Can anyone convince me I need international stock in my portfolio?

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asif408
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Re: Can anyone convince me I need international stock in my portfolio?

Post by asif408 » Fri Jul 21, 2017 12:53 pm

nisiprius wrote:And there are several absolutely direct tools to address inflation: TIPS, series I savings bonds, and inflation-indexed SPIAs. None of these makes much money for the investment industry, and, understandably, there is a long tradition of saying "if you are worried about inflation, then address it with all these others things that ought to, theoretically, logically, sorta-kinda-tend-to track inflation." But all of them are indirect, loose, unreliable, and don't hold up well on examination of actual past history.
That's a good point assuming you have a higher level of fixed income than equity in retirement. In that case it probably doesn't matter that much what your stock allocation as it does having inflation protection in your bond portion. But if I had more equities than fixed income in retirement I'd probably still want a decent chunk of foreign stocks.
nisiprius wrote:For example, it sounds logical to say that if the dollar weakens, consumers will experience inflation, due to the increased prices of imported goods. And yet, just think about personal experience. Since TIPS were introduced in 1997, what is the only sustained period of serious dollar weakening? 2002-2008. Did you notice serious inflation during that time? I didn't. In fact, one of the knocks on TIPS is that they haven't been tested because there hasn't been any serious inflation since they were introduced.
I didn't notice serious inflation during that time, but I did notice significant international stock outperformance over US stocks during that time. If there does come a time in the future of higher inflation and a falling dollar, I would expect my international stocks to fare better than my US stocks (or at least less poorly). Of course, we haven't seen anything like that since the 1930s/1940 & 1970s, so I'm just making an educated guess based on past historical performance.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by dentjohnson57 » Fri Jul 21, 2017 2:06 pm

Over time the focus of the World economy will continue to expand. While today the need for International is less urgent, it is hard to imagine the need for these investments to decrease in the future.

GaryA505
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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 » Fri Jul 21, 2017 4:47 pm

Note to self: Come back to this thread in about 10 or 20 years (or 30) to see who was right. 8-)

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Re: Can anyone convince me I need international stock in my portfolio?

Post by Thesaints » Fri Jul 21, 2017 5:06 pm

GaryA505 wrote:Note to self: Come back to this thread in about 10 or 20 years (or 30) to see who was right. 8-)
And that wouldn't even matter. How things eventually turn out cancels all the risk undertaken to get to that point.

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munemaker
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Re: The crowd is always wrong

Post by munemaker » Fri Jul 21, 2017 10:31 pm

Tamalak wrote:
munemaker wrote:"If you believe Jack Bogle, here's where you should invest."
I'm not here because I 'believe Jack Bogle', I'm here because one particular thing advocated by Jack Bogle (index investing), I have come to be convinced thru reason is a really good idea. That does not mean Jack Bogle becomes a prophet. Nobody is.
You can follow the crowd if you like, but I am sticking with Jack (and Warren Buffet).

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Re: Can anyone convince me I need international stock in my portfolio?

Post by triceratop » Fri Jul 21, 2017 10:45 pm

GaryA505 wrote:Note to self: Come back to this thread in about 10 or 20 years (or 30) to see who was right. 8-)
This is the precisely wrong way to think about risk management. Was it a good strategy to hold only amazon for the past 20 years? No. That is true even though Amazon did phenomenally well.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: The crowd is always wrong

Post by triceratop » Fri Jul 21, 2017 10:46 pm

munemaker wrote:
Tamalak wrote:
munemaker wrote:"If you believe Jack Bogle, here's where you should invest."
I'm not here because I 'believe Jack Bogle', I'm here because one particular thing advocated by Jack Bogle (index investing), I have come to be convinced thru reason is a really good idea. That does not mean Jack Bogle becomes a prophet. Nobody is.
You can follow the crowd if you like, but I am sticking with Jack (and Warren Buffet).
International investing is not "following the crowd", and it isn't so just because Jack says so. In fact if anyone is blindly following someone it would be those with only domestic stocks.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Hawaiishrimp
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Hawaiishrimp » Fri Jul 21, 2017 10:56 pm

No one can predict the future so we diversify as much as possible.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: The crowd is always wrong

Post by TropikThunder » Fri Jul 21, 2017 11:23 pm

munemaker wrote:"If you believe Jack Bogle, here's where you should invest."

Why mess with what’s worked?

“I believe the U.S. is the best place to invest,” Bogle told Bloomberg, earning our call of the day. “I’d bet that the U.S. will do better than the rest of the world. It is a simple bet on which economy is going to be the strongest in the long run.”

