Why international?

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stocknoob4111
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Why international?

Post by stocknoob4111 » Sun Aug 05, 2018 1:58 pm

I looked at VGTSX (Vanguard Total International) vs VFINX (Vanguard S&P500) using the Backtest Portfolio tool and could not find any time period 5 years or longer where International performance exceeded domestic. In fact, International performance was outright lousy (relative to domestic) in all time periods of any significance. Why then is international diversification touted by all the financial advisers and also on Bogleheads?

In addition these international funds generate large distributions that are unqualified creating a further drag on returns. It seems to me just a lose lose proposition.

I've already lost 11% of my capital to date but continue to invest but considering stopping it and if I break even on my existing holdings sometime in the future I may just move everything back to domestic equities. Is this a good idea? Am I missing something here?

runner540
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Re: Why international?

Post by runner540 » Sun Aug 05, 2018 2:08 pm

Your screenname says you a new investor. Have you read about home bias? You're missing the risk that the US could experience an extended period of poor returns, like Japan has. 30 years ago, Japan was high flying and almost half of world market cap. What could go wrong?? Since then, the real return of the Nikkei (including dividend reinvestment) has been 0.0%. No growth. For 30 years. A Japanese investor with 20% invested outside of their home market would have a much different retirement today than one who was 100% Japan. https://dqydj.com/nikkei-return-calcula ... nvestment/

If you live in the US, your non financial assets (house, career, social network, language skills, etc.) are already weighted toward the US.

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EddieGee
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Re: Why international?

Post by EddieGee » Sun Aug 05, 2018 2:10 pm

Investing a portion of your assets internationally is simply an additional means of diversification. Also known as not keeping all your eggs in one basket.

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vineviz
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Re: Why international?

Post by vineviz » Sun Aug 05, 2018 2:12 pm

The short answer is that the funds and tools you used don’t provide a long enough period of time.

International stocks as part of a portfolio have reduced volatility and increased rials-adjusted returns over almost every long period for which we have data.

Furthermore, international stocks have outperformed US stocks in a majority of decades since 1970.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

lostdog
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Re: Why international?

Post by lostdog » Sun Aug 05, 2018 2:13 pm

If you're equity asset allocation is anything outside of world market cap, you're making a bet. You're essentially saying you know more than other investors.

https://m.youtube.com/watch?v=LwTHLtuToSY
Global Market Cap Equity || Taxable: VTSAX+VTIAX || IRA: VTWAX

tibbitts
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Re: Why international?

Post by tibbitts » Sun Aug 05, 2018 2:18 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
I looked at VGTSX (Vanguard Total International) vs VFINX (Vanguard S&P500) using the Backtest Portfolio tool and could not find any time period 5 years or longer where International performance exceeded domestic. In fact, International performance was outright lousy (relative to domestic) in all time periods of any significance. Why then is international diversification touted by all the financial advisers and also on Bogleheads?

In addition these international funds generate large distributions that are unqualified creating a further drag on returns. It seems to me just a lose lose proposition.

I've already lost 11% of my capital to date but continue to invest but considering stopping it and if I break even on my existing holdings sometime in the future I may just move everything back to domestic equities. Is this a good idea? Am I missing something here?
Why would you wait until you break even? That makes no sense; you always invest using the best information you have available at the time. Also you seem to care about qualified distributions so if you hold international in taxable, why would you not want to realize losses?

In a more general sense, this is one of those situations were either you're missing something, or (almost) everyone else is.

Beensabu
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Re: Why international?

Post by Beensabu » Sun Aug 05, 2018 2:21 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
I looked at VGTSX (Vanguard Total International) vs VFINX (Vanguard S&P500) using the Backtest Portfolio tool and could not find any time period 5 years or longer where International performance exceeded domestic. In fact, International performance was outright lousy (relative to domestic) in all time periods of any significance.
I looked at VFINX (Vanguard S&P 500) vs AAPL (Apple Inc.) using the Backtest Portfolio tool and could not find any time period 5 years or longer where S&P 500 performance exceeded Apple. In fact, the S&P 500 performance was outright lousy (relative to Apple) in all time periods of any significance.

