why invest internationally?

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jbonne84
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why invest internationally?

Post by jbonne84 »

I know I should for diversification but there has never been a time as far as I can tell where in a fiscal year when the US got hit that international didn't get hit harder. So this leaves just the upside as a reason. Less than 10% of the time does international outperform the US in the last 10 years.

On top of all that europe is still highly unstable, asia is mostly-ok and south america is also unstable. What's the reason for investing international today?
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ruralavalon
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Re: why invest internationally?

Post by ruralavalon »

You gave the reason. The diversification benefit, from the occasional better performance of international stocks, is small but has been there.
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jbonne84
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Re: why invest internationally?

Post by jbonne84 »

ruralavalon wrote:You gave the reason. The diversification benefit, from the occasional better performance of international stocks, is small but has been there.
but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better. is foreign only worth it if you're trying to time the market and buy/sell at the right times?
avalpert
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Re: why invest internationally?

Post by avalpert »

We just did ~100 posts on this here

But no, choosing not to invest internationally is the choice to time/tilt the market - not the other way around. You may have reasons for doing so, but accepting the wisdom of the market isn't among them.
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willthrill81
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Re: why invest internationally?

Post by willthrill81 »

jbonne84 wrote:
ruralavalon wrote:You gave the reason. The diversification benefit, from the occasional better performance of international stocks, is small but has been there.
but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better. is foreign only worth it if you're trying to time the market and buy/sell at the right times?
Actually, it's worse than that. Over the last 30 years, a portfolio with 20% in the total international market and 80% in the total U.S. market would have underperformed a 100% U.S. portfolio by .47%.

That being said, I still keep a small portion of my portfolio in international equities, about 10%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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climber2020
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Re: why invest internationally?

Post by climber2020 »

jbonne84 wrote: but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better.
Unless you can find some evidence that past performance is predictive of future performance, the above statement is irrelevant. What you want is the best portfolio going forward 20 years, which no one can predict.

viewtopic.php?t=156573
lack_ey
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Re: why invest internationally?

Post by lack_ey »

Long term, strategically, you shouldn't have that strong a preference, though US is a little cheaper to invest in and doesn't have some of the cross-border tax issues or the foreign exchange rate fluctuation riding on top (though arguably some degree of currency diversification may be a good thing even if this increases vol a bit). So at least some home-country bias probably makes sense.

Medium term and more tactically, which you seem to be addressing when bringing up regions that may be "unstable," you'll also have to note that currently the USD is relatively strong and ex-US stock valuations are lower than US stock valuations. The more you pay for something, the lower the subsequent return. You can currently use the strong dollar to purchase even more shares of ex-US companies trading at lower price multiples relative to fundamentals.
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willthrill81
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Re: why invest internationally?

Post by willthrill81 »

climber2020 wrote:
jbonne84 wrote: but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better.
Unless you can find some evidence that past performance is predictive of future performance, the above statement is irrelevant. What you want is the best portfolio going forward 20 years, which no one can predict.

viewtopic.php?t=156573
If you think that past performance is completely irrelevant in the discussion as to what to do to prepare for the future, then it doesn't really matter what he does with the money does it? He could just stick it in a CD and hope for 15% interest rates again.

We have nothing BUT the past to help us understand what to make of the future.

I'm not saying that international will continue to underperform the U.S. market, but Jack Bogle certainly thinks that way.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
avalpert
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Re: why invest internationally?

Post by avalpert »

willthrill81 wrote:
climber2020 wrote:
jbonne84 wrote: but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better.
Unless you can find some evidence that past performance is predictive of future performance, the above statement is irrelevant. What you want is the best portfolio going forward 20 years, which no one can predict.

viewtopic.php?t=156573
If you think that past performance is completely irrelevant in the discussion as to what to do to prepare for the future, then it doesn't really matter what he does with the money does it? He could just stick it in a CD and hope for 15% interest rates again.

We have nothing BUT the past to help us understand what to make of the future.

I'm not saying that international will continue to underperform the U.S. market, but Jack Bogle certainly thinks that way.
What do you think someone asking the question of which markets historically performed best in say 1907 would conclude and how would that have worked out for them?

We do have more than the past alone, we have analytical though and the ability to construct hypothesis and test the validity of our thought. Yeah 1917 would have made for a nice date than 1907, but WWI did change the world - I wish I knew what the next event that did that will be, when it will happen and who will benefit from it. Alas, I don't and historians don't have any good analytical frameworks to guide us here - not at all similar to the frameworks we use to differentiate expected returns on CDs from those in equities (though we still accept we may lose it all in equities - that is why we have safety nets).
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willthrill81
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Re: why invest internationally?