“Every single person I think I have ever talked to tells me I am wrong in this,” he said in the interview. “If you believe in the majority, you can just throw my opinion in the waste basket. But on the other hand, I was brought up in this business, and I am saying, ‘The crowd is always wrong.’”

http://www.marketwatch.com/story/the-cr ... 2017-06-12
Because with our huge trade imbalance, Int'l companies sell TRILLIONS of dollars of goods here, and I want my share of their profits (Samsung, Toyota, Nestle, Roche, etc etc).
https://www.thebalance.com/trade-defici ... ty-3306264

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Re: The crowd is always wrong

Post by patrick » Sat Jul 22, 2017 12:17 am

munemaker wrote:"If you believe Jack Bogle, here's where you should invest."

Why mess with what’s worked?

“I believe the U.S. is the best place to invest,” Bogle told Bloomberg, earning our call of the day. “I’d bet that the U.S. will do better than the rest of the world. It is a simple bet on which economy is going to be the strongest in the long run.”

“Every single person I think I have ever talked to tells me I am wrong in this,” he said in the interview. “If you believe in the majority, you can just throw my opinion in the waste basket. But on the other hand, I was brought up in this business, and I am saying, ‘The crowd is always wrong.’”

http://www.marketwatch.com/story/the-cr ... 2017-06-12
But how do you decide what the crowd is doing?

Global market weight is defined based on the aggregate holdings of global investors. So if the crowd means all investors worldwide as one aggregate, then the crowd must by definition hold non-US stocks at market weight.

However, if you look at the crowd on a country-by-country basis, then you'll find US investors in the aggregate have more than market weight in their home country. The same applies to most countries. So with individual country crowds, the crowd is always home biased (meaning overweight the US in the case of US investors).

If a US investor really want to avoid following either crowd, the only way is to hold non-US stocks above market weight. This is an extreme recommendation, but there is at least one other imaginable reason to do so -- you are already heavily exposed to your own country's economy through employment or retirement benefits even before you by a single dollar (or a single euro or yen or ...) of home country stock.

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Re: The crowd is always wrong

Post by aegis965 » Sat Jul 22, 2017 1:51 am

munemaker wrote:
Tamalak wrote:
munemaker wrote:"If you believe Jack Bogle, here's where you should invest."
I'm not here because I 'believe Jack Bogle', I'm here because one particular thing advocated by Jack Bogle (index investing), I have come to be convinced thru reason is a really good idea. That does not mean Jack Bogle becomes a prophet. Nobody is.
You can follow the crowd if you like, but I am sticking with Jack (and Warren Buffet).
I'm following evidence. You can stick with Bogle (and Buffet) and follow conjecture/bias.
I may be biased.

S17C
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Re: Can anyone convince me I need international stock in my portfolio?

Post by S17C » Sat Jul 22, 2017 1:54 am

Here is a 52 minute webinar recorded last week on international investing. It's on the Fidelity website and is viewable without login. https://www.fidelity.com/learning-cente ... ed-webinar
Listen in on this recorded webinar where Yasmin Landy, one of Fidelity's leading professionals on international equity markets, discussed some of the dynamics and trends shaping international stocks.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy » Sat Jul 22, 2017 8:02 am

The thing that bothers me about ex-US is the poor performance this century. It hasn't returned much since 2000. Lots of volatility for not much return over such a long period of time. Still, P/E is high which makes me skeptical that returns will suddenly increase radically and compensate for this long-term poor performance.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by CantPassAgain » Sat Jul 22, 2017 8:51 am

visualguy wrote:The thing that bothers me about ex-US is the poor performance this century. It hasn't returned much since 2000. Lots of volatility for not much return over such a long period of time. Still, P/E is high which makes me skeptical that returns will suddenly increase radically and compensate for this long-term poor performance.
If you are using 01/01/2000 as your starting date, Vanguard Total International Stock Index Fund (VTIAX) outperformed Vanguard Total Stock Market Index Fund (VTSAX) until 2013. So it would be more accurate to say "hasn't returned much since 2013"....and you could still argue over what exactly "much" means. $10,000 invested in VTIAX on 01/01/2013 is worth $13,056.59 today which an OK positive return.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by tibbitts » Sat Jul 22, 2017 10:59 am

visualguy wrote:The thing that bothers me about ex-US is the poor performance this century. It hasn't returned much since 2000. Lots of volatility for not much return over such a long period of time. Still, P/E is high which makes me skeptical that returns will suddenly increase radically and compensate for this long-term poor performance.
The U.S. hasn't returned much since 2000 either. If you think it did you weren't around in the 1980s and 1990s. Oh well, you get a clunker century every once in a while. I'm forecasting an upturn starting in 2100.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by TropikThunder » Sat Jul 22, 2017 11:23 am

