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

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

Post by triceratop »

GaryA505 wrote:
nisiprius wrote: My own convictions are that the "conventional wisdom" consensus among authorities I trust is so overwhelmingly in favor of holding some international that I do not and would not feel comfortable holding none at all; and my own explorations have failed to convince me that there is anything bad enough with international to make me avoid it. The combination of "authorities say yes" and "can't personally find a reason to say no" was enough to convince me to hold some, and not enough to convince me to hold it at anything close to global cap-weight.
This is the best conclusion I have read, and aligns with my personal way of thinking.
I found this interesting. It is close to the definition of confirmation bias. Do you sense any of that, in evaluating the arguments people are putting forward?
GaryA505 wrote:I went back and re-read the previous thread started by Taylor Larimore. The first time I read it I was totally clueless, now I'm only about 80% clueless, so I'd say that's progress. viewtopic.php?t=196956

Anyway, thanks for all the replies. It would be great to get at least a loose consensus, but I can see that's not going to happen (at least probably not in my lifetime). I think the best we've got is a stand-off, and 20% would probably be the compromise. This seemed to be the case in Taylor Larimore's previous thread as well.

I'll pose one more question/comment though. It has occurred to me that if all bogleheads really believed they should be truly diversified and invest in intl stock according to market weight, they would invest at 55/45 US/intl, but they don't.
Actually, the "stand-off" is at 47%, which is the compromise. The goal is not to passively pick an international allocation in proportion to what Bogleheads do. That is not being a passive market-weight investor.

Also, many Bogleheads do invest in intl stock at market weight, a few more at 50/50 (because it's close enough right now and is easier to manage). You might not see a lot of such people because many get tired of making the same points and correcting the same misconceptions in each thread asking the same question. It is better to be persuaded by ideas than to "follow the herd".

Taylor's logic doesn't make much sense, in my humble opinion, as I discuss here:
triceratop wrote:
bertilak wrote:
BogleAlltheWay wrote:I have read on here that we should put 20% in international because Bogle recommended up to 20% and Vanguard and others recommended at least 20%. "Up to" and "at least" mean different things. I don't understand that logic.
Think Venn diagram.
Image
The overlap area is 20%. It is the only value that satisfies both criteria.
But it's more like this:

Image

If the experts disagree so profoundly (mathematically we would say they agree on a set of measure zero) why do we think that their disagreements are so easily rectifiable by simply choosing the extreme limits of what they find acceptable. It's much better to actually be convinced by one of the two arguments. Taking the far limits of recommendations is assigning very little value to each argument.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by BogleMelon »

GaryA505 wrote:. 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?
When it comes to predicting the performance, I am not assuming anything. I never try to chase the "winner". I can not control the future or know it. But I can control one thing, how far I can be diversified.
In other words, I have international funds not because of any kind of prediction or history, but to be as diversified as much as one could be.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
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Re: Can anyone convince me I need international stock in my portfolio?

Post by saltycaper »

GaryA505 wrote:
Anyway, thanks for all the replies. It would be great to get at least a loose consensus, but I can see that's not going to happen (at least probably not in my lifetime). I think the best we've got is a stand-off, and 20% would probably be the compromise. This seemed to be the case in Taylor Larimore's previous thread as well.
I would not go by the consensus you see in that thread. Taylor's main line of reasoning is "one entity says x%-y%, and another entity says y%-z%, so I will go with y%." That's no way to make decisions, IMO, because it places equal weight on the opinions of two entities that have been chosen based on Taylor's own biases. Instead, the arguments put forth by each entity (and others) should be evaluated on their own so you can decide for yourself.
GaryA505 wrote:I'll pose one more question/comment though. It has occurred to me that if all bogleheads really believed they should be truly diversified and invest in intl stock according to market weight, they would invest at 55/45 US/intl, but they don't.
Bogleheads are not immune to behavioral errors and errors in logic. People have agendas here, too, even if they're not profit-oriented. I'd listen with some amount of skepticism, no matter who's talking, including me.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Ron Scott »

ulvazell wrote:
Ron Scott wrote:You don't need it, Bogle himself repeatedly recommends we don't do it, and you should not be convinced by arguments that require you to believe past performance is a key indicator of future results.
Bogle recommends that IF you buy international it should not be more that 20% of your overall equity position...
Reminds me of the advice to the chronic alcoholic: "If you're going to get drunk every day, don't drive."
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by saltycaper »

