[100% stock, uncomfortable with international]

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bg5
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[100% stock, uncomfortable with international]

Post by bg5 » Thu Jun 21, 2018 11:09 am

[Moved into a new post from: The Three-Fund Portfolio --admin LadyGeek]

Guys I must confess that having international stock is making me feel uncomfortable and I am losing sleep over it. I have decided to put 100% of my retirement into VTSAX. My wife and I are both teachers who will have pensions for life once we retire that will account for 60% of our total salaries so more than likely we will never have to dip into our retirement nest egg.

We live a pretty simple life with no debt other than our house and for some reason I just dont want international. I am not saying this is right but at the end of the day I want a simple plan that is heavy on US exposure. My wife has around 15% international exposure so we do have some and it probably accounts for roughly 8-10% of our total portfolio.

Time will tell but I will likely keep 100% of my retirement portfolio in VTSAX for at least the next 20 years and then I will probably add some bonds. I am aware of the risks and am comfortable with the lack of diversificaiton.

Not saying anyone on this forum should do the same. I am also not suggesting that international is a bad thing but this is what will make me sleep better at night and this is why I made my decision.

Best of luck!

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mhc
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Re: [100% stock, uncomfortable with international]

Post by mhc » Thu Jun 21, 2018 4:10 pm

You could do a lot worse. Just make sure you stay the course. Frequent switching could be harmful to your savings.

Silk McCue
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Re: [100% stock, uncomfortable with international]

Post by Silk McCue » Thu Jun 21, 2018 4:16 pm

I would recommend that you develop an Investment Policy Statement in writing so that current events in the years to come (or next week) do not cause you to stray from a well thought out plan. Emotion is the enemy of a well thought out plan. I think you may be shying away from international at this time due to current events which is not an investing strategy. With 20 years to go the US and International will have their ups and downs and you will have very little exposure to international that could very easily outperform the US market.

https://www.bogleheads.org/wiki/Investm ... _statement

Cheers

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oldzey
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Re: [100% stock, uncomfortable with international]

Post by oldzey » Thu Jun 21, 2018 4:18 pm

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is an excellent choice for a U.S. index fund.

0% international is what I do, and I sleep quite well at night.

For what it's worth, Jack Bogle doesn't invest internationally, either:

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

https://www.youtube.com/watch?v=nWI64TKU64o#t=1h06m17s

https://www.youtube.com/watch?v=vMj4sHjF_kA#t=02m43s

https://www.morningstar.com/videos/3556 ... rseas.html

https://www.morningstar.com/videos/7186 ... sting.html

Cheers,
oldzey
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

GAAP
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Re: [100% stock, uncomfortable with international]

Post by GAAP » Thu Jun 21, 2018 4:23 pm

I would lose sleep over 100% domestic. Regardless, get out of international -- it's not worth losing sleep over an asset class.

cj2018
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Re: [100% stock, uncomfortable with international]

Post by cj2018 » Thu Jun 21, 2018 4:53 pm

bg5 wrote:
Thu Jun 21, 2018 11:09 am
[Moved into a new post from: The Three-Fund Portfolio --admin LadyGeek]

Guys I must confess that having international stock is making me feel uncomfortable and I am losing sleep over it. I have decided to put 100% of my retirement into VTSAX. My wife and I are both teachers who will have pensions for life once we retire that will account for 60% of our total salaries so more than likely we will never have to dip into our retirement nest egg.

We live a pretty simple life with no debt other than our house and for some reason I just dont want international. I am not saying this is right but at the end of the day I want a simple plan that is heavy on US exposure. My wife has around 15% international exposure so we do have some and it probably accounts for roughly 8-10% of our total portfolio.

Time will tell but I will likely keep 100% of my retirement portfolio in VTSAX for at least the next 20 years and then I will probably add some bonds. I am aware of the risks and am comfortable with the lack of diversificaiton.

Not saying anyone on this forum should do the same. I am also not suggesting that international is a bad thing but this is what will make me sleep better at night and this is why I made my decision.

Best of luck!
Hi bg5, you are not alone in putting 100% in domestic US equity. I'm personally 100% in VFIAX and never considered adding international stock into the AA.

Why? because (1) simplicity (2) plenty of "international exposure" through VTSAX or VFIAX (3) no need for the added currency risk (4) ER for international fund is just much higher than VTSAX or VFIAX and (5) international stock moves pretty correlated with US. For more on this, you can check out jlcollinsnh's post for more details this http://jlcollinsnh.com/2012/09/26/stock ... l-funds-2/

I'd also personally add (6) high probability that US dollar's status as world's only reserve currency for the next 30-50+ year, if monetary system or monetary policy make any sense to you, if not, don't worry about it since it's not critical for your decision-making here :)

So adding all these 5 points together, you probably don't need the extra complexity and cost with international stock exposure, and i'd go as far to say the extra diversification is not necessary since it doesn't necessarily mitigate any additional idiosyncratic risk or provide higher return in the long-haul. Having said all these, the only risk you are potentially mitigating by having international exposure is not idiosyncratic but rather, systematic risk, and in my mind, that systematic risk is the collapse of US financial (monetary) system or US sovereignty, which is unlikely in you and my life time.

