 100 stocks and 99 stay the same and one goes up 100x. If you didn't own that one stock, you missed out big time.

How likely is that scenario? Fairly likely, look at the market cap of stocks. If you were active and decided to never own AAPL and a few other top companies that we only know about in hindsight, you did really poorly.
Got it. How does that help answer the OP's question?
Stock returns are highly skewed, so you should own foreign stocks because math.
That's my reason.

And I'm more likely, over the long run, to hold the efficient frontier due to the greater number of possible portfolio combinations.
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watchnerd
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Re: Why foreign stocks?

Post by watchnerd »

Tattarrattat wrote: Mon May 10, 2021 9:16 pm Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
*getting my popcorn to wait for the US-only lovers to weigh in on this*
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Oregon Beancounter
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Re: Why foreign stocks?

Post by Oregon Beancounter »

I don’t bother with international funds. It has been stated that if you have a fund with AAPL, you have plenty of international exposure without political or currency risk. Investors have dug in their heels on this issue, one side or the other. Mr Bogle said that if you truly want to get international holdings no more than 20% of the portfolio
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Re: Why foreign stocks?

Post by qwertyjazz »

UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
All diversification produces diminishing returns from picking winning stocks. The problem is very few stocks drive returns and no one knows what they will be. Are you sure those will only be in the US in the future?
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Re: Why foreign stocks?

Post by Thesaints »

Oregon Beancounter wrote: Mon May 10, 2021 11:42 pm I don’t bother with international funds. It has been stated that if you have a fund with AAPL, you have plenty of international exposure without political or currency risk. Investors have dug in their heels on this issue, one side or the other. Mr Bogle said that if you truly want to get international holdings no more than 20% of the portfolio
Does adding foreign stocks decrease diversification ? Certainly not.
Do foreign stocks have higher expenses, or added geopolitical risks ? Not anymore.
Does currency exchange add substantial unrewarded risk ? It's very small compared to the inherent risk of stocks.

Therefore, why underweight foreign stocks ? There is no benefit and while, I agree, on a statistical basis a US or US + Foreign portfolio have similar expected returns, that is true on a statistical basis. We can't exclude that Foreign stocks will perform better (nor that US stocks will). Therefore the rational answer is owning them all.
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Re: Why foreign stocks?

Post by vineviz »

UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
1) "Enough" diversification kicks in well after the point of owning just the S&P 500.
2) Diminishing returns kick in well after the point of owning just the S&P 500.
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Re: Why foreign stocks?

Post by Rikaku »

Thesaints wrote: Tue May 11, 2021 12:22 am
Do foreign stocks have higher expenses, or added geopolitical risks ? Not anymore.
How do support these claims? VTIAX has a higher expense ratio than VTSAX. As far as geopolitical risk , that is very much a variable that is still relevant. How is a country like China or Russia not politically different than the US or Canada ?
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Re: Why foreign stocks?

Post by Call_Me_Op »

scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
Indeed.
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Re: Why foreign stocks?

Post by burritoLover »

Gaston wrote: Mon May 10, 2021 12:55 pm Educate me pls. I own an S&P 500 index fund. Many of the companies in the index, such as Apple, have a large proportion of international sales. So by owning an S&P 500 index fund, I feel I already have a significant (perhaps 30%) international exposure. So what benefit is there to also own foreign stocks or an international equity fund? Thx.
Most that ask this question should really just be an S&P 500 lifer with 0 % international. You will always be comparing your returns to the S&P 500 and any period that your global portfolio underperforms it, you will likely do stupid things, like many on here, such as not rebalancing into international or selling off international. Staying the course is more important.
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g2morrow
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Re: Why foreign stocks?

Post by g2morrow »

UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
International is in my diversification basket - commodities, non-traded REITs, private equity, crypto and a few other things are not.
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Re: Why foreign stocks?

Post by SuperXmas »

Europe, Japan and EM have a higher “value” tilt. US is heavier in Tech. So for a balanced portfolio, totally makes sense to have global equities exposure. Not to mention, those markets could outperform the US if inflation is sustainably >2%.
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Re: Why foreign stocks?

Post by JBTX »

In early 90s Japan was 45% of world market cap and US was 33%. Now US is 57% and Japan is 7%. In my mind this is a good reason to diversify outside of US.
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Re: Why foreign stocks?