Ron Scott wrote:
ulvazell wrote:
Ron Scott wrote:You don't need it, Bogle himself repeatedly recommends we don't do it, and you should not be convinced by arguments that require you to believe past performance is a key indicator of future results.
Bogle recommends that IF you buy international it should not be more that 20% of your overall equity position...
Reminds me of the advice to the chronic alcoholic: "If you're going to get drunk every day, don't drive."
The analogy would work better if Bogle wasn't the one implying that he knows more than the market or that he can somehow see the future. If one of these two camps of thought are using some mind-altering substance, it's not the ones who are looking at past performance, which, incidentally, is probably used by every single person on this forum to make investment decisions, whether they acknowledge it or not.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by flamesabers »

GaryA505 wrote:Why do so many people think we need it, and what is the reason, other than just speculation?
Minimizing home country bias is one reason that comes to my mind.

A second reason is diversification. There are numerous variables that can make or break equity funds: availability of resources, market saturation, taxation, regulations, competition, etc. Different countries have different variables that can encourage the prosperity or decline of equity funds.

A third reason is the U.S. is a net importer rather then a net exporter.
aegis965 wrote:It is bewildering to me, a non-US investor, how pervasive home country bias is. It is bewildering that academic research, namely the academic research Boglehead's philosophy and principles are based on, is altogether ignored or, worse, turned on its head when it comes to justifying home country bias.
For what it's worth, I'm a U.S. investor and I have no problem with investing in international equities.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by staythecourse »

Those who don't invest in International because of Mr. Bogle I question if he was born Mr. Hashimoto of Tokyo and advocated for 100% Japanese stocks 50 years ago would you still be a believer in his approach?

The question that needs to be asked (no one has asked him unfortunately) was it a good, educational guess America was going to be that powerful that last 50 years OR was he just advocating for what he knows best, i.e. home country bias. Not sure either answer would be a good one. The former is guess (correct but just a guess) and the latter is home country bias.

That is the problem. There were titans of finance as well in EACH country in the world. The reason we know Mr. Buffett and Mr. Bogle is they were born in America and not Japan for example. The ones who advocated home country bias in their countries and were not successful was due to being born in the wrong country.

Good luck.
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reriodan
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Re: Can anyone convince me I need international stock in my portfolio?

Post by reriodan »

saltycaper wrote:
GaryA505 wrote:
Why do so many people think we need it, and what is the reason, other than just speculation?
The onus is not on those who believe in holding a market-cap weighted portfolio of stocks to prove you need international, but rather on those who believe you should deviate from market weight. The demand should not be, "convince me I need international stocks" anymore than one would ask others to convince them only to invest in company's companies beginning with letters A through M. The question should be, "Is there a reason not to include international stocks in proportion to their market weight?"

IMO, Bogle's suggestions on percentages to hold are worthless. He frequently displays symptoms of home-country bias. He doesn't even try to hide it (though that may be a virtue). No matter one's opinion of Bogle in general, it's clear in this instance that he is playing the part of speculator.
+1. Agree 100%.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by InKirkWeTrust »

oldcomputerguy wrote:
Ron Scott wrote:You don't need it, Bogle himself repeatedly recommends we don't do it, and you should not be convinced by arguments that require you to believe past performance is a key indicator of future results.
Has Mr. Bogle actually said "don't invest in international"? It was always my understanding that his position was that it was not necessary, rather than that it was something one should not do.
From the Bogleheads Guide to Investing, p. 100-101:

Jack Bogle, in Common Sense on Mutual Funds, writes: "Overseas investments-holdings in the corporations of other nations-are not essential, nor even necessary, to a well-diversified portfolio. For investors who disagree-and there are some valid reasons for global investing-we recommend limiting international investments to a maximum of 20 percent of a global equity portfolio."
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Re: Can anyone convince me I need international stock in my portfolio?