So if you are a US resident for the next 30-50+ years, i'd say forget about international stock since it's not worth losing sleep over.

pingo
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Re: [100% stock, uncomfortable with international]

Post by pingo » Thu Jun 21, 2018 5:15 pm

The best time to get out of international equities is when you're losing sleep before something really bad happens.

You have to be able to sleep when the fit hits the shan.

100% U.S. is good enough.

Many happy returns! :thumbsup

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Taylor Larimore
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Re: [100% stock, uncomfortable with international]

Post by Taylor Larimore » Thu Jun 21, 2018 5:28 pm

Guys I must confess that having international stock is making me feel uncomfortable and I am losing sleep over it. I have decided to put 100% of my retirement into VTSAX.
BG5;

When experts disagree, it is often because it makes no foreseeable difference.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Mors
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Re: [100% stock, uncomfortable with international]

Post by Mors » Thu Jun 21, 2018 5:30 pm

Aren't you afraid of a Japan-like recession by going all-in in the stock market of just one country, even if this one country is the USA? I mean, before the crash Japan stock market also appeared unstoppable. US has definitely a more mature stock market with a abetter track record, but an allocation closer to the market cap than 100% US stocks would definitely make me feel better for the future.

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triceratop
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Re: [100% stock, uncomfortable with international]

Post by triceratop » Thu Jun 21, 2018 5:33 pm

cj2018 wrote:
Thu Jun 21, 2018 4:53 pm
Hi bg5, you are not alone in putting 100% in domestic US equity. I'm personally 100% in VFIAX and never considered adding international stock into the AA.

Why? because (1) simplicity (2) plenty of "international exposure" through VTSAX or VFIAX (3) no need for the added currency risk (4) ER for international fund is just much higher than VTSAX or VFIAX and (5) international stock moves pretty correlated with US. For more on this, you can check out jlcollinsnh's post for more details this http://jlcollinsnh.com/2012/09/26/stock ... l-funds-2/
(2)-(6) are multiply self-contradictory:

* If international stock moves pretty correlated with US (the extent to which this is true is debatable) then whence the currency risk?

* If there is plenty of international exposure through VTSAX/VFIAX then why isn't there currency risk? If there is indeed currency risk why did you decide that VTSAX is the "perfect" amount of currency risk to bear? You could target less currency risk with small cap stocks. Sounds pretty convenient that it turned out that way.

* If the ER for international (0.10%) is "just much higher" than VTSAX then how did you invest in 2004/2005 when the admiral shares VTSAX had net expense ratios of 0.10%? (and, who said that 0.06% higher expense ratio is "much higher"?)

I'd also personally add (6) high probability that US dollar's status as world's only reserve currency for the next 30-50+ year, if monetary system or monetary policy make any sense to you, if not, don't worry about it since it's not critical for your decision-making here :)
You confidently assign high probability to something remaining true for the next 50+ years when it has only been true for 75 years?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

delamer
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Re: [100% stock, uncomfortable with international]

Post by delamer » Thu Jun 21, 2018 5:43 pm

But if your wife has investments in international, then you have international too.

You said it makes up 10% of your joint portfolio.

cj2018
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Re: [100% stock, uncomfortable with international]

Post by cj2018 » Thu Jun 21, 2018 5:49 pm

triceratop wrote:
Thu Jun 21, 2018 5:33 pm
cj2018 wrote:
Thu Jun 21, 2018 4:53 pm
Hi bg5, you are not alone in putting 100% in domestic US equity. I'm personally 100% in VFIAX and never considered adding international stock into the AA.

Why? because (1) simplicity (2) plenty of "international exposure" through VTSAX or VFIAX (3) no need for the added currency risk (4) ER for international fund is just much higher than VTSAX or VFIAX and (5) international stock moves pretty correlated with US. For more on this, you can check out jlcollinsnh's post for more details this http://jlcollinsnh.com/2012/09/26/stock ... l-funds-2/
(2)-(6) are multiply self-contradictory:

* If international stock moves pretty correlated with US (the extent to which this is true is debatable) then whence the currency risk?

* If there is plenty of international exposure through VTSAX/VFIAX then why isn't there currency risk? If there is indeed currency risk why did you decide that VTSAX is the "perfect" amount of currency risk to bear? You could target less currency risk with small cap stocks. Sounds pretty convenient that it turned out that way.

* If the ER for international (0.10%) is "just much higher" than VTSAX then how did you invest in 2004/2005 when the admiral shares VTSAX had net expense ratios of 0.10%? (and, who said that 0.06% expense ratio is "much higher"?)

I'd also personally add (6) high probability that US dollar's status as world's only reserve currency for the next 30-50+ year, if monetary system or monetary policy make any sense to you, if not, don't worry about it since it's not critical for your decision-making here :)
You confidently assign high probability to something remaining true for the next 50+ years when it has only been true for 75 years?
That's why i said "added currency risk". I don't think the added currency risk is necessary by holding international stock. Sure, there's obviously currency risk associated with VTSAX/VFIAX due to trading and doing business in other countries and hence subject to the local currency. What do you get compensated for by adding the added currency risk? Is it more return due to currency spread? Possibly, but that's not why i hold equities. I'd be a currency trader if that's how i want to chase return.

