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

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

Post by nedsaid »

GaryA505 wrote: 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.
I can assure you that what I was reading in 2007 and 2008, before the financial crisis, was that International Stocks had better long term performance than US Stocks! It is amazing what 8-9 years of underperformance relative to US markets can do to 30 year averages! How much things have changed!
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Thesaints
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Thesaints »

nedsaid wrote:
GaryA505 wrote: 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.
I can assure you that what I was reading in 2007 and 2008, before the financial crisis, was that International Stocks had better long term performance than US Stocks! It is amazing what 8-9 years of underperformance relative to US markets can do to 30 year averages! How much things have changed!
I remember that around the year 2000 literature reported that growth stocks had better return than value stocks and rightly so, due to higher risk.
visualguy
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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy »

nedsaid wrote:
GaryA505 wrote: 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.
I can assure you that what I was reading in 2007 and 2008, before the financial crisis, was that International Stocks had better long term performance than US Stocks! It is amazing what 8-9 years of underperformance relative to US markets can do to 30 year averages! How much things have changed!
My big fear is that something similar will happen to US, and we'll get long-term stagnation in both US and ex-US, and of course bonds aren't going to make much. At that point, the whole Boglehead approach (not just ex-US) may not look good even with a long time horizon. This is my primary motivation for diversifying further and dealing with the headaches of direct investment in real estate, and not limiting myself to the stock/bond markets.
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oldzey
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Re: Can anyone convince me I need international stock in my portfolio?

Post by oldzey »

Steve Dunn's remarks underscore how much the classic, often occurring "how much international" debate really matters, originally found at: http://socialize.morningstar.com/NewSoc ... 62377.aspx
Order of importance

As a rather sluggish slice and dice type, I think that issue versus going total stock market is way down the list of what is important in managing one's financial affairs. In order of priority, I would list what is important in the following order of priority:

1. How much you earn (the value of your human capital).
2. An intelligent insurance program.
3. Your savings rate.
4. Your allocation to stocks versus bonds.
5. Have a reasonable diversification to your portfolio (anything reasonable will do).
6. Rebalancing to manage risk.
7. Tax management.
8. International versus domestic
9. Value versus growth.
10. Small versus large.
11. Slice and dice.

After number 7, it just doesn't matter much IMO, for about 99% of investors. I say that as one who has watched the numbers pop up on my Quicken computer screen over the passing years. Some things matter a whole lot more than others as to what really influences those numbers.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
visualguy
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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy »

oldzey wrote:Steve Dunn's remarks underscore how much the classic, often occurring "how much international" debate really matters, originally found at: http://socialize.morningstar.com/NewSoc ... 62377.aspx
Order of importance

As a rather sluggish slice and dice type, I think that issue versus going total stock market is way down the list of what is important in managing one's financial affairs. In order of priority, I would list what is important in the following order of priority:

1. How much you earn (the value of your human capital).
2. An intelligent insurance program.
3. Your savings rate.
4. Your allocation to stocks versus bonds.
5. Have a reasonable diversification to your portfolio (anything reasonable will do).
6. Rebalancing to manage risk.
7. Tax management.
8. International versus domestic
9. Value versus growth.
10. Small versus large.
11. Slice and dice.

After number 7, it just doesn't matter much IMO, for about 99% of investors. I say that as one who has watched the numbers pop up on my Quicken computer screen over the passing years. Some things matter a whole lot more than others as to what really influences those numbers.
1 and 3 (not sure about 2) are very important, but they are independent of the investment strategy. International vs domestic has actually made a meaningful difference for people who have had the bulk of their portfolio invested over the last couple of decades.
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oldzey
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Re: Can anyone convince me I need international stock in my portfolio?

Post by oldzey »

The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSMX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VGTSX) was 4/29/1996.

Per Morningstar, as of today (7/23/2017), if you had invested $10,000 in both funds on 4/29/1996, you would currently have $56,371 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $27,422 in your Total International Stock Index Fund.