Post by InKirkWeTrust »

nisiprius wrote:In my personal opinion, Vanguard's paper, Considerations for investing in non-U.S. equities is very good and everybody thinking about the question should read it. Read it yourself and see if it convinces you that you "need" international.

My own convictions are that the "conventional wisdom" consensus among authorities I trust is so overwhelmingly in favor of holding some international that I do not and would not feel comfortable holding none at all; and my own explorations have failed to convince me that there is anything bad enough with international to make me avoid it. The combination of "authorities say yes" and "can't personally find a reason to say no" was enough to convince me to hold some, and not enough to convince me to hold it at anything close to global cap-weight.
+1 My thoughts exactly
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Re: Can anyone convince me I need international stock in my portfolio?

Post by lostdog »

reriodan wrote:
saltycaper wrote:
GaryA505 wrote:
Why do so many people think we need it, and what is the reason, other than just speculation?
The onus is not on those who believe in holding a market-cap weighted portfolio of stocks to prove you need international, but rather on those who believe you should deviate from market weight. The demand should not be, "convince me I need international stocks" anymore than one would ask others to convince them only to invest in company's companies beginning with letters A through M. The question should be, "Is there a reason not to include international stocks in proportion to their market weight?"

IMO, Bogle's suggestions on percentages to hold are worthless. He frequently displays symptoms of home-country bias. He doesn't even try to hide it (though that may be a virtue). No matter one's opinion of Bogle in general, it's clear in this instance that he is playing the part of speculator.
+1. Agree 100%.
+2. Well said.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 »

Why does the bogleheads wiki contain example portfolios that are mostly much less than 50/50:
https://www.bogleheads.org/wiki/Three-fund_portfolio

In fact, the 5 shown on this page are 25%, 25%, 50%, 20% and 20%. I know some of you will say that they're just examples, but why are 4 out of the 5 of them 20-25%? Who writes this stuff?

And this page references a Taylor Larimore 3-fund with an equal split, so that's 50/50. Wait, what?
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Re: Can anyone convince me I need international stock in my portfolio?

Post by mcraepat9 »

My takeaway from all of the information led me to invest internationally, but not at market weight. There are cons to investing internationally (i.e. higher expense ratios, higher taxes on dividends). The big pro is diversification. Vanguard's white paper suggests you can get the lion's share (~80%) of the diversification benefit with only 20% of equities in international and 99% of the diversification benefit at 40% of equities in international. In my mind, this is why 40% makes sense to me - the diversification benefit for international equities above that threshold is minuscule while still adding the added expense ratio and tax costs. Vanguard's TRFs and LS funds are at 40% international.

Bogle and the international skeptics will always persist. They won't convince me and I won't convince them.

If you really are a skeptic and don't want to go full tilt domestic only, I think 20% international is a decent middle ground.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Thesaints »

The convincing argument has little to do with past performance and a lot more with observed and forecasted markets decorrelation.

Mr. Bogle may have said that US investors don't need foreign stock holdings (I don't know in which frame of reference he said so), but he is also 92-yo.
Anyway, Plato, who in his days was a lot more autoritative than Bogle, was sure that planets and stars revolved around the Earth and people trusted him for nearly 2000 years.