I don't understand your point of "target less currency risk with small cap stocks".

Regarding ER, yes, 0.10% is absolutely "just much higher" than 0.04% (VTSAX), that's 1.5x more expensive! how is that not much higher?

True, something that's been true over the past 75 years might not remain true for the next 50+. That's why i spoke in terms of probabilistic, not absolute term. It's likely US Dollar will lose its reserve-currency status at some point (in fact, we know it will come to an end in the future, just a matter of when), i just simply don't see it happening in you and my lifetime. That's just my personal belief :greedy

aristotelian
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Re: [100% stock, uncomfortable with international]

Post by aristotelian » Thu Jun 21, 2018 5:52 pm

I have an underweight international allocation, about 25% of stock, just in case US becomes the next Japan. For what it's worth, international beat US last year.

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triceratop
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Re: [100% stock, uncomfortable with international]

Post by triceratop » Thu Jun 21, 2018 5:55 pm

What do you get compensated for by adding the added currency risk?
The currency risk is incidental (and bad!). What you get instead is more diversification.
I don't understand your point of "target less currency risk with small cap stocks".
Small cap stocks typically have less exposure to foreign markets so one could minimize currency risk by tilting towards domestic small cap stocks. The total market indices are dominated by large multinationals which have a lot of foreign revenue (currency) exposure.
Regarding ER, yes, 0.10% is absolutely "just much higher" than 0.04% (VTSAX), that's 1.5x more expensive! how is that not much higher?
Because comparing expense ratios as expense ratios tend towards zero becomes less meaningful. That is $6 per year per $10,000 invested.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

cj2018
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Re: [100% stock, uncomfortable with international]

Post by cj2018 » Thu Jun 21, 2018 6:11 pm

triceratop wrote:
Thu Jun 21, 2018 5:55 pm
What do you get compensated for by adding the added currency risk?
The currency risk is incidental (and bad!). What you get instead is more diversification.
I don't understand your point of "target less currency risk with small cap stocks".
Small cap stocks typically have less exposure to foreign markets so one could minimize currency risk by tilting towards domestic small cap stocks. The total market indices are dominated by large multinationals which have a lot of foreign revenue (currency) exposure.
Regarding ER, yes, 0.10% is absolutely "just much higher" than 0.04% (VTSAX), that's 1.5x more expensive! how is that not much higher?
Because comparing expense ratios as expense ratios tend towards zero becomes less meaningful. That is $6 per year per $10,000 invested.
Gotcha, all valid points and make sense.

Call me a slacker, but i like the simplicity of 1-fund or 2-fund portfolio :D . I also respect adding international to get more diversification.

At end of the day, there's no right or wrong answer really in the long run on this issue - just trade-offs and personal preferences we are making.

In the case of OP, if you are losing sleep over having international exposure, get out of it. You trade some diversification benefit with your piece of mind, and that's a fair trade i'd take any time of the day.

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triceratop
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Re: [100% stock, uncomfortable with international]

Post by triceratop » Thu Jun 21, 2018 6:28 pm

cj2018 wrote:
Thu Jun 21, 2018 6:11 pm
triceratop wrote:
Thu Jun 21, 2018 5:55 pm
What do you get compensated for by adding the added currency risk?
The currency risk is incidental (and bad!). What you get instead is more diversification.
I don't understand your point of "target less currency risk with small cap stocks".
Small cap stocks typically have less exposure to foreign markets so one could minimize currency risk by tilting towards domestic small cap stocks. The total market indices are dominated by large multinationals which have a lot of foreign revenue (currency) exposure.
Regarding ER, yes, 0.10% is absolutely "just much higher" than 0.04% (VTSAX), that's 1.5x more expensive! how is that not much higher?
Because comparing expense ratios as expense ratios tend towards zero becomes less meaningful. That is $6 per year per $10,000 invested.
Gotcha, all valid points and make sense.

Call me a slacker, but i like the simplicity of 1-fund or 2-fund portfolio :D . I also respect adding international to get more diversification.

At end of the day, there's no right or wrong answer really in the long run on this issue - just trade-offs and personal preferences we are making.

In the case of OP, if you are losing sleep over having international exposure, get out of it. You trade some diversification benefit with your piece of mind, and that's a fair trade i'd take any time of the day.
Vanguard Total World Stock Index Fund is an excellent single equity fund to hold. Complement with Total Bond. Done.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

ignition
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Re: [100% stock, uncomfortable with international]

Post by ignition » Fri Jun 22, 2018 5:03 am

aristotelian wrote:
Thu Jun 21, 2018 5:52 pm
I have an underweight international allocation, about 25% of stock, just in case US becomes the next Japan. For what it's worth, international beat US last year.
Do you think that 25% will save you when the US goes the way of Japan? :P

Btw, I think the fear of the US becoming Japan are way overblown. Japan's demographics and corporate culture are way different from the US. Not to mention their CAPE was like 100 in 1989.