Post by willthrill81 »

avalpert wrote:We do have more than the past alone, we have analytical though and the ability to construct hypothesis and test the validity of our thought. Yeah 1917 would have made for a nice date than 1907, but WWI did change the world - I wish I knew what the next event that did that will be, when it will happen and who will benefit from it. Alas, I don't and historians don't have any good analytical frameworks to guide us here - not at all similar to the frameworks we use to differentiate expected returns on CDs from those in equities (though we still accept we may lose it all in equities - that is why we have safety nets).
That analytical thought and testing of hypotheses is virtually all based in what happened in the past. That's how virtually all of our knowledge of the world is derived.

We can discuss how to interpret and use historical data to predict the future, but don't forget that it's all based on what's already happened.

People who say "the past is irrelevant" don't realize the rabbit hole they're potentially going into.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
kenner
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Re: why invest internationally?

Post by kenner »

Diversification.

Not too long ago, International Stocks experienced an entire decade of price and return performance that was double the price and return performance of the U. S. Stock market.

Decreasing International stock exposure may be wise. Eliminating International may not be wise.
lack_ey
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Re: why invest internationally?

Post by lack_ey »

willthrill81 wrote:
avalpert wrote:We do have more than the past alone, we have analytical though and the ability to construct hypothesis and test the validity of our thought. Yeah 1917 would have made for a nice date than 1907, but WWI did change the world - I wish I knew what the next event that did that will be, when it will happen and who will benefit from it. Alas, I don't and historians don't have any good analytical frameworks to guide us here - not at all similar to the frameworks we use to differentiate expected returns on CDs from those in equities (though we still accept we may lose it all in equities - that is why we have safety nets).
That analytical thought and testing of hypotheses is virtually all based in what happened in the past. That's how virtually all of our knowledge of the world is derived.

We can discuss how to interpret and use historical data to predict the future, but don't forget that it's all based on what's already happened.

People who say "the past is irrelevant" don't realize the rabbit hole they're potentially going into.
Yeah, it's a big problem on these forums. Many people are not really formulating this correctly, or there's a problem with their thinking. Past observations are the foundation of economic and financial theory, provide the data supporting the notion of an equity risk premium or even just positive equity returns at all, etc.

What people probably mean is something more along the lines that past relative performance among certain things is not necessarily very predictive of future relative performance*. There's a lot of noise in past results, and the underlying behavior likely changes over time too.

*In many cases our expectations are based in part on past data such as let's say a notion that short-term bonds generally outperform cash, where we should expect this behavior to continue. So it really depends on what you're looking at.
avalpert
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Re: why invest internationally?

Post by avalpert »

willthrill81 wrote:
avalpert wrote:We do have more than the past alone, we have analytical though and the ability to construct hypothesis and test the validity of our thought. Yeah 1917 would have made for a nice date than 1907, but WWI did change the world - I wish I knew what the next event that did that will be, when it will happen and who will benefit from it. Alas, I don't and historians don't have any good analytical frameworks to guide us here - not at all similar to the frameworks we use to differentiate expected returns on CDs from those in equities (though we still accept we may lose it all in equities - that is why we have safety nets).
That analytical thought and testing of hypotheses is virtually all based in what happened in the past. That's how virtually all of our knowledge of the world is derived.

We can discuss how to interpret and use historical data to predict the future, but don't forget that it's all based on what's already happened.

People who say "the past is irrelevant" don't realize the rabbit hole they're potentially going into.
Who said the past is irrelevant - it just has to be contextualized and used appropriately (and of course one needs to remember that just because something didn't happen in the past doesn't mean it won't in the future).

You did however say we have 'nothing but the past to help us understand what to make of the future' and that is untrue. And thank god it is untrue as innovation, the creation of ideas, concepts and constructs that were unimaginable to the past is the hallmark both of our economic growth and our survival as a species.
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willthrill81
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Re: why invest internationally?

Post by willthrill81 »

lack_ey wrote:
willthrill81 wrote:
avalpert wrote:We do have more than the past alone, we have analytical though and the ability to construct hypothesis and test the validity of our thought. Yeah 1917 would have made for a nice date than 1907, but WWI did change the world - I wish I knew what the next event that did that will be, when it will happen and who will benefit from it. Alas, I don't and historians don't have any good analytical frameworks to guide us here - not at all similar to the frameworks we use to differentiate expected returns on CDs from those in equities (though we still accept we may lose it all in equities - that is why we have safety nets).
That analytical thought and testing of hypotheses is virtually all based in what happened in the past. That's how virtually all of our knowledge of the world is derived.

We can discuss how to interpret and use historical data to predict the future, but don't forget that it's all based on what's already happened.