However, you may still not be convinced, so I invite you to dismiss all of your holdings of California based companies. Everybody knows that over there taxes are the highest and they are different from the rest of the Nation.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by asif408 »

GaryA505 wrote:I'll pose one more question/comment though. It has occurred to me that if all bogleheads really believed they should be truly diversified and invest in intl stock according to market weight, they would invest at 55/45 US/intl, but they don't.
You are correct. From what I've seen in the constant posts arguing against international, the Bogleheads who have a problem with it the most tend to most often highlight it's poor past performance, lack of much help in porfolio, increased correlation, and higher expenses. Of course most of the international index funds data only go back 20 or so years, which just so happens to be near the beginning of the tech bubble and ending with the recent bout of international underperformance. Of course, if you looked at international vs. US investing using different starting and ending points you might come to a different conclusion. But don't take it from me, you can check yourself.

Some of the arguments that used to exist (such as higher costs) are much more negligible nowadays. And correlations over long periods of times for US and Int'l stocks have historically gone up and down, not straight up. Unfortunately, though, people tend to look at correlations over shorter time frames (1, 5, 10 years) when history tells us correlations are lower between US and foreign stocks the longer you are invested. So while correlations may not have been low the past 10 years that may not be true the next 10.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 »

Thesaints wrote:The convincing argument has little to do with past performance and a lot more with observed and forecasted markets decorrelation.
But haven't the US and ex-US stock markets been becoming more correlated due to globalization, and if so, why would we have a reason to think this trend will stop?
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Re: Can anyone convince me I need international stock in my portfolio?

Post by CnC »

I don't really understand the concept if needing as much diversified as possible.


That like saying you are holding too many good companies that perform too well. Make sure to add some terrible ones in there to balance it out.


To me you are taking on additional risk to balance out other risk. But you are certainly not eliminating your over all amount of risk.


Can anyone give a single example of any time in history that the us markets crashed and global markets did not follow?

If you can not, you are just playing pretend assuming international holdings will protect you against an American stock crash.

There can be the argument made that international in emerging markets may grow faster than the us but throwing up pictures of the nikkie means nothing.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Tamalak »

You don't NEED international stock. You also don't NEED stocks that start with the letter 'n'.

But why would you exclude them?
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Avo »

GaryA505 wrote:It has occurred to me that if all bogleheads really believed they should be truly diversified and invest in intl stock according to market weight, they would invest at 55/45 US/intl, but they don't.
Many of us do.

However, there is an MPT reason to hold a higher fraction of US companies if you want your final return in US dollars, and that is to reduce the added volatility of currency fluctuations for a USD-based investor. This is a complicated subject, and I've never seen a treatment of it that comes to quantitative conclusions about how much below cap-weight is justified by currency fluctuations. (My best guess: not very much for investors with a long withdrawal phase, but I would really like to see a serious MPT treatment of the issue.)
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Re: Can anyone convince me I need international stock in my portfolio?

Post by CnC »

Tamalak wrote:You don't NEED international stock. You also don't NEED stocks that start with the letter 'n'.

But why would you exclude them?

Has there ever been a time that international out performed the us markets?

As always past performance and all that but, if we are supposed to completely ignore past performance why should we expect any stock to ever gain money?

You can easily look at monetary policy and production and economic recovery as very real reasons not to risk 40% of your stock portfolio on the international market.

There should be a GOOD reason for people to invest in places they know nothing about rather than just hoping that diversity will save them.


On a related note I am somewhat new here, but why is the one universal answer here diversified portfolio? Shouldnt there be some common sense check that you are investing in companies that actually exist? Or is the assumption that someone else already did all the research and you are just following their lead?



Edit:

I am not saying don't own international stocks I'm saying have a reason for owning them.

I'm bumping up my international stock holdings slowly because they are undervalued compared to us stocks.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Tamalak »

CnC wrote:
Tamalak wrote:You don't NEED international stock. You also don't NEED stocks that start with the letter 'n'.

But why would you exclude them?