visualguy wrote:The thing that bothers me about ex-US is the poor performance this century. It hasn't returned much since 2000. Lots of volatility for not much return over such a long period of time. Still, P/E is high which makes me skeptical that returns will suddenly increase radically and compensate for this long-term poor performance.
As of 06-30-3017, the P/E for VTIAX (Total Int'l) is 16.6, vs. 21.2 for VTSAX (Total US). Most analyses I've read argue for higher expected Int'l returns because its P/E is low, not high. and returns don't need to increase radically unless you're retiring in the next ~5 years.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by patrick » Sat Jul 22, 2017 11:30 am

visualguy wrote:The thing that bothers me about ex-US is the poor performance this century. It hasn't returned much since 2000. Lots of volatility for not much return over such a long period of time. Still, P/E is high which makes me skeptical that returns will suddenly increase radically and compensate for this long-term poor performance.
If you look at Australian versus ex-Australian stocks you'll see an even larger performance gap. So why invest in anything outside Australia?

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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy » Sat Jul 22, 2017 1:21 pm

ex-US has not been able to achieve reasonable earnings growth in many years. 17 years is a LONG time for stagnation. US has been able to grow earnings. That's the difference. A bet on ex-US is a bet on earnings growth where it hasn't been seen in almost a generation.

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Re: The crowd is always wrong

Post by munemaker » Sat Jul 22, 2017 2:09 pm

aegis965 wrote:
munemaker wrote:
Tamalak wrote:
munemaker wrote:"If you believe Jack Bogle, here's where you should invest."
I'm not here because I 'believe Jack Bogle', I'm here because one particular thing advocated by Jack Bogle (index investing), I have come to be convinced thru reason is a really good idea. That does not mean Jack Bogle becomes a prophet. Nobody is.
You can follow the crowd if you like, but I am sticking with Jack (and Warren Buffet).
I'm following evidence. You can stick with Bogle (and Buffet) and follow conjecture/bias.
History demonstrates that for most time periods, foreign markets have lower returns, higher standard deviations and lower Sharpe ratios. For example, portfolio visualizer goes back to 01/1986 and shows US market return as 10.2% (std dev = 15.1%, foreign market returns as 7.1% (std dev = 18.0%) with Sharpe ratios of 0.51 and 0.29 respectively. So where is the evidence that you are following? Yes , past performance may not be repeated, but where is evidence to indicate the future will be any different? It is just conjecture.

$10,000 invested in US market in 01/1986 is worth $214,366 while the same investment in foreign market is worth only $87,284. Think about it! That's a big difference.

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Re: The crowd is always wrong

Post by runner540 » Sat Jul 22, 2017 2:12 pm

munemaker wrote:
aegis965 wrote:
munemaker wrote:
Tamalak wrote:
munemaker wrote:"If you believe Jack Bogle, here's where you should invest."
I'm not here because I 'believe Jack Bogle', I'm here because one particular thing advocated by Jack Bogle (index investing), I have come to be convinced thru reason is a really good idea. That does not mean Jack Bogle becomes a prophet. Nobody is.
You can follow the crowd if you like, but I am sticking with Jack (and Warren Buffet).
I'm following evidence. You can stick with Bogle (and Buffet) and follow conjecture/bias.
History demonstrates that for most time periods, foreign markets have lower returns, higher standard deviations and lower Sharpe ratios. For example, portfolio visualizer goes back to 01/1986 and shows US market return as 10.2% (std dev = 15.1%, foreign market returns as 7.1% (std dev = 18.0%) with Sharpe ratios of 0.51 and 0.29 respectively. So where is the evidence that you are following? Yes , past performance may not be repeated, but where is evidence to indicate the future will be any different? It is just conjecture.
Munemaker, can you please clarify what periods you mean by "History"? Most of modern market history with good data has been when the US was a rising power and then a global superpower. Many investors who hold market weight international/domestic do so because their time horizon is long enough that the world may change dramatically in an unfavorable way for US investors.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by John1960 » Sat Jul 22, 2017 2:15 pm

GDP growth rates are much higher in emerging markets.

On valuation, stocks are heaped in Europe and Japan.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by triceratop » Sat Jul 22, 2017 2:20 pm

visualguy wrote:ex-US has not been able to achieve reasonable earnings growth in many years. 17 years is a LONG time for stagnation. US has been able to grow earnings. That's the difference. A bet on ex-US is a bet on earnings growth where it hasn't been seen in almost a generation.
In the 17 years since 2000, International has had cumulative outperformance relative to U.S. stocks in 8 of those years. That's about 50% of years. Would you have switched to international in 2012 given its outperformance over 12 years.
A wise man in 2012 wrote:12 years is a LONG time for US stocks underperforming diversified international stocks. That's the difference.
I thought the point of investing was to take risk and be exposed to earnings growth as it occurs? If you weight until earnings growth occurs you will have bought after that is reflected in prices.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: The crowd is always wrong

Post by munemaker » Sat Jul 22, 2017 2:21 pm

patrick wrote:But how do you decide what the crowd is doing?