Of course, past performance does not indicate future performance.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
visualguy
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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy »

oldzey wrote: as of today (7/23/2017), if you had invested $10,000 in both funds on 4/29/1996, you would currently have $56,371 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $27,422 in your Total International Stock Index Fund.
Mid 1996 is when I started investing... Over the years, I often revisited this question of investing in foreign stock, but couldn't figure out a good way to do it. I looked at some alternative approaches to the ex-US index, such as managed mutual funds, a combination of country ETFs, etc. I was unable to find a strategy that I liked based on my research, so I ended up giving up on it. I always thought it was a pity because there are many good foreign companies with good growth, but I didn't know how to capture that in an effective way.

Some would say that a return of 5% nominal per year isn't so bad, and it's better than inflation even after taxes, but I don't get excited about that, especially considering the volatile ride. There are better alternatives... I guess it could change, but I don't see the catalysts, and at some point you have to admit that the long track record of under-performance means something and isn't some random thing that will revert.
Jim Beaux
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Jim Beaux »

One of the above posters said "buy the world" and that is good advice. Another question is just who is in the international stock community. I have VTIAX in my portfolio (17.9% to date) & it includes companies that are recognized world leaders ie: Nestle, Samsung, Roche, Toyota, Shell, Bayer, Siemens, Mitsubishi, etc

http://portfolios.morningstar.com/fund/ ... ture=en-US

I can answer no, I dont need these companies, but I sure want em! :greedy
mcraepat9
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Re: Can anyone convince me I need international stock in my portfolio?

Post by mcraepat9 »

visualguy wrote:
oldzey wrote: as of today (7/23/2017), if you had invested $10,000 in both funds on 4/29/1996, you would currently have $56,371 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $27,422 in your Total International Stock Index Fund.
Mid 1996 is when I started investing... Over the years, I often revisited this question of investing in foreign stock, but couldn't figure out a good way to do it. I looked at some alternative approaches to the ex-US index, such as managed mutual funds, a combination of country ETFs, etc. I was unable to find a strategy that I liked based on my research, so I ended up giving up on it. I always thought it was a pity because there are many good foreign companies with good growth, but I didn't know how to capture that in an effective way.

Some would say that a return of 5% nominal per year isn't so bad, and it's better than inflation even after taxes, but I don't get excited about that, especially considering the volatile ride. There are better alternatives... I guess it could change, but I don't see the catalysts, and at some point you have to admit that the long track record of under-performance means something and isn't some random thing that will revert.
This is a fairly common argument. I think the only thing I would say to that is, if that US outperformance rate were to continue, the US economy would be something like 70+% of the global market cap - that seems rather unlikely to me.

FWIW, in the late 1980s, the US economy was less than 30% of the global market cap.
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visualguy
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Re: Can anyone convince me I need international stock in my portfolio?

Post by visualguy »

mcraepat9 wrote: This is a fairly common argument. I think the only thing I would say to that is, if that US outperformance rate were to continue, the US economy would be something like 70+% of the global market cap - that seems rather unlikely to me.

FWIW, in the late 1980s, the US economy was less than 30% of the global market cap.
Right, but even if the US share of the global market cap stops growing (which is indeed likely), it doesn't follow that ex-US will do any better than it has been doing.
Da5id
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Da5id »

visualguy wrote: Right, but even if the US share of the global market cap stops growing (which is indeed likely), it doesn't follow that ex-US will do any better than it has been doing.
What do you mean? If the US share of global market share stays constant, that would mean that US and ex-US are growing at same rate. Though total return of the two need not be the same, as market cap doesn't account for dividends.
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nedsaid
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Re: Can anyone convince me I need international stock in my portfolio?