People who say "the past is irrelevant" don't realize the rabbit hole they're potentially going into.
Yeah, it's a big problem on these forums. Many people are not really formulating this correctly, or there's a problem with their thinking. Past observations are the foundation of economic and financial theory, provide the data supporting the notion of an equity risk premium or even just positive equity returns at all, etc.

What people probably mean is something more along the lines that past relative performance among certain things is not necessarily very predictive of future relative performance*. There's a lot of noise in past results, and the underlying behavior likely changes over time too.

*In many cases our expectations are based in part on past data such as let's say a notion that short-term bonds generally outperform cash, where we should expect this behavior to continue. So it really depends on what you're looking at.
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willthrill81
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Re: why invest internationally?

Post by willthrill81 »

avalpert wrote:Who said the past is irrelevant - it just has to be contextualized and used appropriately (and of course one needs to remember that just because something didn't happen in the past doesn't mean it won't in the future).
climber2020 wrote:
jbonne84 wrote: but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better.
Unless you can find some evidence that past performance is predictive of future performance, the above statement is irrelevant.
avalpert wrote:You did however say we have 'nothing but the past to help us understand what to make of the future' and that is untrue. And thank god it is untrue as innovation, the creation of ideas, concepts and constructs that were unimaginable to the past is the hallmark both of our economic growth and our survival as a species.
Virtually all of that is based on the past.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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triceratop
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Re: why invest internationally?

Post by triceratop »

I believe this has been discussed before. Have you read those threads? Any thoughts on the many thoughtful arguments given and discussions had? Hope this helps:

viewtopic.php?t=120532
viewtopic.php?t=175056
viewtopic.php?t=185433
viewtopic.php?t=203830
viewtopic.php?t=139693
viewtopic.php?t=167255
viewtopic.php?t=172933
viewtopic.php?t=196956
viewtopic.php?t=171875
viewtopic.php?t=183957
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avalpert
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Re: why invest internationally?

Post by avalpert »

willthrill81 wrote:
avalpert wrote:Who said the past is irrelevant - it just has to be contextualized and used appropriately (and of course one needs to remember that just because something didn't happen in the past doesn't mean it won't in the future).
climber2020 wrote:
jbonne84 wrote: but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better.
Unless you can find some evidence that past performance is predictive of future performance, the above statement is irrelevant.
You don't see the difference between saying 'the above statement is irrelevant' and 'the past is irrelevant'?
avalpert wrote:You did however say we have 'nothing but the past to help us understand what to make of the future' and that is untrue. And thank god it is untrue as innovation, the creation of ideas, concepts and constructs that were unimaginable to the past is the hallmark both of our economic growth and our survival as a species.
Virtually all of that is based on the past.
Um, no it isn't. When people first imagined computers and what can be done with them it was not based on the past. When Amazon came on the scene their innovation wasn't based on the past. When our ancestors first used a rough stone as a tool it was not based on what they had learned from the past. Etc.
TomCat96
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Re: why invest internationally?

Post by TomCat96 »

avalpert wrote:We just did ~100 posts on this here

But no, choosing not to invest internationally is the choice to time/tilt the market - not the other way around. You may have reasons for doing so, but accepting the wisdom of the market isn't among them.

What is the wisdom of the market?
To invest in the same allocation of capital the world has allocated for equities alone? Equities in view of bonds? Equities in view of other capital?
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Re: why invest internationally?

Post by willthrill81 »

avalpert wrote:
willthrill81 wrote:
avalpert wrote:Who said the past is irrelevant - it just has to be contextualized and used appropriately (and of course one needs to remember that just because something didn't happen in the past doesn't mean it won't in the future).
climber2020 wrote:
jbonne84 wrote: but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better.
Unless you can find some evidence that past performance is predictive of future performance, the above statement is irrelevant.
You don't see the difference between saying 'the above statement is irrelevant' and 'the past is irrelevant'?
avalpert wrote:You did however say we have 'nothing but the past to help us understand what to make of the future' and that is untrue. And thank god it is untrue as innovation, the creation of ideas, concepts and constructs that were unimaginable to the past is the hallmark both of our economic growth and our survival as a species.
Virtually all of that is based on the past.
Um, no it isn't. When people first imagined computers and what can be done with them it was not based on the past. When Amazon came on the scene their innovation wasn't based on the past. When our ancestors first used a rough stone as a tool it was not based on what they had learned from the past. Etc.
Saying that the last 20 years of returns are irrelevant IS saying that the past is irrelevant. We can debate about how relevant it is, but to say that it's worthless is going too far.