... you'll find US investors in the aggregate have more than market weight in their home country. The same applies to most countries.
My interpretation is that when Jack says “Every single person I think I have ever talked to tells me I am wrong in this,” the crowd he is referring to is made up of financial professionals.

Also, I don't buy the home country bias argument for investing in USA. If I lived in Turkey and was buying the Turkish stock market, ok...home country bias. The USA has so many advantages over the rest of the world, that it would make sense to invest here no matter what country you live in. I would call it "best business environment bias."

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Re: The crowd is always wrong

Post by Da5id » Sat Jul 22, 2017 2:22 pm

munemaker wrote: $10,000 invested in US market in 01/1986 is worth $214,366 while the same investment in foreign market is worth only $87,284. Think about it! That's a big difference.
Yes, think about it. If you wait long enough and the trends continue, the value of the US stock market will gradually approach 100% of world market cap! Hard to believe, but you can't argue with history. OK, being sarcastic, but given what you are saying, what in your position argues against the notion that the US market cap will continuously trend towards 100% of world cap? And moreover, if that is an obvious fact, why is it so hidden that investors don't know about it and don't price US stocks accordingly?

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Re: The crowd is always wrong

Post by munemaker » Sat Jul 22, 2017 2:32 pm

Da5id wrote:
munemaker wrote: $10,000 invested in US market in 01/1986 is worth $214,366 while the same investment in foreign market is worth only $87,284. Think about it! That's a big difference.
Yes, think about it. If you wait long enough and the trends continue, the value of the US stock market will gradually approach 100% of world market cap! Hard to believe, but you can't argue with history. OK, being sarcastic, but given what you are saying, what in your position argues against the notion that the US market cap will continuously trend towards 100% of world cap? And moreover, if that is an obvious fact, why is it so hidden that investors don't know about it and don't price US stocks accordingly?
None of us know what the future holds. I don't think US market cap will continuously trend toward 100% of world cap, and I did not state that. I simply make the case that past history is US stocks have performed better and I see no evidence to indicate that will change. Maybe it will, maybe it won't. None of us know. If foreign stocks had a better risk adjusted return, or if a portfolio including foreign stocks had a better risk adjusted return, then I would invest in foreign markets. If I saw something going on in the world that would indicate a shift away from US business toward foreign business, I would buy foreign markets. But US seems to be continuing its dominant position in the business world, and as I am sure you know, major US companies generate half of their sales internationally.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy » Sat Jul 22, 2017 2:36 pm

triceratop wrote: I thought the point of investing was to take risk and be exposed to earnings growth as it occurs? If you weight until earnings growth occurs you will have bought after that is reflected in prices.
A good investment has to provide a good return within a time period that's reasonable. Life is short and the amount of time during which you have a significant amount of money in the market is much shorter than that. ex-US is an investment where returns have been lousy for an unreasonably long period of time now, and earnings growth has been pathetic over that very long period, so not much promise either.

I don't know what would be the basis for the belief that this will suddenly change, or why anyone would consider this a good investment. It's almost dead money, and a bad kind of dead money where it's very volatile, yet doesn't grow much.

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Re: The crowd is always wrong

Post by runner540 » Sat Jul 22, 2017 2:43 pm

munemaker wrote:
patrick wrote:But how do you decide what the crowd is doing?

... you'll find US investors in the aggregate have more than market weight in their home country. The same applies to most countries.
My interpretation is that when Jack says “Every single person I think I have ever talked to tells me I am wrong in this,” the crowd he is referring to is made up of financial professionals.

Also, I don't buy the home country bias argument for investing in USA. If I lived in Turkey and was buying the Turkish stock market, ok...home country bias. The USA has so many advantages over the rest of the world, that it would make sense to invest here no matter what country you live in. I would call it "best business environment bias."
Munemaker, you are of course entitled to your opinion, but I hope you can recognize that this statement "The USA has so many advantages over the rest of the world, that it would make sense to invest here no matter what country you live in. I would call it "best business environment bias." is a textbook example of home country bias. I am a proud American, and recognize there are many special qualities about the country. However, if you disregard the evidence that indicates other countries have lower taxes, lower corruption, better education (future human resources), better healthcare for less money (less of a suck on consumers and healthier workforce), etc., etc., that is bias.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by triceratop » Sat Jul 22, 2017 2:57 pm

visualguy wrote:
triceratop wrote: I thought the point of investing was to take risk and be exposed to earnings growth as it occurs? If you weight until earnings growth occurs you will have bought after that is reflected in prices.
A good investment has to provide a good return within a time period that's reasonable. Life is short and the amount of time during which you have a significant amount of money in the market is much shorter than that. ex-US is an investment where returns have been lousy for an unreasonably long period of time now, and earnings growth has been pathetic over that very long period, so not much promise either.