Post by Dave55 »

I like owning companies across the globe. There are huge multinationals in Europe and Asia and I want a piece of their profits as well as the smaller companies that provide goods and services to those local regions. Otherwise I agree with the diversification and other reasons already listed.

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Re: Why foreign stocks?

Post by absolute zero »

Since these threads get so many responses, it would be interesting for me to see data on which variables are correlated with US-only investing as opposed to international investing. I doubt the data exists. If I had the skills/means to carry out such a survey or study, I’d be interested to gather and test the following:

- Age
- Gender
- Race
- Education level
- Income
- Political Ideology
- Live in rural vs urban location
- Number of languages spoken
- Number of foreign countries visited

I feel like those data points might be able to build a pretty decent model to predict preference/taste for international diversification. Maybe if such a model existed, an advisor could then use it to recommend either a low-end (eg 25%) or high-end (eg 50%) amount of international stocks, to help ensure that an investor was likely to stick to the plan.
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Re: Why foreign stocks?

Post by ruralavalon »

Tattarrattat wrote: Mon May 10, 2021 9:16 pm Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
I agree.

The much more important issues are savings rate, and equity/fixed income allocation.
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Re: Why foreign stocks?

Post by watchnerd »

ruralavalon wrote: Tue May 11, 2021 11:04 am
Tattarrattat wrote: Mon May 10, 2021 9:16 pm Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
I agree.

The much more important issues are savings rate, and equity/fixed income allocation.
Right.

Oh, and your stock / crypto ratio has more impact, too. ;)
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Re: Why foreign stocks?

Post by Dennisl »

We need a drinking game. Take a shot every time this question comes up. :sharebeer
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Re: Why foreign stocks?

Post by watchnerd »

Dennisl wrote: Tue May 11, 2021 12:16 pm We need a drinking game. Take a shot every time this question comes up. :sharebeer
We'd all be passed out on the floor.
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Re: Why foreign stocks?

Post by ruralavalon »

watchnerd wrote: Tue May 11, 2021 12:16 pm
Dennisl wrote: Tue May 11, 2021 12:16 pm We need a drinking game. Take a shot every time this question comes up. :sharebeer
We'd all be passed out on the floor.
A double shot :wink: every time someone uses the phrase "buy the haystack" or mentions Japan or speculates about someone else's motives.

I don't drink, so I will be the last person standing :) .
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Re: Why foreign stocks?

Post by invest2bfree »

RJC wrote: Mon May 10, 2021 10:11 pm
Tattarrattat wrote: Mon May 10, 2021 9:16 pm Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
+1000
Unless you experience a black swan event where dollar loses 50% of its value and US gets into an prolonged selloff due to stagflation.
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Thesaints
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Re: Why foreign stocks?

Post by Thesaints »

Rikaku wrote: Tue May 11, 2021 5:58 am
Thesaints wrote: Tue May 11, 2021 12:22 am
Do foreign stocks have higher expenses, or added geopolitical risks ? Not anymore.
How do support these claims? VTIAX has a higher expense ratio than VTSAX. As far as geopolitical risk , that is very much a variable that is still relevant. How is a country like China or Russia not politically different than the US or Canada ?
You can invest international with <0.10% ER (VXUS). At that point, 0.03% or 0.08% doesn't make a difference. 2% over 40 years is absolutely nothing compared to the stock market volatility.

China + Russia share of market capitalization is less than 5%. US + Canada is 60%. Basically, negligible added risk on a capitalization based index.
I see a lot more risk in leaving them out.
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Re: Why foreign stocks?

Post by watchnerd »

invest2bfree wrote: Tue May 11, 2021 12:59 pm Unless you experience a black swan event where dollar loses 50% of its value and US gets into an prolonged selloff due to stagflation.
50% of its value relative to another currency?

Or 50% of its purchasing power for consumer goods?
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Re: Why foreign stocks?

Post by RJC »

invest2bfree wrote: Tue May 11, 2021 12:59 pm
RJC wrote: Mon May 10, 2021 10:11 pm
Tattarrattat wrote: Mon May 10, 2021 9:16 pm Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
+1000
Unless you experience a black swan event where dollar loses 50% of its value and US gets into an prolonged selloff due to stagflation.
If that happens, will international be unaffected? or will it come down too due to multi-national companies around the world?
invest2bfree
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Re: Why foreign stocks?

Post by invest2bfree »

watchnerd wrote: Tue May 11, 2021 1:33 pm
invest2bfree wrote: Tue May 11, 2021 12:59 pm Unless you experience a black swan event where dollar loses 50% of its value and US gets into an prolonged selloff due to stagflation.
50% of its value relative to another currency?