Has there ever been a time that international out performed the us markets?
Yes, often:

https://www.hartfordfunds.com/content/t ... 046651.jpg

It's true that, over the last 100 years, domestic has outperformed foreign. I think by about 2% on average. The USA has exceeded the market expectations for it over the last century - which should go without saying! But the market expectations for the USA is pretty high now. By buying only domestic, you are asserting that the USA will not just prosper, it will prosper by a GREATER MARGIN than the market expects.
Last edited by Tamalak on Thu Jul 20, 2017 3:46 pm, edited 3 times in total.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Thesaints »

GaryA505 wrote:
Thesaints wrote:The convincing argument has little to do with past performance and a lot more with observed and forecasted markets decorrelation.
But haven't the US and ex-US stock markets been becoming more correlated due to globalization, and if so, why would we have a reason to think this trend will stop?
Certainly. And that's why we've got to add even more international stocks; to squeeze out every little drop of diversification benefits.
It is not by chance that Vanguard went from advising 20% intl, to 40%. It is not like they said "Oops! We made a mistake. Sorry, the correct number was not 20, but 40"
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Re: Can anyone convince me I need international stock in my portfolio?

Post by oldcomputerguy »

InKirkWeTrust wrote:
oldcomputerguy wrote:
Ron Scott wrote:You don't need it, Bogle himself repeatedly recommends we don't do it, and you should not be convinced by arguments that require you to believe past performance is a key indicator of future results.
Has Mr. Bogle actually said "don't invest in international"? It was always my understanding that his position was that it was not necessary, rather than that it was something one should not do.
From the Bogleheads Guide to Investing, p. 100-101:

Jack Bogle, in Common Sense on Mutual Funds, writes: "Overseas investments-holdings in the corporations of other nations-are not essential, nor even necessary, to a well-diversified portfolio. For investors who disagree-and there are some valid reasons for global investing-we recommend limiting international investments to a maximum of 20 percent of a global equity portfolio."
Thanks. The way I read that quote, it doesn't say that he believes international investing is something one shouldn't do, only that it isn't necessary, and that if one does invest internationally it should be limited. I agree with Mr. Bogle to an extent. Although I don't consider international investing to be necessary, I do believe it provides additional equity diversification, and so I do hold international equity funds (not bonds). My international allocation is somewhat higher than he suggests (30% of my equity position), and has been for years.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Thesaints »

CnC wrote: There should be a GOOD reason for people to invest in places they know nothing about rather than just hoping that diversity will save them.
From that point of view, many retail investors don't know much of their domestic market either.
Shouldnt there be some common sense check that you are investing in companies that actually exist? Or is the assumption that someone else already did all the research and you are just following their lead?
Correct assumption; what you describe is the stock exchanges' job. It is not like one can show up at 11 Wall Street and ask the usher to list his company.
Last edited by Thesaints on Thu Jul 20, 2017 5:07 pm, edited 1 time in total.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 »

Tamalak wrote:
CnC wrote:
Tamalak wrote:You don't NEED international stock. You also don't NEED stocks that start with the letter 'n'.

But why would you exclude them?

Has there ever been a time that international out performed the us markets?
Yes, often:

https://www.hartfordfunds.com/content/t ... 046651.jpg

It's true that, over the last 100 years, domestic has outperformed foreign. I think by about 2% on average. The USA has exceeded the market expectations for it over the last century - which should go without saying! But the market expectations for the USA is pretty high now. By buying only domestic, you are asserting that the USA will not just prosper, it will prosper by a GREATER MARGIN than the market expects.
That's an interesting chart. What that suggests me is that it would be smart to be 50/50 if 1) your horizon is long enough (and you live long enough), and 2) foreign outperforms domestic about the same amount of time (or more) as domestic outperforms foreign.
Last edited by GaryA505 on Thu Jul 20, 2017 4:01 pm, edited 1 time in total.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Engineer250 »

whodidntante wrote:Can anyone convince me I need American stocks?
https://www.youtube.com/watch?v=Roni4GG56Ew

If that didn't convince you I don't know what will...

On a serious note, I do about 50/50 International/US since apparently we aren't being vocal enough. I'd just buy the "Total World" index Vanguard has but since I have some TSP holdings and for whatever reason the VG total world index is more than the average of Total US and Total International I just manually split it between the two among my accounts.