And all of the examples you refer to are inventions. Things like valuation measures are not inventions; they are a process used to analyze historical data in an effort to predict the future. But without that data, they have nothing to work with. Granted, they are more 'sophisticated' than simply using raw past return data, but that doesn't mean that the latter is irrelevant or inconsequential.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
WhiteMaxima
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Re: why invest internationally?

Post by WhiteMaxima »

Because sometimes US market is overvalued and international is undervauled. Eventually, the value is going back to its real value. And, US is only less than 20% of total world GDP.
Jags4186
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Re: why invest internationally?

Post by Jags4186 »

Invest in international or not--I don't think it really matters. History has shown that with a long enough time period you should be able to achieve your goals whether you have a globally diversified portfolio or a US only portfolio. What's important is that you pick a strategy and let it ride. Switching back and forth to chase performance is what will kill you.
TMCD75
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Re: why invest internationally?

Post by TMCD75 »

Hasn't Mr. Bogle made claims that there's really no need to own International Stocks?? I thought it was documented that he thought it best to own American based investments, is this true?

If you had 50k in 1980, 1985, and 1990, and you invested 100% in American owned funds versus another person investing 70/30, what would the outcome be? You could run the outcome over a very long time frame to see what's been the smarter/better investment. I'm sure the 100% American investment wins hands down...

I'm thinking of pulling most of my international money and putting it to work in VTSAX. It seems like that's where the smart money has been all along.
WhiteMaxima
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Re: why invest internationally?

Post by WhiteMaxima »

Mr Bogle's word is not God's word. Or what he said it makes no difference by invest in domestic stock and international stock or domestic perform better than international. But past performance might not repeat. So what he said might not be proved to be true in the future.
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Re: why invest internationally?

Post by Sandtrap »

TMCD75 wrote:Hasn't Mr. Bogle made claims that there's really no need to own International Stocks?? I thought it was documented that he thought it best to own American based investments, is this true? . . . . . . .
Yet the Vanguard VPAS services "one size fits all" portfolio has a significant amount of Total International Stock and Total International Bond.
Why? :confused
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Re: why invest internationally?

Post by willthrill81 »

TMCD75 wrote:Hasn't Mr. Bogle made claims that there's really no need to own International Stocks?? I thought it was documented that he thought it best to own American based investments, is this true?
Yes, straight from the horse's mouth.

"So, I don't do international. And emerging markets is a little separate part of so-called "international." We're wonderful in America--we call non-U.S. funds international. Where's the U.S.? (Laughs.) They are really non-U.S. funds--non-U.S. portfolios. I probably talked about this a year ago. I say, "What are you buying?" There is such a thing as oversimplifying--this coming, of course, from the great simplifier. People say, "Buy the EAFE Index or the FTSE International Index." So, . What are you buying? Look behind the curtain. Your largest investment is Britain. Your second-largest investment is Japan. Your third-largest investment is France.

What, Christine, I ask you, is the possibility that those three nations are going to outpace the U.S. in terms of investment return in the next 10 years? I just don't think it's possible."
http://www.morningstar.com/cover/videoc ... ?id=718644
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lack_ey
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Re: why invest internationally?

Post by lack_ey »

Sandtrap wrote:
TMCD75 wrote:Hasn't Mr. Bogle made claims that there's really no need to own International Stocks?? I thought it was documented that he thought it best to own American based investments, is this true? . . . . . . .
Yet the Vanguard VPAS services "one size fits all" portfolio has a significant amount of Total International Stock and Total International Bond.
Why? :confused
Is this a serious question? Bogle and Vanguard are very different things. This is one of their biggest, most well-known areas of disagreement.
reisner
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Re: why invest internationally?

Post by reisner »

I cashed out of a cash-cow house in San Diego in 2005, retired, and relocated to Washington State for a while. I didn't know what I was doing and by chance put a good portion of the profit into Fidelity Canada and Latin America. Those funds were earning over 40%, and that carried us through not quite till my SS kicked in, but until the recession did. I got out of both by 2009, put all the stock allocation into Vanguard Total Stock Market, and haven't changed that since and don't see any reason to. Yes, US stocks, especially since the election, may be overvalued. No, I don't know where the US as a whole is going. But I know even less about Europe, Asia, and South America. The world is no longer flat, and neither is the TSM, so I'll just cling pathetically to that fund and to my guns, all two ancient hunting weapons. No need to change them either.
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Noobvestor
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Re: why invest internationally?

Post by Noobvestor »

TMCD75 wrote:Hasn't Mr. Bogle made claims that there's really no need to own International Stocks?? I thought it was documented that he thought it best to own American based investments, is this true?

If you had 50k in 1980, 1985, and 1990, and you invested 100% in American owned funds versus another person investing 70/30, what would the outcome be? You could run the outcome over a very long time frame to see what's been the smarter/better investment. I'm sure the 100% American investment wins hands down...

