America’s best days ahead (from a stock perspective)?

[MikeT]

From a “past performance is no indication of future returns” perspective, how relevant is past U.S. stock market returns vs. future returns?

In the past, our economy had a huge manufacturing sector. Today: less so. In the future, perhaps much less so?

In the past, white-collar jobs could not be easily off-shored. Today, thanks to the internet and high-speed telecommunications, it is easily done.

In the past, US wages were very high relative to the rest of the world. Will pressures from global workforce and robots suppress US wages? How will this affect the USA stock market?

With increases in global trade, companies can easily combine raw materials in location 1 with labor in location 2 for sale in location 3. The world today, and in the future, is likely to be very different from what happened in the past.

I’m agonizing over the percentage of International Stock in my allocation. I’m starting with this 80% stock allocation provided by Vanguard Advisors:
34% VTSAX -Vanguard Total Stock Market Index Fund Admiral Shares
14% VEXAX -Vanguard Extended Market Index Fund Admiral Shares
32% VTIAX - Vanguard Total International Stock Index Fund Admiral Share
=====
80% Stock

I’m thinking of increasing International Stock to 40% (up from 32%) at the expense of the USA Total & USA Extended.

I feel (and I could be wrong) that the USA stock market is over-valued (or at least at an all-time high) whereas international stocks seem like more of a bargain.

What about 50% of my total portfolio (up from 32%) being in international stock?

Thanks for any thoughts on this dilemma.
Mike

[aristotelian]

Most of the arguments you make against the US stock market apply equally to the Germany's and Japan's of the world. If you really want to go for growth, I could see the argument for Emerging. But there will be a lot of losers as well as winners in the Emerging sector. You could target industries that fall somewhat outside of your critique - Information Technology, Energy, Telecom, etc. However, then you are losing diversification and that is a dangerous game.

Also keep in mind that the market is aware of all the trends you are talking about - deindustrialization, jobs heading overseas, etc - and those trends are already priced into the market.

[livesoft]

I don't think anyone can predict the future. I think it is a waste of time to try to rationalize any of one's choices about how much US and how much int'l stocks. So just pick something and go with it. It's disheartening to read of someone "agonizing" over this because it really doesn't matter.

OK, despite what I just typed, I'll predict this: Any splits of US/foreign anywhere from 30/70 to 70/30 will probably give about the same result over the long-term. One can tilt to small-cap and value which will have more influence that US/foreign split.

[Will do good]

With many of the US companies are multi-nationals and are represented in the SP500 index, I wonder does it matter too much?

[Nick341981]

With many of the US companies are multi-nationals and are represented in the SP500 index, I wonder does it matter too much?

+1

OP, if you really think you know the future and are smarter than Warren Buffett I guess go international and see how it works out for you.

https://www.google.com/amp/www.marketwa ... B6C0DEB24D

[aristotelian]

I don't think anyone can predict the future. I think it is a waste of time to try to rationalize any of one's choices about how much US and how much int'l stocks. So just pick something and go with it. It's disheartening to read of someone "agonizing" over this because it really doesn't matter.

OK, despite what I just typed, I'll predict this: Any splits of US/foreign anywhere from 30/70 to 70/30 will probably give about the same result over the long-term. One can tilt to small-cap and value which will have more influence that US/foreign split.

I think that may be overstating the case. Over the last 20 years, at least, international stock has returned about 100%, while S&P500 has returned more like 400%. If 20 years is not a long enough timeframe for the randomness to even out, I think you have to make an educated guess as to where the economy is headed for the next 10-20 years. I am not saying that US is the right play, just that you cannot pretend that the difference between 30/70 and 70/30 is insignificant. At least over 20 years it has been very significant.

[CaliJim]

I don't think anyone can predict the future. I think it is a waste of time to try to rationalize any of one's choices about how much US and how much int'l stocks. So just pick something and go with it. It's disheartening to read of someone "agonizing" over this because it really doesn't matter.

OK, despite what I just typed, I'll predict this: Any splits of US/foreign anywhere from 30/70 to 70/30 will probably give about the same result over the long-term. One can tilt to small-cap and value which will have more influence that US/foreign split.

I think that may be overstating the case. Over the last 20 years, at least, international stock has returned about 100%, while S&P500 has returned more like 400%. If 20 years is not a long enough timeframe for the randomness to even out, I think you have to make an educated guess as to where the economy is headed for the next 10-20 years. I am not saying that US is the right play, just that you cannot pretend that the difference between 30/70 and 70/30 is insignificant. At least over 20 years it has been very significant.

[Prior 20 year S&P 500 return, dividends reinvested = 323% , not 400% https://dqydj.com/sp-500-return-calculator/]

I too agree with Livesoft.

Impossible to predict. Any story one tries to make about how shifting technology and political trends will effect the market is just a story, and markets have a way of being surprising.

I think going forward, like in the past, that the Equity/Fixed Income asset allocation is way more important than the Domestic/International Equity allocation. And also, staying the course matters quite a bit more than either of these - and this is what most folks have trouble with (speaking from personal experience).

Historical under-performance of International may signal that the next 20 will be much better, if you believe in reversion to the mean, or perhaps the mean will shift!

Investing is NOT SCIENCE

BTW: I increased my International allocation 5% based on Swedroe's convincing post about just this topic a month or two ago.
viewtopic.php?t=201736

[ruralavalon]

The current international stock allocation (32/80 = 40% of stocks) is higher than I prefer, but who knows????

Don't agonize over this, pick either of the two international allocations which you mentioned and just stick with it.

[blueblock]

This recent summary from the Economist's Global Forecasting Service might be of interest as you ponder your international allocation:

http://gfs.eiu.com/Article.aspx?article ... 21&secId=1

[MikeT]

Thanks @blueblock

This article underscores how much I don't know.

My armchair expertise is indeed limited.

Thanks!

-Mike

[CaliJim]

This recent summary from the Economist's Global Forecasting Service might be of interest as you ponder your international allocation:

http://gfs.eiu.com/Article.aspx?article ... 21&secId=1

Some would argue that current market prices already incorporate much of this pessimism about the isolationist tendencies of our new POTUS.