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Re: [100% stock, uncomfortable with international]

Post by Valuethinker » Fri Jun 22, 2018 5:16 am

ignition wrote:
Fri Jun 22, 2018 5:03 am
aristotelian wrote:
Thu Jun 21, 2018 5:52 pm
I have an underweight international allocation, about 25% of stock, just in case US becomes the next Japan. For what it's worth, international beat US last year.
Do you think that 25% will save you when the US goes the way of Japan? :P

Btw, I think the fear of the US becoming Japan are way overblown. Japan's demographics and corporate culture are way different from the US. Not to mention their CAPE was like 100 in 1989.
"History does not repeat. But it often rhymes"

The US is not Japan in 1989. But it does have its own issues and parallels. A better historical analogy might be made to the US market in the 1970s, or perhaps the 1980s (parts of).

The whole conversation is slightly surreal for the non US investor, because it invites a line like "the US is far too dangerous a market to be investing in, given all the problems we know about". That doesn't work well, either.

aristotelian
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Re: [100% stock, uncomfortable with international]

Post by aristotelian » Fri Jun 22, 2018 6:24 am

ignition wrote:
Fri Jun 22, 2018 5:03 am
aristotelian wrote:
Thu Jun 21, 2018 5:52 pm
I have an underweight international allocation, about 25% of stock, just in case US becomes the next Japan. For what it's worth, international beat US last year.
Do you think that 25% will save you when the US goes the way of Japan? :P

Btw, I think the fear of the US becoming Japan are way overblown. Japan's demographics and corporate culture are way different from the US. Not to mention their CAPE was like 100 in 1989.
Who knows. It's more than zero. If I was a Japanese investor in the '80s, I'd be glad I had 25% of my portfolio in US.

3funder
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Re: [100% stock, uncomfortable with international]

Post by 3funder » Fri Jun 22, 2018 6:57 am

Do what you'd like; I think it would be wise to invest at least 1/3 of your equity allocation in international.
Last edited by 3funder on Fri Jun 22, 2018 7:24 am, edited 1 time in total.

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happyisland
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Re: [100% stock, uncomfortable with international]

Post by happyisland » Fri Jun 22, 2018 7:15 am

The top holdings in the ex-US Vanguard fund:

1 Royal Dutch Shell plc
2 Tencent Holdings Ltd.
3 Samsung Electronics Co. Ltd.
4 Nestle SA
5 HSBC Holdings plc
6 Taiwan Semiconductor Manufacturing Co. Ltd.
7 Toyota Motor Corp.
8 Novartis AG
9 Alibaba Group Holding Ltd.
10 Roche Holding AG

These seem like good stocks to own to increase portfolio diversification.

jonbkray
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Re: [100% stock, uncomfortable with international]

Post by jonbkray » Fri Jun 22, 2018 7:20 am

Its crazy to see this post as I am a teacher also and I am debating switching my target funds to 100% US Total Stock as you do because I will get a pension and something like a 403b plan as well.. I still question the no bonds thing.

lostdog
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Re: [100% stock, uncomfortable with international]

Post by lostdog » Fri Jun 22, 2018 8:35 am

Once we started having a bad 6 months people are starting to post about jumping ship from international. When we have another good year like 2017 they'll be back. Time in the market is better than timing the market.

Are you going to lose sleep if the US stock markets starts to lag International? If you're going to bail because of this maybe you need to rethink long term investing or at least get an advisor to comfort you.

staythecourse
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Re: [100% stock, uncomfortable with international]

Post by staythecourse » Fri Jun 22, 2018 8:45 am

Just curious if you would be advocating for 100% U.S. equities if international gained 20% last 10 years and stocks were flat? My guess is no. That means you are quite susceptible (as most folks are) to past performance wagging the tail of the dog.

Considering all your labor income, your pension income, AND if all your investments are in U.S. only I would say you are doing the exact opposite of diversifying. This is a huge bet on the U.S. dollar.

Each to their own though. Just DON'T switch again.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Taylor Larimore
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Re: [100% stock, uncomfortable with international]

Post by Taylor Larimore » Fri Jun 22, 2018 8:49 am

Guys I must confess that having international stock is making me feel uncomfortable and I am losing sleep over it.
bg5:

This earlier post of mine may be helpful:

How Much International. A Suggestion.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Accrual
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Re: [100% stock, uncomfortable with international]

Post by Accrual » Fri Jun 22, 2018 9:11 am

You don't touch on the 'why' you feel uncomfortable with international? Is it due to recent performance? If so - ignore. Remember, there is reward for bearing risk.

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Re: [100% stock, uncomfortable with international]

Post by DaBombCat » Fri Jun 22, 2018 11:13 am

bg5 wrote:
Thu Jun 21, 2018 11:09 am
[Moved into a new post from: The Three-Fund Portfolio --admin LadyGeek]

Guys I must confess that having international stock is making me feel uncomfortable and I am losing sleep over it. I have decided to put 100% of my retirement into VTSAX. My wife and I are both teachers who will have pensions for life once we retire that will account for 60% of our total salaries so more than likely we will never have to dip into our retirement nest egg.