The reason that you hold VFINX instead of just AAPL is the same reason that many have for holding or recommending an international equity allocation instead of just domestic.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."

cj2018
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Re: Why international?

Post by cj2018 » Sun Aug 05, 2018 3:01 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
I looked at VGTSX (Vanguard Total International) vs VFINX (Vanguard S&P500) using the Backtest Portfolio tool and could not find any time period 5 years or longer where International performance exceeded domestic. In fact, International performance was outright lousy (relative to domestic) in all time periods of any significance. Why then is international diversification touted by all the financial advisers and also on Bogleheads?

In addition these international funds generate large distributions that are unqualified creating a further drag on returns. It seems to me just a lose lose proposition.

I've already lost 11% of my capital to date but continue to invest but considering stopping it and if I break even on my existing holdings sometime in the future I may just move everything back to domestic equities. Is this a good idea? Am I missing something here?
OP,

I presume the majority of responses you will get are pro-international so let me offer the contrarian view.

I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.

One pro-international argument you often here is that "a dollar in US is just as smart as one in emerging market like Brazil or somewhere in Africa, so why will you outweight U.S.?". I don't know who initially proposed this idea, but i just don't agree with it. It's like saying every country is created equal and has equal opportunities. It doesn't.

FWIW, Jack Bogle and Buffet both agree with you. If having international exposure bothers you - just keep it simple with domestic only. It's good enough.

22twain
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Re: Why international?

Post by 22twain » Sun Aug 05, 2018 3:12 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
Why then is international diversification touted by all the financial advisers and also on Bogleheads?
Tip: Enter "why international" in the search box at the top right of this page. Even though it says "Google..." the search is restricted to this site only. You'll find that this question comes up over and over and over again here. 8-)
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!

Topic Author
stocknoob4111
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Re: Why international?

Post by stocknoob4111 » Sun Aug 05, 2018 3:26 pm

cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.
BUT, is it realistic to assume that International does well when the US goes bust? That to me is extremely far fetched as International performance is heavily dependent on the US doing well, we consume a TON of what is produced internationally. If we go bust there is a good chance that they go down too. Now, given this dependence is it really diversification? It seems to me that perhaps it's a portfolio drag with not much risk diversification, if any.

TravelGeek
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Re: Why international?

Post by TravelGeek » Sun Aug 05, 2018 3:32 pm

cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.
I don’t think diversification in international funds is a hedge against the US as a nation going bust. Look at the example of Japan brought up earlier. Clearly Japan as a nation hasn’t gone bust and yet I assume Japanese investors who diversified beyond their domestic companies did better than those who didn’t.

A common argument against (additional) international exposure is that many of the large US companies that make up the S&P 500 are really multinations.

Culbretd
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Re: Why international?

Post by Culbretd » Sun Aug 05, 2018 3:43 pm

cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
I looked at VGTSX (Vanguard Total International) vs VFINX (Vanguard S&P500) using the Backtest Portfolio tool and could not find any time period 5 years or longer where International performance exceeded domestic. In fact, International performance was outright lousy (relative to domestic) in all time periods of any significance. Why then is international diversification touted by all the financial advisers and also on Bogleheads?

In addition these international funds generate large distributions that are unqualified creating a further drag on returns. It seems to me just a lose lose proposition.

I've already lost 11% of my capital to date but continue to invest but considering stopping it and if I break even on my existing holdings sometime in the future I may just move everything back to domestic equities. Is this a good idea? Am I missing something here?
OP,

I presume the majority of responses you will get are pro-international so let me offer the contrarian view.

I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.

One pro-international argument you often here is that "a dollar in US is just as smart as one in emerging market like Brazil or somewhere in Africa, so why will you outweight U.S.?". I don't know who initially proposed this idea, but i just don't agree with it. It's like saying every country is created equal and has equal opportunities. It doesn't.