I'm thinking of pulling most of my international money and putting it to work in VTSAX. It seems like that's where the smart money has been all along.
Normally I like to buy what is cheaper, not what's more expensive. US has been on a nice winning streak - so the question is: are you going to sell what's up and rebalance or are you going to capitulate, sell low and buy what is doing well?

As for Bogle - see this thread: viewtopic.php?t=104781
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Re: why invest internationally?

Post by Christine_NM »

reisner wrote:I cashed out of a cash-cow house in San Diego in 2005, retired, and relocated to Washington State for a while. I didn't know what I was doing and by chance put a good portion of the profit into Fidelity Canada and Latin America. Those funds were earning over 40%, and that carried us through not quite till my SS kicked in, but until the recession did. I got out of both by 2009, put all the stock allocation into Vanguard Total Stock Market, and haven't changed that since and don't see any reason to. Yes, US stocks, especially since the election, may be overvalued. No, I don't know where the US as a whole is going. But I know even less about Europe, Asia, and South America. The world is no longer flat, and neither is the TSM, so I'll just cling pathetically to that fund and to my guns, all two ancient hunting weapons. No need to change them either.
You did well for someone with no crystal ball. I like the thought that TSM is no longer flat. We would have to go to all-US small caps to get mostly national franchises (what I as a consumer think of as large companies) and even then there probably would be plenty of foreign earnings.
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patrick
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Re: why invest internationally?

Post by patrick »

jbonne84 wrote:I know I should for diversification but there has never been a time as far as I can tell where in a fiscal year when the US got hit that international didn't get hit harder. So this leaves just the upside as a reason. Less than 10% of the time does international outperform the US in the last 10 years.

On top of all that europe is still highly unstable, asia is mostly-ok and south america is also unstable. What's the reason for investing international today?
Think about what would have happened if you had followed this sort 10-year comparison strategy 10 years ago (that is, back in February 2007).

You would have seen that Italian stocks (tracked by the EWI iShares fund) were awesome, far better than those lame US stocks. Italian stocks outperformed in 1997, 1998, 2000, 2002, 2003, 2004, and 2006 -- they won 70% of the time! Someone who invested in Italian stocks from February 1997 to February 2007 would have 43% more money than someone languishing in US stocks over that period. What would be the reason for investing in non-Italian stocks?

Looking back, however, we can see this wouldn't work. If you had decided to use the 10-year rule 10 years ago and invested all in Italian stocks, you would have lost more than half of your money by now. Meanwhile someone who invested in the US instead would have more doubled their money.
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Re: why invest internationally?

Post by asif408 »

jbonne84 wrote:I know I should for diversification but there has never been a time as far as I can tell where in a fiscal year when the US got hit that international didn't get hit harder.
You haven't looked very far back then, try 2002: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Both developed and emerging markets fell less. In fact, emerging fell only 8% compared to a 20%+ for US. And 2002 was about the 5th largest fall ever for US stocks, so it was a pretty bad year.
rbaldini
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Re: why invest internationally?

Post by rbaldini »

If you take domestic and international index data going back to the 1970's, and ask "what's the best allocation to international?" e.g. with regard to total returns, you'll find some answer. I think it's 0%, actually. You can also ask what allocation minimizes risk, and I think it's something like 10% international.

But these are point estimates with very little precision. In other words, statistically speaking, what I've found is that there is very little to separate any allocation between 0% and 40% - the differences in return between them are well within statistical error. So my view is that historical analysis doesn't strongly recommend any particular allocation.
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Re: why invest internationally?

Post by Valuethinker »

ruralavalon wrote:You gave the reason. The diversification benefit, from the occasional better performance of international stocks, is small but has been there.
To be mathematically precise, I think that one should say that "the diversification benefit, in terms of less than 1.0 correlation between US and non US equities, has been present, albeit not huge for developed market equities".

I.e. the diversification benefit is about lower correlation not higher returns per se. This gives you a more "efficient" portfolio ie lower risk for same return or higher return for the same risk (or a combination of the 2 factors) ie closer to the Efficient Frontier.

For a non US investor this is all so wonderfully academic. I am underweight in USA, have been for years, and it has hurt-- a lot. You cannot ignore 55% of world stock market capitalization ;-).
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Re: why invest internationally?

Post by Valuethinker »

The worst mistake in these lines of argument is to conflate forecasts for the political and economic future of the USA v. Japan, Europe etc. with stock market performance.

The 2 things are different and they can diverge significantly.

You can be bullish on the USA, and as long as the demographic factors continue, that's a reasonable thing to be bullish on, but without assuming that automatically means US stocks will do better than foreign stocks.
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Re: why invest internationally?