We live a pretty simple life with no debt other than our house and for some reason I just dont want international. I am not saying this is right but at the end of the day I want a simple plan that is heavy on US exposure. My wife has around 15% international exposure so we do have some and it probably accounts for roughly 8-10% of our total portfolio.

Time will tell but I will likely keep 100% of my retirement portfolio in VTSAX for at least the next 20 years and then I will probably add some bonds. I am aware of the risks and am comfortable with the lack of diversificaiton.

Not saying anyone on this forum should do the same. I am also not suggesting that international is a bad thing but this is what will make me sleep better at night and this is why I made my decision.

Best of luck!
Just because you can buy international stocks doesn’t mean you should. Diversification has its risks if you are buying things that are unfamiliar. Do you travel as much as other Bogleheads? There is also a very real risk of dramatically underperforming with international stocks (and bonds). It seems like you recognize that.

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Re: [100% stock, uncomfortable with international]

Post by WhiteMaxima » Fri Jun 22, 2018 11:18 am

US companies have revenue globally. So you can get around without owning Int'l stocks. But I choose to have Int'l equity because there are many great companies outside of US, such as Shell, Samsung, VW, etc.

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Re: [100% stock, uncomfortable with international]

Post by bradshaw1965 » Fri Jun 22, 2018 12:51 pm

I think 100% US Total Stock Market is workable but I'd be more worried about the losing sleep then an International allocation, that 100% stock allocation always has a sizable probability of a >50% drop.

WhiteMaxima
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Re: [100% stock, uncomfortable with international]

Post by WhiteMaxima » Fri Jun 22, 2018 12:54 pm

80/20 or 70/30 US/Int'l that' s I would like to do.

heyyou
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Re: [100% stock, uncomfortable with international]

Post by heyyou » Fri Jun 22, 2018 2:47 pm

OP, do what suits you. That is best, for you. If you change your mind later, slowly add some international.

About indirect international exposure from domestic companies with foreign revenues: During market crashes, those US businesses' stocks are priced in our markets, and they crash just like the all-domestic businesses during the panics. Maybe they recover some, sooner, but I haven't ever read of that as being an advantage to owning them. That particular diversification theory sounds good, but has no historical record of being effective.

As mentioned up-thread, and by Nisi in a different thread, an investor has to take the risk to get the reward. For the OP, that is not suitable, so he is not a good candidate for long term ownership of foreign equities. No problem, domestic will very likely be good enough.

What suits me is different than what suits the OP.

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Bear market performance

Post by Taylor Larimore » Fri Jun 22, 2018 7:52 pm

bradshaw1965 wrote:
Fri Jun 22, 2018 12:51 pm
I think 100% US Total Stock Market is workable but I'd be more worried about the losing sleep then an International allocation, that 100% stock allocation always has a sizable probability of a >50% drop.
bradshaw1965:

In the 2008 bear market, Vanguard Total International Stock Index Fund plunged more than Vanguard Total U.S. Stock Market.

Past performance does not forecast future performance.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

MrPotatoHead
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Re: [100% stock, uncomfortable with international]

Post by MrPotatoHead » Fri Jun 22, 2018 11:35 pm

I had bought the academic argument on this one since the 1980s. My view has since changed. As I have begun to travel internationally and attempt to conduct business in other countries I experienced the difference between what I consider academic theory and reality. Though other countries may be nice to visit there are only a handful of European based countries that I would consider well regulated.

For my early 20s children, sure I see an international slice as potentially beneficial in the very long run. But for a 50ish me, I have been steadily decreasing my international exposure by simply buying ITOT in my taxable space and just leaving my tax deferred allocation where it is (as I am not one to tamper much with my portfolio once set).

Personally, if you are over 45, I don't think you are likely to regret not having explicit international exposure. I now prefer to get my international exposure through well regulated U.S. companies.

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Re: [100% stock, uncomfortable with international]

Post by VaR » Fri Jun 22, 2018 11:53 pm

I recommend investing and choosing asset allocations based on data rather than emotion because my emotions have not served me well in the past. Also, what I've read about emotional investing leads me to believe that investing emotionally has negative alpha! :)

Anyway, all that aside, I don't think there's a compelling reason to concentrate my assets in U.S. equities, so I allocate 25% of my portfolio to international. I don't understand why people sleep better with more money concentrated in U.S. equities. I sleep better because of my 20% bond allocation, not how I sub-allocate my equity slice. And frankly, I'm more worried that my international exposure is too low. It worries me a little because the earnings multiple of U.S. stocks seems higher than international. But as I said, I try to keep my worries/emotions from affecting my investment decisions.

OP, have you read all the international equity allocation threads?

Also, OP, can I interest you in some bonds?

JustinR
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Re: [100% stock, uncomfortable with international]

Post by JustinR » Sat Jun 23, 2018 5:25 am

I'd lose more sleep putting all my eggs in one basket.