I don't know what would be the basis for the belief that this will suddenly change, or why anyone would consider this a good investment. It's almost dead money, and a bad kind of dead money where it's very volatile, yet doesn't grow much.
My investment horizon is, reasonably speaking, about 70 years. 17 years is nothing. Also, I started investing in 2014 with my first international investments in late 2014. What I see is: international valuations are attractive. I don't believe in any kind of American exceptionalism and may find employment or retirement abroad for significant periods of time. The world is only growing more connected and as a 25 year old investing only in one's home country seems disconnected to the reality I may live in in 2080.
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Re: The crowd is always wrong

Post by munemaker » Sat Jul 22, 2017 3:02 pm

runner540 wrote:
Munemaker, you are of course entitled to your opinion, but I hope you can recognize that this statement "The USA has so many advantages over the rest of the world, that it would make sense to invest here no matter what country you live in. I would call it "best business environment bias." is a textbook example of home country bias. I am a proud American, and recognize there are many special qualities about the country. However, if you disregard the evidence that indicates other countries have lower taxes, lower corruption, better education (future human resources), better healthcare for less money (less of a suck on consumers and healthier workforce), etc., etc., that is bias.
I do not agree with that at this point in time. Certainly there are countries that have advantages in certain specific areas, but I do not believe overall. If I did believe other countries had superior business environments to US, I would be investing in those countries.

I am going to bow out of this discussion and continue to follow the comments. Very interesting.

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Re: The crowd is always wrong

Post by patrick » Sat Jul 22, 2017 3:28 pm

munemaker wrote: Also, I don't buy the home country bias argument for investing in USA. If I lived in Turkey and was buying the Turkish stock market, ok...home country bias. The USA has so many advantages over the rest of the world, that it would make sense to invest here no matter what country you live in. I would call it "best business environment bias."
So you are suggesting that everyone should hold US stocks above market weight? That is actually impossible, since market weight is the aggregate weight of everyone -- there is no way for everyone to have a greater percentage in US stocks than everyone.

Do you have a special ability to identify the best business environment that other investors don't have? Unless that is the case, other investors should already have been able to factor the best business environment advantage into the current market price. That is, to the extent the advantage exists, they should set the price of US stocks higher than otherwise similar non-US stocks so that they no longer have a better expected risk-adjusted return.

By the way, I note that you haven't account for the huge outperformance of South African stocks over US stocks since 1990. Does it perhaps mean that (at least over the last 118 years) South Africa actually had a better business environment than the US? Or perhaps just that assessments of business environment don't reliably predict returns? (I'd say the latter.)

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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 » Sat Jul 22, 2017 3:30 pm

triceratop wrote:
GaryA505 wrote:Note to self: Come back to this thread in about 10 or 20 years (or 30) to see who was right. 8-)
This is the precisely wrong way to think about risk management. Was it a good strategy to hold only amazon for the past 20 years? No. That is true even though Amazon did phenomenally well.
Maybe not a good strategy, but a good decision (guess) for sure. Hindsight is always 20/20.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by oldzey » Sat Jul 22, 2017 3:35 pm

stemikger wrote:
GaryA505 wrote:I know there's a lot of debate here about whether international stock is really needed in a portfolio. I've read a lot of it and I still don't know what I think. Looking at the last 30 years, except for a few short periods, international stocks would have just been a drag on overall portfolio returns. 30 years is a lot of history. Now, I know past performance doesn't predict future performance, but why would we assume the opposite, that international stocks would overperform US stocks at any time the future. On what basis would we assume that?

Ok, so Vanguard allocates 40% of equity to international in their Target Date funds. Why 40%? Fidelity Freedom and TRP Target Date funds seem to have about 1/3. Rick Ferri says about 1/3. The Bogleheads wiki 3-fund shows 20%. Bogle and Buffet say you don't need any. This drives me nuts.

Why do so many people think we need it, and what is the reason, other than just speculation?
I'm not going to convince you because you don't need it. I'm 53 and have been investing since I was 30 and I never owned it.

You are asking this question to a group of very smart people, but as smart as they are I don't think they are smarter than John Bogle. Mr. Bogle never owned international and he has often said, the average investor really does not need it. He has put this advice in his books, he is all over Youtube saying it and in countless interviews. Use Jack's 68 years of experience and follow what he says. A simple two fund portfolio is all one needs. Stocks and bonds.

If you really want a detailed explanation, just read his book Common Sense on Mutual Funds. Here is a short video below.

https://www.youtube.com/watch?v=hvgptl5-Kcc
+1

Agreed - IMO if you live in the U.S., a 2-fund portfolio is all you need.

Very simple, IMO your U.S. TSM index funds will likely do as well or better than international over the long run.