Or 50% of its purchasing power for consumer goods?
It can be both.

Look at our trade deficit about 700b in goods deficit which is the highest ever, 2007 trade deficit included lot of oil.

Now Iam not predicting a dollar crash and a stagflation but it cannot be ruled out. Being diversified does not eliminate the pain but lessons it.

After 2020/2021 I have come to an conclusion that deflation is not possible in US, since politicians are willing to print some ridiculous amount of money.
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UpperNwGuy
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Re: Why foreign stocks?

Post by UpperNwGuy »

Tattarrattat wrote: Mon May 10, 2021 9:16 pm Long term, US and Intl have similar returns and a fair amount of correlation with each other. Owning both will probably reduce the standard deviation of your returns a bit, but your terminal wealth accumulation over several decades is very unlikely to be significantly different going all US vs global market weight. Nobody's retirement will be made or broken by this decision. The most important factors under your control are savings rate during accumulation and spending rate during distribution. Next would be your overall equity allocation. The most important factor not under your control is luck; ie: market returns. The US vs Intl issue is not worth the amount of discussion it gets.
This is why I asked my question earlier about how much diversification is really needed, and at what point does additional diversification result in diminishing returns.
Thesaints
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Re: Why foreign stocks?

Post by Thesaints »

UpperNwGuy wrote: Tue May 11, 2021 4:01 pm This is why I asked my question earlier about how much diversification is really needed, and at what point does additional diversification result in diminishing returns.
Never. Unless it comes with higher costs.
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Re: Why foreign stocks?

Post by VTI »

absolute zero wrote: Tue May 11, 2021 9:20 am Since these threads get so many responses, it would be interesting for me to see data on which variables are correlated with US-only investing as opposed to international investing. I doubt the data exists. If I had the skills/means to carry out such a survey or study, I’d be interested to gather and test the following:

- Age
- Gender
- Race
- Education level
- Income
- Political Ideology
- Live in rural vs urban location
- Number of languages spoken
- Number of foreign countries visited

I feel like those data points might be able to build a pretty decent model to predict preference/taste for international diversification. Maybe if such a model existed, an advisor could then use it to recommend either a low-end (eg 25%) or high-end (eg 50%) amount of international stocks, to help ensure that an investor was likely to stick to the plan.
Another good bullet point would be country of origin. It's been my limited experience that immigrants to America (from Europe, China, and India) are far less optimistic about the stock markets in their country of origin.
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Re: Why foreign stocks?

Post by Rikaku »

Thesaints wrote: Tue May 11, 2021 1:02 pm
Rikaku wrote: Tue May 11, 2021 5:58 am
Thesaints wrote: Tue May 11, 2021 12:22 am
Do foreign stocks have higher expenses, or added geopolitical risks ? Not anymore.
How do support these claims? VTIAX has a higher expense ratio than VTSAX. As far as geopolitical risk , that is very much a variable that is still relevant. How is a country like China or Russia not politically different than the US or Canada ?
You can invest international with <0.10% ER (VXUS). At that point, 0.03% or 0.08% doesn't make a difference. 2% over 40 years is absolutely nothing compared to the stock market volatility.

China + Russia share of market capitalization is less than 5%. US + Canada is 60%. Basically, negligible added risk on a capitalization based index.
I see a lot more risk in leaving them out.
Negligible is subjective. I don’t consider an expense ratio 2.6x more expensive to be negligee , on top of the foreign taxes if held in a tax advantage account.

Market share of ALL ex-US is 40% — not a small amount of geopolitical risk when it’s looked at in the aggregate.
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Re: Why foreign stocks?

Post by Robot Monster »

UpperNwGuy wrote: Mon May 10, 2021 1:03 pm
scout1 wrote: Mon May 10, 2021 1:00 pm The real question is why not? Most big foreign stocks have significant exposure to the USA.

Here are some common answers:
1) Diversification
2) Diversification
3) Diversification
How much diversification is enough diversification? And at what point does additional diversification start to produce diminishing returns?
Consider your own question in the face of this:
Vanguard Total World Stock consists of 9063 stocks
Vanguard Total Stock Market -- 3755 stocks
Vanguard S&P 500 -- 509 stocks
Vanguard Mega Cap -- 243 stocks
Vanguard Wellington Fund -- 66 stocks
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
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