It's weird losing sleep over being diversified.

bradshaw1965
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Re: Bear market performance

Post by bradshaw1965 » Mon Jun 25, 2018 8:55 am

Taylor Larimore wrote:
Fri Jun 22, 2018 7:52 pm
bradshaw1965 wrote:
Fri Jun 22, 2018 12:51 pm
I think 100% US Total Stock Market is workable but I'd be more worried about the losing sleep then an International allocation, that 100% stock allocation always has a sizable probability of a >50% drop.
bradshaw1965:

In the 2008 bear market, Vanguard Total International Stock Index Fund plunged more than Vanguard Total U.S. Stock Market.

Past performance does not forecast future performance.

Best wishes.
Taylor
Hi Taylor,

I was expressing that losing sleep about the international stock asset class during a relatively mild period of underperformance might indicate that having too much of an allocation to any class of stocks might cause even more loss of sleep, that splitting between US and International is a relatively minor piece comparatively.

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Re: [100% stock, uncomfortable with international]

Post by nisiprius » Mon Jun 25, 2018 9:32 am

I am one of the relatively few people who don't believe there's very much difference between US and international. I have found no convincing evidence that, at any time in the past history for which we have real indexes, having or not having an international allocation would ever have made very much difference one way or another. Stocks are stocks. They have the risks of stocks. It's a fairly interconnected global economy.

So, bg5, to me it makes absolutely no sense at all that you would "lose sleep" over international and yet feel comfortable with 100% stocks of any kind. You really need to work on understanding why you feel that way. I wouldn't make any moves until you do.

This is particularly true if you've held your portfolio for a while. Making sudden changes is questionable; John C. Bogle has said, wisely IMHO, "Time is your friend. Impulse is your enemy."

You don't say what your international allocation actually is. You say your wife's is 15% of stocks. Mine personally is 25% of stocks.

Now, if you are going to lose sleep over the possibility of making a "mistake" in the sense of picking option A and having it turn out that option B was better, you are never going to sleep well.

If the concern is catastrophes, let's say my international stock suddenly dropped 80%--to one fifth of it's currrent value--while my US stock just keep steady. How bad would that be? It would be a 20% loss in my portfolio. Well, that would be pretty bad, and while it was in the process of happening I might actually lose sleep one or two times. But I know that the value of my stock allocation can drop 50% or more at any time; it actually did in 2008-2009.

You have to be able to sleep knowing that the value of your stock allocation could drop 50%. If you can, then I honestly don't see having 15%, 20%, 25% international could have much effect on sleep. Heck, even if you went to a total global allocation, which is currently about 50/50 US/international, and even if international stocks literally went to zero but US stocks stayed level, that would still be "only" a 50% loss, and as I say, US stocks have done that all by themselves from time to time.

Stock market crashes happen, and the big ones have been global in scope, as was the case in 1929 and in 2008-2009. You have a risk of a crash in stocks, and you have to be able to live with that--possibly by not holding 100% stocks. If you are at 100% stocks and the stock market crashes, it is, in my opinion, just as silly to suppose that you will be OK because you have no international stocks as to suppose that you will be OK because you to have them.

International stock diversification is fine tuning. It may robust, reliable fine tuning. There may be some kind of best place or optimum. It might be at global cap-weight, like a lot of people seem to think now, or at 20-25%, which used to be the conventional wisdom*, or it may not matter much and 0% is fine.

Here are the performances of a 100% stock allocation during 2008-2009. Portfolio 1, blue, is 100% US, your choice. Portfolio 2, red, is 25% international, my choice. Portfolio 3 is 50/50, approximately global cap-weighting, a very popular choice in the forum.

Source

Image

(By starting at the beginning of 2007, I'm including a year of the period during which the dollar was weakening and international stocks outperformed. Thus, you can see that at the start of 2008, the plunge was partly offset by the year of outperformance that preceded it. If I'd gone back a few more years, e.g. to 2004, the outperformance was enough that international would still have been head of US even at the bottom of the crash. That's just an observation on how endpoint-dependent these things are).

I see no important difference in turns of "being able to sleep" between the three; do you? In this particular time period, you would have been "right" to be 100% US, but, gee. If we had $10,000 at the start of 2007, at the bottom I'd have had "only" $5,388 while you'd have had $5,457. If we'd met in the hallway at work and compared notes I'd have tipped my hat to you but I think we'd have both been very unhappy.

And of course, next time, it might be the US that underperforms.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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vineviz
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Re: Bear market performance

Post by vineviz » Mon Jun 25, 2018 10:24 am

Taylor Larimore wrote:
Fri Jun 22, 2018 7:52 pm
In the 2008 bear market, Vanguard Total International Stock Index Fund plunged more than Vanguard Total U.S. Stock Market.
This is more of an exception than the rule, however.

There have been only three years since 1970 (when the MSCI World ex. US index was formed) when the U.S. stock market dropped by more than 20%. 2008 was one of them.