No guarantees of course. 8-)

Here's another good video: http://www.morningstar.com/cover/videoc ... ?id=355647
Last edited by oldzey on Sat Jul 22, 2017 3:36 pm, edited 1 time in total.
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Re: The crowd is always wrong

Post by patrick » Sat Jul 22, 2017 3:36 pm

munemaker wrote:History demonstrates that for most time periods, foreign markets have lower returns, higher standard deviations and lower Sharpe ratios. For example, portfolio visualizer goes back to 01/1986 and shows US market return as 10.2% (std dev = 15.1%, foreign market returns as 7.1% (std dev = 18.0%) with Sharpe ratios of 0.51 and 0.29 respectively. So where is the evidence that you are following? Yes , past performance may not be repeated, but where is evidence to indicate the future will be any different? It is just conjecture.

$10,000 invested in US market in 01/1986 is worth $214,366 while the same investment in foreign market is worth only $87,284. Think about it! That's a big difference.
History demonstrates that South African stocks have higher returns than US stocks over a very long period. At least since 1900 (the farthest back the data is readily available). Form the Credit Suisse Yearbook, after adjusting for inflation $1 invested from the end of 1899 to the end of 2016 would have averaged 7.2% annual returns in South Africa but only 6.4% in the US. That is a big difference for a long-term investor who would see many years of lower returns. Why would you want favor investing in a country with such a long-term track record of underperforming South Africa?

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Re: Can anyone convince me I need international stock in my portfolio?

Post by coincollector » Sat Jul 22, 2017 3:48 pm

I think investing around the world is important because who knows which country will be the next Greece. With the out of control spending by governments worldwide it could hit anywhere at anytime. Were seeing country debt levels that are 100%, 200%, 300% or more of the local countries GDP. Debt levels are reaching, or even exceeded, levels that could never be paid back. Investing globally is, in my opinion, the best way to diversify governmental stupidly in hopes that the world house of cards doesn't collapse all at once. I'm an optimistic person but the out of control spending by global governments is alarming to me and could become a much greater headwind to investment returns in the coming decades. You can't use fiat money to print your way out of every financial jam. Sooner or later that fiat money be worth less than firewood.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 » Sat Jul 22, 2017 3:57 pm

As the OP I have to say Good Discussion!

Here's something I think about. Virtually all of the target date and target risk fund managers have a considerable percentage (maybe 25-40%) of equities in exUS stock. Most of the all-in-one allocation funds (including Vanguard LifeStrategy and Fidelity Target Risk funds) have 30-40%. Vanguards Managed Payout fund even has 40%. Some of the largest actively-managed funds like Wellington and the conservative Wellesley Income have some (18% and 15% of equity, respectively). I'm sure people running these are very smart (smarter than me, for sure). How could they all be wrong?

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Re: Can anyone convince me I need international stock in my portfolio?

Post by triceratop » Sat Jul 22, 2017 4:07 pm

GaryA505 wrote:
triceratop wrote:
GaryA505 wrote:Note to self: Come back to this thread in about 10 or 20 years (or 30) to see who was right. 8-)
This is the precisely wrong way to think about risk management. Was it a good strategy to hold only amazon for the past 20 years? No. That is true even though Amazon did phenomenally well.
Maybe not a good strategy, but a good decision (guess) for sure. Hindsight is always 20/20.
My hindsight says it was still a good decisision and strategy to invest globally at any point and a poor decision and strategy to have 100% home bias.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: The crowd is always wrong

Post by triceratop » Sat Jul 22, 2017 4:08 pm

patrick wrote:
munemaker wrote:History demonstrates that for most time periods, foreign markets have lower returns, higher standard deviations and lower Sharpe ratios. For example, portfolio visualizer goes back to 01/1986 and shows US market return as 10.2% (std dev = 15.1%, foreign market returns as 7.1% (std dev = 18.0%) with Sharpe ratios of 0.51 and 0.29 respectively. So where is the evidence that you are following? Yes , past performance may not be repeated, but where is evidence to indicate the future will be any different? It is just conjecture.

$10,000 invested in US market in 01/1986 is worth $214,366 while the same investment in foreign market is worth only $87,284. Think about it! That's a big difference.
History demonstrates that South African stocks have higher returns than US stocks over a very long period. At least since 1900 (the farthest back the data is readily available). Form the Credit Suisse Yearbook, after adjusting for inflation $1 invested from the end of 1899 to the end of 2016 would have averaged 7.2% annual returns in South Africa but only 6.4% in the US. That is a big difference for a long-term investor who would see many years of lower returns. Why would you want favor investing in a country with such a long-term track record of underperforming South Africa?
It will be interesting to see if there is a response given to this question. (and same for Australian stock returns).
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy » Sat Jul 22, 2017 4:23 pm

GaryA505 wrote:As the OP I have to say Good Discussion!