I am extremely patriotic and absolutely believe in American exceptionalism. But that doesn't mean I don't have huge respect for the international community and for their scientists and engineers. Also, as a fellow aerospace professional to OP I'm surprised they would jump to the conclusion that American companies are "better". I've worked with American companies that were TERRIBLE and European companies that were amazing, as well as the reverse. When Boeing and Airbus are competing for a new contract, rarely does it come down to which aircraft is actually "better" or which company is "better". There are so many politics around every single contract award, even in the supposed meritocratic private sector, and there are so many companies out there that are successful because of timing not just quality that you can't predict things based on merit. So I own the whole world because I can't predict the future.
Where the tides of fortune take us, no man can know.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by CantPassAgain »

CnC wrote:Has there ever been a time that international out performed the us markets?

As always past performance and all that but, if we are supposed to completely ignore past performance why should we expect any stock to ever gain money?
Because a stock is a unit of ownership in a for profit enterprise whose primary purpose is to make money?
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Re: Can anyone convince me I need international stock in my portfolio?

Post by runner540 »

CnC wrote:
I am not saying don't own international stocks I'm saying have a reason for owning them.

I'm bumping up my international stock holdings slowly because they are undervalued compared to us stocks.
Can you explain how you concluded that intl stocks are undervalued?

I hold market weight global/US for the reasons stated by other posters, and one that hasn't been addressed well in these threads:
My human capital, social capital, language and cultural skills are heavily weighted to my home country. Homeowners should add their house to the list of assets that are home country weighted. It's hard to diversify these, so...

I think it's important to balance that with some financial exposure to the rest of the world, at relatively low cost (viewing the currency and tax drag as the price of "insurance".) This might not matter as much for those already in retirement, but for those of us with longer timeframes, there is greater probability of a game change for US dominance, or a long period of weak USD or performance.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by Avo »

CnC wrote:On a related note I am somewhat new here, but why is the one universal answer here diversified portfolio? Shouldnt there be some common sense check that you are investing in companies that actually exist? Or is the assumption that someone else already did all the research and you are just following their lead?
Yes, that's the assumption! The market price of any stock is set by the consensus opinion of all buyers and sellers. We trust that enough of them have done the research to make the price a realistic reflection of the actual value of the company. In these days of instantaneous, universal, free access to information, this assumption should be better than ever.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by harvestbook »

"I'm a passive investor who believes in owning the whole market, except I'm actively choosing to ignore the markets in the other half of the world."

I'm not smart enough to know and I can't afford to guess. Therefore, I own everything.
I'm not smart enough to know, and I can't afford to guess.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by aegis965 »

I think passive investing by definition means holding the global market portfolio (every investable asset in its market weight and never rebalance). Any deviations from that means you are making an active decision. However, it is practically impossible to hold the GMT, so, concessions have to be made if one wants to invest in it. If you think you are a passive investor, those concessions must be necessary evils; if not, you are making active decisions and not a passive investor.
My point is excluding international IS an active decision. If you think you are a passive investors but for some reason you exclude international (or hold it not in market weight), the burden of proof lies upon you, not those who choose not to deviate from the market.
Last edited by aegis965 on Thu Jul 20, 2017 5:29 pm, edited 3 times in total.
I may be biased.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by ThrustVectoring »

You should probably expect to have expenses that correlate with the performance of international stocks. If the dollar strengthens, it makes consuming international goods (eg, through tourism) more attractive, as well as hurt the performance of the US stock market relative to the international market.

Or, thinking of it another way, if you have 25 times your average European vacation expenses in the total European stock market, your investment should be able to pay for your European vacations. This is regardless of the exchange rate, since it captures the hedge. It's also simpler, cheaper, and more diversified than holding US stocks and hedging the difference between your investment and expenditure currencies.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by midareff »

GaryA505 wrote:
midareff wrote:The only free lunch in investing is diversification. Adding international adds diversification. Other than that, it's your money so invest it anyway you like. None of us are here to try to convince you of anything.
Is all diversification good? If that was true, wouldn't we all own REITs and commodities?
Why do you think you don't own REIT's?
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Re: Can anyone convince me I need international stock in my portfolio?