Post by avalpert »

willthrill81 wrote:
avalpert wrote:
willthrill81 wrote:
avalpert wrote:Who said the past is irrelevant - it just has to be contextualized and used appropriately (and of course one needs to remember that just because something didn't happen in the past doesn't mean it won't in the future).
climber2020 wrote:
jbonne84 wrote: but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better.
Unless you can find some evidence that past performance is predictive of future performance, the above statement is irrelevant.
You don't see the difference between saying 'the above statement is irrelevant' and 'the past is irrelevant'?
avalpert wrote:You did however say we have 'nothing but the past to help us understand what to make of the future' and that is untrue. And thank god it is untrue as innovation, the creation of ideas, concepts and constructs that were unimaginable to the past is the hallmark both of our economic growth and our survival as a species.
Virtually all of that is based on the past.
Um, no it isn't. When people first imagined computers and what can be done with them it was not based on the past. When Amazon came on the scene their innovation wasn't based on the past. When our ancestors first used a rough stone as a tool it was not based on what they had learned from the past. Etc.
Saying that the last 20 years of returns are irrelevant IS saying that the past is irrelevant.
No it isn't. It may be saying that only 20 years is irrelevant, it may be saying those 20 years are irrelevant, it could be saying that what happened to do better over 20 years is irrelevant - all without making the blanket claim that the past is irrelevant.
We can debate about how relevant it is, but to say that it's worthless is going too far.
And who said it was worthless besides you?
And all of the examples you refer to are inventions. Things like valuation measures are not inventions; they are a process used to analyze historical data in an effort to predict the future.
First, bs - valuation measures (or, to avoid a rabbit hole into the philosophy of epistemolodgy, the application of them) are inventions. There was a time when those measures where not thought to have meaning or even conceived of at all and then there was a time when people thought to apply them.

Second, what do valuation measures have to do with predicting that the US will always outperform other countries such that there is no need to diversify beyond its borders? This isn't a question of valuation.
But without that data, they have nothing to work with. Granted, they are more 'sophisticated' than simply using raw past return data, but that doesn't mean that the latter is irrelevant or inconsequential.
I'd also argue this is untrue - data that test models can come later and the model can still have value. Again, we don't need to go down a rabbit hole with the history of science but it is not unusual in say physics for a model to hypothesize the existence of something never measured and then lo and behold they go out and measure it.
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Re: why invest internationally?

Post by asif408 »

willthrill81 wrote:
jbonne84 wrote:
ruralavalon wrote:You gave the reason. The diversification benefit, from the occasional better performance of international stocks, is small but has been there.
but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better. is foreign only worth it if you're trying to time the market and buy/sell at the right times?
Actually, it's worse than that. Over the last 30 years, a portfolio with 20% in the total international market and 80% in the total U.S. market would have underperformed a 100% U.S. portfolio by .47%.

That being said, I still keep a small portion of my portfolio in international equities, about 10%.
Actual, I came to the opposite conclusion. If I look at Vanguard's oldest international fund, the International Growth Fund, and compare it to their S&P 500 fund, it outperformed from 1983 to 2011: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

And from 1983 to 1997 it outperformed the entire time, a 14 year period. Sure, it underperformed during the tech bubble, but otherwise it was a much better choice over this nearly 30 year period. Sure, international has underperformed since 2011. But I prefer to cherry pick my start and ending times to justify my reasoning. So I keep a small amount in US, and based on this long-term period I don't see why anyone would have a large stake in US stocks. But maybe if I pick a different 20 or 30 year period I'll come to a different conclusion.
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Re: why invest internationally?

Post by willthrill81 »

asif408 wrote:
willthrill81 wrote:
jbonne84 wrote:
ruralavalon wrote:You gave the reason. The diversification benefit, from the occasional better performance of international stocks, is small but has been there.
but in almost every portfolio going back 20 years had someone kept out foreign/emerging, they would have done considerably better. is foreign only worth it if you're trying to time the market and buy/sell at the right times?
Actually, it's worse than that. Over the last 30 years, a portfolio with 20% in the total international market and 80% in the total U.S. market would have underperformed a 100% U.S. portfolio by .47%.

That being said, I still keep a small portion of my portfolio in international equities, about 10%.
Actual, I came to the opposite conclusion. If I look at Vanguard's oldest international fund, the International Growth Fund, and compare it to their S&P 500 fund, it outperformed from 1983 to 2011:

And from 1983 to 1997 it outperformed the entire time, a 14 year period. Sure, it underperformed during the tech bubble, but otherwise it was a much better choice over this nearly 30 year period. Sure, international has underperformed since 2011. But I prefer to cherry pick my start and ending times to justify my reasoning. So I keep a small amount in US, and based on this long-term period I don't see why anyone would have a large stake in US stocks. But maybe if I pick a different 20 or 30 year period I'll come to a different conclusion.
From Jan. 1986 to Jan 2017, VWIGX underperformed VFINX by 1.95% (8.35% CAGR vs. 10.30%) and had higher volatility to boot.