Post by nedsaid »

visualguy wrote:
nedsaid wrote:
GaryA505 wrote: 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.
I can assure you that what I was reading in 2007 and 2008, before the financial crisis, was that International Stocks had better long term performance than US Stocks! It is amazing what 8-9 years of underperformance relative to US markets can do to 30 year averages! How much things have changed!
My big fear is that something similar will happen to US, and we'll get long-term stagnation in both US and ex-US, and of course bonds aren't going to make much. At that point, the whole Boglehead approach (not just ex-US) may not look good even with a long time horizon. This is my primary motivation for diversifying further and dealing with the headaches of direct investment in real estate, and not limiting myself to the stock/bond markets.
I do not believe that the United States will suffer the fate of Japan. It seems that we have, as a nation, been able to reinvent ourselves when the times called for it. Immigration brings in a dynamism. New people, new ideas, new cultures. We allow ourselves to be shaken up a bit and that is good as this allows us to adapt. Having new people groups allows us to look at problems in a new way. But a Japan scenario for the U.S. is possible, though not likely, and this is a big reason that I diversify across the world.

Warren Buffett says that betting against the United States has historically been a bad bet. I agree with him. But I could be wrong. That is why I diversify across asset classes and factors. I could be wrong.
A fool and his money are good for business.
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GaryA505
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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 »

nedsaid wrote:
GaryA505 wrote: 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.
I can assure you that what I was reading in 2007 and 2008, before the financial crisis, was that International Stocks had better long term performance than US Stocks! It is amazing what 8-9 years of underperformance relative to US markets can do to 30 year averages! How much things have changed!
Ok, this is very unscientific, but it looks to me like US and international take turns outperforming each other by ~2X or even ~4x, so I have confidence that at some time in the future international stock will out perform US stock once again. When that will be, nobody knows. Looking at historical data, the full cycle seems to be around 15 to 20 years long. If history repeats itself, after the next big bull it will be international's turn again. Or not. In any case, if I was going to be invested in stock for the next 50 years I'd have a good chunk of it in in international, but I'm not going to live that long.
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Starchild
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Starchild »

I've pondered the same question. Looking at VGTSX, I wonder, what's the rationale in investing in this? There's no real gain compared to S&P 500, so it's like investors are using this as bond-like gains, but during the recession of 2009, it completely tanked worse than S&P. So maybe, the US won't be the dynamo in 30 years, but you waste 30 years of gains anticipating this? Maybe someone can shed light on this, but in the meantime, I'm keeping Int'l allocations very low.
heyyou
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Re: Can anyone convince me I need international stock in my portfolio?

Post by heyyou »

Although my gross numbers are smaller than many here, so are my expenses in retirement. I can afford to not need better performance than holding equal amounts of foreign and domestic stock funds. Others should do what suits them.
UpperNwGuy
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Re: Can anyone convince me I need international stock in my portfolio?

Post by UpperNwGuy »

I have a standard three fund portfolio at Vanguard with a 60:40 stock:bond allocation. Within the stock portion, the US:International ratio is 67:33. However, I'm growing increasingly disappointed with the international stocks. Not only is overall performance lower than the US stocks, but the ups and downs seem to follow the ups and downs of the US stocks far too closely for my taste. I'm staying the course for the time being, but if I had to change one thing about my asset allocation, it would be to reduce international from 33% to 20% of the stock side of my portfolio.
jn6474
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Re: Can anyone convince me I need international stock in my portfolio?

Post by jn6474 »

visualguy wrote: Sun Jul 23, 2017 10:06 pm
mcraepat9 wrote: This is a fairly common argument. I think the only thing I would say to that is, if that US outperformance rate were to continue, the US economy would be something like 70+% of the global market cap - that seems rather unlikely to me.

FWIW, in the late 1980s, the US economy was less than 30% of the global market cap.
Right, but even if the US share of the global market cap stops growing (which is indeed likely), it doesn't follow that ex-US will do any better than it has been doing.
US to Ex-US global market cap can change and not directly mean the growth rate grew or shrank that way. Especially in emerging markets, there are a lot of private companies and when said companies become public, that countries share of global equities grew without an outperformance of Ex-US relative to US (companies simply became public and added to the amount in that country). Therefore 100% US Equities does not require the US to become 70%+ of market cap for US to outperform Ex-US.
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