Post by nisiprius »

CnC wrote:...Has there ever been a time that international out performed the us markets?...
I can't tell if that's a rhetorical question, a Socratic question, or a straight question. I'll treat it as straight and answer it: sure.

Blue, U.S. stocks as represented by Vanguard Total Stock Market Index Fund; orange, international stocks as represented by Vanguard Total International Stock Index Fund.
Source
Image

Over 1967-2016, according to this the inflation-adjusted total return of stocks has been 5.8% annualized for the U.S., 5.5% annualized for the rest of the world, almost the same. That tells you there must have been constant leapfrogging and various periods when international outperformed.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by TimeRunner »

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

Post by GaryA505 »

It looks like the only two significant time periods where ex-US stock outperformed US stock were in 1986-90 and 2003-08. Maybe we're about due for another one, or maybe not.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by RadAudit »

On a sub-set of the portfolio asset allocation question, Mr. Bogle offered this observation.
“My own total portfolio is about 50/50 indexed stocks and short/intermediate bond indexes. At my age of 88, I’m comfortable with that allocation. But I confess that half of the time I worry that I have too much in equities, and the other half that I don’t have enough. Finally, we’re all just human beings operating in a fog of ignorance and relying on our common sense to establish our asset allocation.”
Might apply to the domestic / international split.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by patrick »

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?
If you really want to look at a lot of history, refer to the Credit Suisse Yearbook. Going all the way back to 1900 it shows that the stocks of both Australia and South Africa have outperformed the US by a very large margin. Given that US stocks were a huge drag on a portfolio with Australian and/or South African stocks, why should we assume the US would outperform them any time in the future?
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Re: Can anyone convince me I need international stock in my portfolio?

Post by GaryA505 »

Image

Now, I'm not a financial genius, but what I see is not much positive correlation from about 1986 until 1996. Then, 3 sustained run-ups of several years each, the first two of these ending in major downward "corrections". Also, in the first and last run-ups, I see US stock outpacing ex-US by a large margin.

What I don't see is ex-US stock ever outperforming US stock like in those two periods. Now, this is of course very unscientific (like I said, I'm not a financial genius) and of course past performance and all that, but still ...
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Re: Can anyone convince me I need international stock in my portfolio?

Post by ray333 »

because investing in 10000 companies is a lot more diverse than the "total stock market"
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Re: Can anyone convince me I need international stock in my portfolio?

Post by nisiprius »

GaryA505 wrote:It looks like the only two significant time periods where ex-US stock outperformed US stock were in 1986-90 and 2003-08. Maybe we're about due for another one, or maybe not.
By coincidence (not!) these are two periods of time of significant dollar weakening.

Image

In other words, yes: U.S. stocks and world stocks have been fairly similar. Yes, there's been some difference, but much of the difference is a direct reflection of U.S. currency fluctuations. We don't know whether to expect the value of the dollar relative to other currencies will rise or fall, but I think we can expect it to continue to fluctuate. Therefore, we can expect there to be future periods when the dollar is weakening and of U.S. stock underperforms, and vice versa. Now we get to cue the perennial debate on whether the differences due to currency fluctuation, which is usually thought to be long-term-zero-return, are a) bad because they add extra risk, b) neutral because they balance out, or c) good because they provide useful diversification etc.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by gkaplan »

reriodan wrote:
saltycaper wrote:
GaryA505 wrote:
Why do so many people think we need it, and what is the reason, other than just speculation?
The onus is not on those who believe in holding a market-cap weighted portfolio of stocks to prove you need international, but rather on those who believe you should deviate from market weight. The demand should not be, "convince me I need international stocks" anymore than one would ask others to convince them only to invest in company's companies beginning with letters A through M. The question should be, "Is there a reason not to include international stocks in proportion to their market weight?"