We could cherry pick periods where VWIGX outperformed, but over the last 32 years, it would have been nothing but a drag on your portfolio. Even going 80/20 VFINX/VWIGX would have reduced your returns (compared to VFINX alone) by a .25% without any real changes to the volatility.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: why invest internationally?

Post by asif408 »

willthrill81 wrote:We could cherry pick periods where VWIGX outperformed, but over the last 32 years, it would have been nothing but a drag on your portfolio. Even going 80/20 VFINX/VWIGX would have reduced your returns (compared to VFINX alone) by a .25% without any real changes to the volatility.
So can you come back here in 5 years (2022) and 10 years (2027) and do the same analysis for the previous 20 & 30 years and let me know what you find out? I'll be interested to see if things change.
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Re: why invest internationally?

Post by willthrill81 »

asif408 wrote:
willthrill81 wrote:We could cherry pick periods where VWIGX outperformed, but over the last 32 years, it would have been nothing but a drag on your portfolio. Even going 80/20 VFINX/VWIGX would have reduced your returns (compared to VFINX alone) by a .25% without any real changes to the volatility.
So can you come back here in 5 years (2022) and 10 years (2027) and do the same analysis for the previous 20 & 30 years and let me know what you find out? I'll be interested to see if things change.
Considering that VWIGX is so far behind VFINX, it would need absolutely stellar performance over the next 5 or 10 years to catch up. A 2% lag for 32 years is huge.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: why invest internationally?

Post by asif408 »

willthrill81 wrote:
asif408 wrote:
willthrill81 wrote:We could cherry pick periods where VWIGX outperformed, but over the last 32 years, it would have been nothing but a drag on your portfolio. Even going 80/20 VFINX/VWIGX would have reduced your returns (compared to VFINX alone) by a .25% without any real changes to the volatility.
So can you come back here in 5 years (2022) and 10 years (2027) and do the same analysis for the previous 20 & 30 years and let me know what you find out? I'll be interested to see if things change.
Considering that VWIGX is so far behind VFINX, it would need absolutely stellar performance over the next 5 or 10 years to catch up. A 2% lag for 32 years is huge.
So I'm still waiting on your answer to my question...........Will you? By 2022 we'll have 25 year of data for total international, so you could compare total international to total US by then.
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Re: why invest internationally?

Post by willthrill81 »

asif408 wrote:
willthrill81 wrote:
asif408 wrote:
willthrill81 wrote:We could cherry pick periods where VWIGX outperformed, but over the last 32 years, it would have been nothing but a drag on your portfolio. Even going 80/20 VFINX/VWIGX would have reduced your returns (compared to VFINX alone) by a .25% without any real changes to the volatility.
So can you come back here in 5 years (2022) and 10 years (2027) and do the same analysis for the previous 20 & 30 years and let me know what you find out? I'll be interested to see if things change.
Considering that VWIGX is so far behind VFINX, it would need absolutely stellar performance over the next 5 or 10 years to catch up. A 2% lag for 32 years is huge.
So I'm still waiting on your answer to my question...........Will you? By 2022 we'll have 25 year of data for total international, so you could compare total international to total US by then.
If this forum is still here, sure.

Keep in mind that Bogle's reason for his distaste of international equities is that they are dominated by Japan, the U.K., and France. Many seem to think that buying international means that they're getting the whole world, when in reality they are mostly getting those three countries (unless we're talking about emerging markets). Are the companies of those three countries likely to outperform U.S. companies in the next 5 or 10 years? That's the real question, and Bogle is dubious that the answer is yes, regardless of valuations. I have my doubts as well, though I do have a small piece of international in my portfolio.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: why invest internationally?

Post by Dirghatamas »

willthrill81 wrote: Keep in mind that Bogle's reason for his distaste of international equities is that they are dominated by Japan, the U.K., and France. Many seem to think that buying international means that they're getting the whole world, when in reality they are mostly getting those three countries (unless we're talking about emerging markets). Are the companies of those three countries likely to outperform U.S. companies in the next 5 or 10 years? That's the real question, and Bogle is dubious that the answer is yes, regardless of valuations. I have my doubts as well, though I do have a small piece of international in my portfolio.
As some one who has been investing this way (global cap weight) for now 25 years and intend to for the next 25 :beer , let me ask some obvious questions.