In each of the other three (1973, 1974, 2002), international stocks outperformed U.S stocks . In fact, they outperformed by an average of over 500 bps per year in those years.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: [100% stock, uncomfortable with international]

Post by Jason-Paul » Mon Jun 25, 2018 10:37 am

I would be weary of an over-weighted position in international markets. Although many analysts are saying emerging market economies are now good buying opportunities, those economies also lack the regularity authority that more developed economies already have in place, and therefore will often have irregular returns. I tracked my 401K's international fund performance over the last 20 years, and although it was solid, there was much more volatility in it, than in domestic markets. Also, the returns were still lower than domestic stocks too over a long time horizon. Plus, most large-cap domestic companies already have a chunk of their portfolios in international markets to being with, so you run the risk of overexposure by being invested too heavily in international. I've noticed that international stocks seem to be good short-term plays, because of their larger swings up and down in price, but if you're in it for the long-haul, then you might be better off considering more diversification that includes domestic stocks as well.

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vineviz
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Re: [100% stock, uncomfortable with international]

Post by vineviz » Mon Jun 25, 2018 11:12 am

nisiprius wrote:
Mon Jun 25, 2018 9:32 am
I am one of the relatively few people who don't believe there's very much difference between US and international. I have found no convincing evidence that, at any time in the past history for which we have real indexes, having or not having an international allocation would ever have made very much difference one way or another. Stocks are stocks. They have the risks of stocks. It's a fairly interconnected global economy.

So, bg5, to me it makes absolutely no sense at all that you would "lose sleep" over international and yet feel comfortable with 100% stocks of any kind. You really need to work on understanding why you feel that way. I wouldn't make any moves until you do.
I agree. Since 1970, a 60/40 portfolio that had half its equity allocation in the MSCI World (ex US) would have a virtually identical risk-adjusted return as one that had all its equity in US stocks. There have been sub-periods where the international allocation was a huge boost (1970 to 1988 and 2002 to 2009) and sub-periods when it has been a huge drag (1989 to 2001 and 2010 to 2018).

Personally, I think one of the main reasons U.S. investors have an aversion to international stocks is the "fear of missing out" problem we've discussed before. The underperformance of international stocks is much more a phenomenon of being up less than U.S. stocks during great years than of being down more than U.S. stocks during terrible years.

I broke down the 48 full years from 1970 to 2017 into three groups: the 12 best years for the S&P 500, the 12 worst years for the S&P 500, and the 24 years of middle-of-the road returns.

In the S&P500's worst 12 years, international stocks underperformed by a modest amount (178 bps per year on average). During the S&P500's 24 middle-of-the road years, international stocks outperformed by a modest amount (260 bps per year on average). But during the S&P500's best 12 years, international stocks underperformed by a significant amount (1021 bps per year on average).

Watching an international fund underperform a U.S. fund by 10% percent in a year is no fun, even if that that year was preceded by four years in which the international fund outperformed by 2.5% per year. Investors feel like they've missed a huge opportunity to win big during those years, and consequently discount the greater number of years where they actually did have small wins. For reasons I think we can all understand, the fact that an international stock fund is up ONLY 20% is not much consolation when the U.S. stock fund is up 30%.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: [100% stock, uncomfortable with international]

Post by dustinst22 » Mon Jun 25, 2018 10:28 pm

I never understood the argument that "US companies already have a strong foreign presence so they will follow economic performance in those countries over the long haul". Just because a company participates in a market, does not make an excuse to not own all stocks in that market.

Is it really wise to not invest in the following found in international markets?

7 of the 10 largest automobile companies
7 of the 10 largest diversified telecommunications companies
8 of the 10 largest metals and mining companies
6 of the 10 largest electronic equipment and instruments companies
5 of the 10 largest household durables companies

This is the same logic as owning just the dozen large companies in NY state. They are linked to both the US and the international economy, so why not just buy them? Coca Cola often follows movements in the S&P 500, and has a large world presence, why not just own that one stock?

If Samsung beats Apple in the multi-billion smartphone business, how much will it help me that Apple also sells phones in South Korea? Why would I want to own Chevy and Ford and skip Honda and Toyota, or BMW and Mercedes, if I could own all of them?

Indexing makes sense globally just as much as it makes sense domestically.

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Re: [100% stock, uncomfortable with international]

Post by jadd806 » Tue Jun 26, 2018 5:56 am

DaBombCat wrote:
Fri Jun 22, 2018 11:13 am
Just because you can buy international stocks doesn’t mean you should. Diversification has its risks if you are buying things that are unfamiliar. Do you travel as much as other Bogleheads? There is also a very real risk of dramatically underperforming with international stocks (and bonds). It seems like you recognize that.
What? The exact same can be said for the US:

"There is also a very real risk of dramatically underperforming with US stocks (and bonds)."

Both statements are equally absurd, since they presume to know information which is not currently known.

Those who justify their decision to invest solely in the US by citing its historical outperformance relative to international equities are falling victim to greed and bias. This is nothing but curve-fitting your portfolio to historical data, and in my mind is a similar mental affliction as technical traders who attempt to develop trading systems using back-tested data.

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Re: [100% stock, uncomfortable with international]

Post by jadd806 » Tue Jun 26, 2018 5:58 am

WhiteMaxima wrote:
Fri Jun 22, 2018 11:18 am
US companies have revenue globally. So you can get around without owning Int'l stocks. But I choose to have Int'l equity because there are many great companies outside of US, such as Shell, Samsung, VW, etc.
International companies have revenue globally. So you can get around without owning US stocks. But I choose to have US equity because there are many great companies in the US, such as Exxon, Apple, Ford, etc.