IMO, Bogle's suggestions on percentages to hold are worthless. He frequently displays symptoms of home-country bias. He doesn't even try to hide it (though that may be a virtue). No matter one's opinion of Bogle in general, it's clear in this instance that he is playing the part of speculator.
+1. Agree 100%.
+1000. I agree 1,000. Unfortunately, we're never going to convince those who feel otherwise.
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The crowd is always wrong

Post by munemaker »

"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
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Re: The crowd is always wrong

Post by triceratop »

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 the reasoning is not based in sound logic and sounds entirely like home bias and active, not passive, choices. See the above thread for why.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by asif408 »

nisiprius wrote:Now we get to cue the perennial debate on whether the differences due to currency fluctuation, which is usually thought to be long-term-zero-return, are a) bad because they add extra risk, b) neutral because they balance out, or c) good because they provide useful diversification etc.
I'll bite. Seems to me from your chart that currency risk is rarely going to be zero for an investor and depends highly on your starting and ending points. Sure, for an early investor with 30 years who will never touch any of the money before the 30 years are up, it is much less important. But I think if I was near retirement now and was going to start withdrawing money in the next 5-10 years I would actually want to be in more foreign stocks, to offset the risk of a falling dollar (or at least 50/50 to hedge my bets).
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Re: The crowd is always wrong

Post by Tamalak »

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

Post by Tamalak »

nisiprius wrote:
GaryA505 wrote:It looks like the only two significant time periods where ex-US stock outperformed US stock were in 1986-90 and 2003-08. Maybe we're about due for another one, or maybe not.
By coincidence (not!) these are two periods of time of significant dollar weakening.

Image

In other words, yes: U.S. stocks and world stocks have been fairly similar, and much of the difference is a direct reflection of U.S. currency fluctuations.
This to me is the best argument against international stocks - the idea that Intl stocks are offering fake diversification. It LOOKS like diversification because you can see the relative performance swing from domestic to intl and back again over time, but much or most of it is just uncompensated volatility from currency risk.

Uncompensated volatility bad, diversification good, but they look and act almost the same.. weird.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by nisiprius »

asif408 wrote:...to offset the risk of a falling dollar...
That's one of those plausible-sounding statements that I don't think holds up very well. Admittedly, I'm going on the assumption and plan that I am going to continue to live in the United States. Yes, that is home bias.

As long as I continue to live in the United States, should I worry about the strength of the dollar relative to other currencies? Why? I do worry a lot about the strength of the dollar relative to the things I buy in dollars, that is to say, inflation. 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.

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

Post by flamesabers »

nisiprius wrote:As long as I continue to live in the United States, should I worry about the strength of the dollar relative to other currencies? Why?
When the dollar gets weaker, any imports you buy will be more expensive for you. Since the U.S. is a net importer, I think there is very good reason to be concerned about the strength of the dollar relative to other currencies.
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Re: Can anyone convince me I need international stock in my portfolio?

Post by nisiprius »

flamesabers wrote:
nisiprius wrote:As long as I continue to live in the United States, should I worry about the strength of the dollar relative to other currencies? Why?
When the dollar gets weaker, any imports you buy will be more expensive for you. Since the U.S. is a net importer, I think there is very good reason to be concerned about the strength of the dollar relative to other currencies.
I guess you didn't read the rest of my post. Let me repeat: despite the seeming logic of what you just said, 1) the only time in recent memory when the dollar got a lot weaker was 2002-2008, yet inflation remained negligible. 2) The prices of imported goods are included in the CPI, so if I'm protected against inflation, I'm protected against the effect of a weakening dollar on the price of imported goods. 3) If the concern is inflation, why not protect directly against inflation, rather than protecting against something else that seems like it should be connected with inflation, but hasn't been?
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