Here's something I think about. Virtually all of the target date and target risk fund managers have a considerable percentage (maybe 25-40%) of equities in exUS stock. Most of the all-in-one allocation funds (including Vanguard LifeStrategy and Fidelity Target Risk funds) have 30-40%. Vanguards Managed Payout fund even has 40%. Some of the largest actively-managed funds like Wellington and the conservative Wellesley Income have some (18% and 15% of equity, respectively). I'm sure people running these are very smart (smarter than me, for sure). How could they all be wrong?
The way I read it is that they believe that the same factors that caused stagnation in ex-US will apply to the US as well in the future, so might as well diversify. It's not about being optimistic about ex-US; it's about being realistic about the entire picture which is that the large economies are ultimately all going to suffer from low economic growth. Aging populations and low birth rates are prevalent issues.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by Christine_NM » Sat Jul 22, 2017 4:26 pm

^^ Gary -

Active funds like W&W don't have fixed allocations to international. They buy the stocks they want, within their allowed limits, and then calculate their foreign holdings percentage as an afterthought, not as a goal. At least that is my impression because the percentage changes so drastically over time.

I can't persuade myself to set an international allocation, so I won't try to persuade you. I only set a stock/bond/cash allocation and whatever international I hold is de minimis, like 9% of my stock allocation currently.

Dabbling here and there is OK for me but I want to be able to sell without feeling I have violated my investment plan. So international is part of "fun" investing for me and is strictly optional, because often it is not fun at all.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Leif » Sat Jul 22, 2017 4:36 pm

Its best if you convince yourself (or not). I think getting a bunch of recommendations from strangers may not accomplish that. Check on books by investment experts like Swedroe, Ferri, Bogle. That way when the downturns happen you are more committed to your course. That may be more important then if you have international or not.
Last edited by Leif on Sat Jul 22, 2017 4:44 pm, edited 1 time in total.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: Can anyone convince me I need international stock in my portfolio?

Post by triceratop » Sat Jul 22, 2017 4:40 pm

GaryA505 wrote:
triceratop wrote:
GaryA505 wrote:Note to self: Come back to this thread in about 10 or 20 years (or 30) to see who was right. 8-)
This is the precisely wrong way to think about risk management. Was it a good strategy to hold only amazon for the past 20 years? No. That is true even though Amazon did phenomenally well.
Maybe not a good strategy, but a good decision (guess) for sure. Hindsight is always 20/20.
Just to reiterate, on an individual stock level: one can make a poor decision (invest solely in amazon) and have a good result. A decision to invest 100% is still a poor decision.

The same logic applies for international as I made in an above post, I just wanted to be clear that it also applies at the individual security level. Larry Swedroe refers to this as confusing strategy with outcome.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Can anyone convince me I need international stock in my portfolio?

Post by aegis965 » Sat Jul 22, 2017 5:47 pm

Bogleheads, this is what our mentor, Jack Bogle, said in a PBS interview:
Good markets turn to bad markets, bad markets turn to good markets. So the system is almost rigged against human psychology that says if something has done well in the past, it will do well in the future. That is not true. And it's categorically false. And the high likelihood is when you get to somebody at his peak, he's about to go down to the valley. The last shall be first and the first shall be last.
Since none of us here knows more about investing than Mr. Bogle, it is wisest to follow his advice (and get blown away by the mind-boggling contradiction). Cheers. :beer
I may be biased.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by spdoublebass » Sat Jul 22, 2017 6:26 pm

There are just so many different ways to look at things. Nissan replaced Ford a while back for NYC taxi cabs. I just like having the International exposure.
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Re: The crowd is always wrong

Post by SavageAmusement » Sun Jul 23, 2017 3:30 am

munemaker wrote:
History demonstrates that for most time periods, foreign markets have lower returns, higher standard deviations and lower Sharpe ratios. For example, portfolio visualizer goes back to 01/1986 and shows US market return as 10.2% (std dev = 15.1%, foreign market returns as 7.1% (std dev = 18.0%) with Sharpe ratios of 0.51 and 0.29 respectively. So where is the evidence that you are following? Yes , past performance may not be repeated, but where is evidence to indicate the future will be any different? It is just conjecture.

$10,000 invested in US market in 01/1986 is worth $214,366 while the same investment in foreign market is worth only $87,284. Think about it! That's a big difference.
Munemaker,
I agree with you. I found similar statistics when I researched foreign stocks going back even further. Diversification is not always a good thing. Being a fan of Charlie Munger, I'd like to use one of his quotes to inject some levity into this thread. Charlie said: "“When you mix raisins with turds, they are still turds.”

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Re: Can anyone convince me I need international stock in my portfolio?