If the argument goes both ways, it isn't an argument for anything!

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Re: [100% stock, uncomfortable with international]

Post by jadd806 » Tue Jun 26, 2018 6:11 am

dustinst22 wrote:
Mon Jun 25, 2018 10:28 pm
I never understood the argument that "US companies already have a strong foreign presence so they will follow economic performance in those countries over the long haul". Just because a company participates in a market, does not make an excuse to not own all stocks in that market.

Is it really wise to not invest in the following found in international markets?

7 of the 10 largest automobile companies
7 of the 10 largest diversified telecommunications companies
8 of the 10 largest metals and mining companies
6 of the 10 largest electronic equipment and instruments companies
5 of the 10 largest household durables companies

This is the same logic as owning just the dozen large companies in NY state. They are linked to both the US and the international economy, so why not just buy them? Coca Cola often follows movements in the S&P 500, and has a large world presence, why not just own that one stock?

If Samsung beats Apple in the multi-billion smartphone business, how much will it help me that Apple also sells phones in South Korea? Why would I want to own Chevy and Ford and skip Honda and Toyota, or BMW and Mercedes, if I could own all of them?

Indexing makes sense globally just as much as it makes sense domestically.
This was copied and pasted almost word for word from a post by user "Interest Compound" on the Mr. Money Mustache forum. Are you the same user with a different name on Bogleheads, or did you use Google for a little too much inspiration? :shock:

https://forum.mrmoneymustache.com/inves ... msg1184949

TIAX
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Re: [100% stock, uncomfortable with international]

Post by TIAX » Tue Jun 26, 2018 8:57 am

triceratop wrote:
Thu Jun 21, 2018 5:55 pm
The currency risk is incidental (and bad!). What you get instead is more diversification.
If it's bad, how much would you pay to eliminate that risk? Have you considered a dollar hedged ETF like HEFA[/url or [url=https://dws.com/US/EN/Product-Detail-Pa ... erformance]DBEF]?
Last edited by TIAX on Tue Jun 26, 2018 9:00 am, edited 1 time in total.

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Re: [100% stock, uncomfortable with international]

Post by triceratop » Tue Jun 26, 2018 8:58 am

TIAX wrote:
Tue Jun 26, 2018 8:57 am
triceratop wrote:
Thu Jun 21, 2018 5:55 pm
The currency risk is incidental (and bad!). What you get instead is more diversification.
If it's bad, how much would you pay to eliminate that risk? Have you considered a dollar hedged ETF like EFA?
I would not pay anything; I do not consider it to be a significant factor over my investing time horizon: 60 years. And, definitely not a significant enough factor to pay an extra 0.25%-0.60% in fees.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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just frank
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Re: [100% stock, uncomfortable with international]

Post by just frank » Tue Jun 26, 2018 8:59 am

Weird. Agree with comments that it makes at most a minimal difference, not worth losing sleep over.

That said, I was 100% equities AND 100% US for many years, and switched in the last year to about 60/40% US/international.

Gains have been awesome, volatility seems significantly lower. Sleeping fine at night.

Different Strokes.

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Re: [100% stock, uncomfortable with international]

Post by DaBombCat » Fri Jun 29, 2018 11:28 pm

jadd806 wrote:
Tue Jun 26, 2018 5:56 am
DaBombCat wrote:
Fri Jun 22, 2018 11:13 am
Just because you can buy international stocks doesn’t mean you should. Diversification has its risks if you are buying things that are unfamiliar. Do you travel as much as other Bogleheads? There is also a very real risk of dramatically underperforming with international stocks (and bonds). It seems like you recognize that.
What? The exact same can be said for the US:

"There is also a very real risk of dramatically underperforming with US stocks (and bonds)."

Both statements are equally absurd, since they presume to know information which is not currently known.

Those who justify their decision to invest solely in the US by citing its historical outperformance relative to international equities are falling victim to greed and bias. This is nothing but curve-fitting your portfolio to historical data, and in my mind is a similar mental affliction as technical traders who attempt to develop trading systems using back-tested data.
I know that bonds and international stocks have underperformed over the long term, usually significantly. You are right that we don’t know the future, but all investment theory is based on past performance. What else do we have to go on?

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Re: [100% stock, uncomfortable with international]

Post by AlwaysWannaLearn » Sat Jun 30, 2018 12:24 am

.....
Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 10:29 pm, edited 2 times in total.

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Re: [100% stock, uncomfortable with international]

Post by Grt2bOutdoors » Sat Jun 30, 2018 6:19 am

aristotelian wrote:
Thu Jun 21, 2018 5:52 pm
I have an underweight international allocation, about 25% of stock, just in case US becomes the next Japan. For what it's worth, international beat US last year.
That international beat US last year in and of itself is not worth much. Consistent performance for a stretch period would make a stronger argument that international is on its way up, it isn’t. And I own a decent chunk of international, markets can get cheaper.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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