Yes, I am painfully aware that investing globally has hurt my returns for 25 years. OK, so what about big investors? Everything you say above is known to every investor (about demographics, countries GDP growth, sectors etc.). So Bogle isn't the first one to suddenly realize that Japan has a shrinking population or France has high taxation. This is no different from say Tech being a growth area in US vs. say utilities. The market normally takes care of such information by supply and demand by having lower P/E for slower growing and vice versa by market consensus..

So, why doesn't it work internationally according to you? Consider the ~700B Norway sovereign fund or the almost as big Singapore sovereign fund or very big mideast oil funds. Globally, investment nowadays is dominated by large, institutional investors. All these investors are free to move capital across the world from stocks to bonds to stocks in different countries.

The consensus of all these participants is the market cap. On one hand you agree with this philosophy (Bogle does too) when it comes to the US but think the rules don't apply elsewhere..why?

Why doesn't the head of the Norwegian fund listen to Bogle and invest mostly in the US? What are they all missing? Why are all the world's investors being so dumb? :?
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Re: why invest internationally?

Post by willthrill81 »

Dirghatamas wrote:Why doesn't the head of the Norwegian fund listen to Bogle and invest mostly in the US? What are they all missing? Why are all the world's investors being so dumb? :?
Good question. Apparently they think the trend of the last 30+ years is about to do an about face.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: why invest internationally?

Post by Bfwolf »

willthrill81 wrote:
Dirghatamas wrote:Why doesn't the head of the Norwegian fund listen to Bogle and invest mostly in the US? What are they all missing? Why are all the world's investors being so dumb? :?
Good question. Apparently they think the trend of the last 30+ years is about to do an about face.
If US stocks continue to outperform for the next 5 years, everybody will say "Of course they did, have you not seen the 20 year trend?"

If Int'l stocks outperform US stocks, everybody will say "Of course they did. Did you expect US stocks to outperform the rest of the world indefinitely?"
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Re: why invest internationally?

Post by willthrill81 »

Bfwolf wrote:
willthrill81 wrote:
Dirghatamas wrote:Why doesn't the head of the Norwegian fund listen to Bogle and invest mostly in the US? What are they all missing? Why are all the world's investors being so dumb? :?
Good question. Apparently they think the trend of the last 30+ years is about to do an about face.
If US stocks continue to outperform for the next 5 years, everybody will say "Of course they did, have you not seen the 20 year trend?"

If Int'l stocks outperform US stocks, everybody will say "Of course they did. Did you expect US stocks to outperform the rest of the world indefinitely?"
If we're looking at the totality of returns including the last 30 years, international has a long way to go to catch up to a 100% U.S. portfolio.

If we're only looking at the next 5-10 years, anything could happen. But it would need to be a significant change from what has been a fairly consistent and long trend.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: why invest internationally?

Post by Northern Flicker »

What if the next 20 years don't look like the last 20 years? Take a look at the 1960's and 1970's, especially the 1970's.
Risk is not a guarantor of return.
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Re: why invest internationally?

Post by willthrill81 »

jalbert wrote:What if the next 20 years don't look like the last 20 years?
What if they do?

We could go round and round with that one.

Even if mean reversion occurs when it comes to international equities, it might not happen until a long way from now. Or it could start tomorrow, though I'm not holding my breath.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: why invest internationally?

Post by patrick »

willthrill81 wrote:If we're looking at the totality of returns including the last 30 years, international has a long way to go to catch up to a 100% U.S. portfolio.

If we're only looking at the next 5-10 years, anything could happen. But it would need to be a significant change from what has been a fairly consistent and long trend.
If you want to examine truly long term trends, look at the Credit Suisse Yearbook which goes back to 1900. You'll see that Australian and South African stocks beat US stocks dramatically over the past 116 years. US stocks have a very long way to go to catch up.
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Re: why invest internationally?

Post by Dutch »

Why stop at international equities? You can stretch that argument much further.

Cut out all bonds. Invest 100% in the historically best performing asset class. Which was what: small-cap value?
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Re: why invest internationally?

Post by willthrill81 »

patrick wrote:
willthrill81 wrote:If we're looking at the totality of returns including the last 30 years, international has a long way to go to catch up to a 100% U.S. portfolio.

If we're only looking at the next 5-10 years, anything could happen. But it would need to be a significant change from what has been a fairly consistent and long trend.
If you want to examine truly long term trends, look at the Credit Suisse Yearbook which goes back to 1900. You'll see that Australian and South African stocks beat US stocks dramatically over the past 116 years. US stocks have a very long way to go to catch up.
So are you investing in Australian and South African stocks?

Or are you hoping that Japan, the U.K., and France will carry the day over the next decade?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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