Post by tnjj » Sun Jul 23, 2017 7:44 am

Interesting views. I read "Why Nations Fail" and it has given me much to think about. The Vanguard paper mentioned way above, has a phrase "all things being equal...". That gave me pause to contemplate if all things are equal. Up stream posters have commented on the business environment, etc. But are the right ingredients for economic enrichment equal in all countries? And will those enrichments pass on the the holders of stock, and will the holders of stock be able to retain their profits? I'll be thinking about this and letting it inform me on my international allocation.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by MrDogg » Sun Jul 23, 2017 8:00 am

GaryA505 wrote:As the OP I have to say Good Discussion!

Here's something I think about. Virtually all of the target date and target risk fund managers have a considerable percentage (maybe 25-40%) of equities in exUS stock. Most of the all-in-one allocation funds (including Vanguard LifeStrategy and Fidelity Target Risk funds) have 30-40%. Vanguards Managed Payout fund even has 40%. Some of the largest actively-managed funds like Wellington and the conservative Wellesley Income have some (18% and 15% of equity, respectively). I'm sure people running these are very smart (smarter than me, for sure). How could they all be wrong?
"The crowd is always wrong" Jack Bogle

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Re: Can anyone convince me I need international stock in my portfolio?

Post by heyyou » Sun Jul 23, 2017 1:23 pm

Others should do what suits them, while I will do what suits me. My view is owning some international is risk avoidance, not the seeking better returns. A Japan crash duration is just one of many risks that can be dodged if I am not too greedy about avoiding the cost. Total return for my mixed portfolio has been good enough. I'm not surprised that one segment has outperformed another, nor am I counting on reversion of the foreign segment, but it could happen. My mixed portfolio is insurance to buffer the risk of a big, long domestic crash, at a cost that is acceptable to me.

Perhaps others could save with all domestic until near retirement, then slowly diversify more, but that could be at near the end of a peak period. If you have saved so much that you can tolerate a domestic crash of Japan's duration, then you do not need international diversification. My Dad was a 1968 retiree, but my generation has benefited greatly from the boom after the 1966-1982 lean years of no real returns here.

Japan is not just history for me, what happened there occurred while I was saving for retirement. I do not want to need a job to have basic necessities in my retirement now. Just ask my wife, I would not be a happy employee these days, at any job.

Has anyone compared a pure domestic with a mixed portfolio using a retirement spending calculator? As usual, the accumulation period is the focus of the financial industry.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy » Sun Jul 23, 2017 1:57 pm

heyyou wrote:My mixed portfolio is insurance to buffer the risk of a big, long domestic crash, at a cost that is acceptable to me.
The problem is that it doesn't work this way - the US market and economy have a huge impact on others... When the US catches a cold, ex-US catches a flu or even pneumonia. It's very hard to justify putting money in the ex-US index - it has performed poorly for decades now, shown little earnings growth, it's volatile, subject to mercurial currency fluctuations, and it doesn't shield you from domestic crashes. I've stayed away from it in the 20+ years that I've been investing, and it's one of the few investment decisions that I never regretted even with the benefit of hindsight. It would have been a drag both financially and as an emotional roller coaster that leads nowhere.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by reriodan » Sun Jul 23, 2017 2:04 pm

visualguy wrote:
heyyou wrote:My mixed portfolio is insurance to buffer the risk of a big, long domestic crash, at a cost that is acceptable to me.
The problem is that it doesn't work this way - the US market and economy have a huge impact on others... When the US catches a cold, ex-US catches a flu or even pneumonia. It's very hard to justify putting money in the ex-US index - it has performed poorly for decades now, shown little earnings growth, it's volatile, subject to mercurial currency fluctuations, and it doesn't shield you from domestic crashes. I've stayed away from it in the 20+ years that I've been investing, and it's one of the few investment decisions that I never regretted even with the benefit of hindsight. It would have been a drag both financially and as an emotional roller coaster that leads nowhere.
Be glad you aren't Japanese.

Also, be careful not to confuse outcome with strategy. Just because it worked out for you in this one instance doesn't mean it was the right decision, and it wasn't unless you have a magic 8 ball.

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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy » Sun Jul 23, 2017 2:48 pm

reriodan wrote: Be glad you aren't Japanese.

Also, be careful not to confuse outcome with strategy. Just because it worked out for you in this one instance doesn't mean it was the right decision, and it wasn't unless you have a magic 8 ball.
If a Japan scenario happened in the US, then my stock market index portfolio would be a horrible disaster regardless of whether it was all in US or a combination of US and ex-US.

By the way, the whole Boglehead approach is based on extrapolating from the behavior of stock market indices in the past, and there is no real advantage shown there in investing in ex-US. In recent decades, ex-US has been particularly bad, and that's over a time frame that exceeds what anyone who is saving for retirement (or in retirement) should be comfortable with. Such a bad outcome over a period this long absolutely means that the strategy would have been wrong.

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