FWIW, Jack Bogle and Buffet both agree with you. If having international exposure bothers you - just keep it simple with domestic only. It's good enough.
Warren Buffet does not agree with you. He owns some international stocks. One of his latest big acquisitions was in Teva Pharmaceuticals which is a company based out of Israel. Buffet doesn’t just invest in US Value stocks. Buffet invest(s) in value stocks period.

RadAudit
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Re: Why international?

Post by RadAudit » Sun Aug 05, 2018 4:03 pm

lostdog wrote:
Sun Aug 05, 2018 2:13 pm
If you're equity asset allocation is anything outside of world market cap, you're making a bet. You're essentially saying you know more than other investors.

https://m.youtube.com/watch?v=LwTHLtuToSY
+1

Or, you are saying I may not know more than all the other investors combined; but, I have my own reasons for my own biases.

Can't get through the day without a good rationalization.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

cj2018
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Re: Why international?

Post by cj2018 » Sun Aug 05, 2018 4:29 pm

Culbretd wrote:
Sun Aug 05, 2018 3:43 pm
cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
I looked at VGTSX (Vanguard Total International) vs VFINX (Vanguard S&P500) using the Backtest Portfolio tool and could not find any time period 5 years or longer where International performance exceeded domestic. In fact, International performance was outright lousy (relative to domestic) in all time periods of any significance. Why then is international diversification touted by all the financial advisers and also on Bogleheads?

In addition these international funds generate large distributions that are unqualified creating a further drag on returns. It seems to me just a lose lose proposition.

I've already lost 11% of my capital to date but continue to invest but considering stopping it and if I break even on my existing holdings sometime in the future I may just move everything back to domestic equities. Is this a good idea? Am I missing something here?
OP,

I presume the majority of responses you will get are pro-international so let me offer the contrarian view.

I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.

One pro-international argument you often here is that "a dollar in US is just as smart as one in emerging market like Brazil or somewhere in Africa, so why will you outweight U.S.?". I don't know who initially proposed this idea, but i just don't agree with it. It's like saying every country is created equal and has equal opportunities. It doesn't.

FWIW, Jack Bogle and Buffet both agree with you. If having international exposure bothers you - just keep it simple with domestic only. It's good enough.
Warren Buffet does not agree with you. He owns some international stocks. One of his latest big acquisitions was in Teva Pharmaceuticals which is a company based out of Israel. Buffet doesn’t just invest in US Value stocks. Buffet invest(s) in value stocks period.
I was referring to Buffet’s advice to retail investors regarding invest in diversified index fund such as S&P500.

What he does via Berkshire’s institutional money is totally different ballgame.

Do you have the ability to make controlling acquisition to individual corporations like Buffet? If the answer is yes, then you operate at a different level beyond paper securities (stock, bonds).

drk
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Re: Why international?

Post by drk » Sun Aug 05, 2018 4:40 pm

cj2018 wrote:
Sun Aug 05, 2018 4:29 pm
I was referring to Buffet’s advice to retail investors regarding invest in diversified index fund such as S&P500.

What he does via Berkshire’s institutional money is totally different ballgame.

Do you have the ability to make controlling acquisition to individual corporations like Buffet? If the answer is yes, then you operate at a different level beyond paper securities (stock, bonds).
That wasn't his advice to retail investors. That was the direction that he gave to the administrator of his wife's trust. He's smarter than to offer investment recommendations to retail investors. His compliance personnel would surely throw a fit if he did that.

tibbitts
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Re: Why international?

Post by tibbitts » Sun Aug 05, 2018 4:45 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 3:26 pm
cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.
BUT, is it realistic to assume that International does well when the US goes bust? That to me is extremely far fetched as International performance is heavily dependent on the US doing well, we consume a TON of what is produced internationally. If we go bust there is a good chance that they go down too. Now, given this dependence is it really diversification? It seems to me that perhaps it's a portfolio drag with not much risk diversification, if any.
By your own reasoning regarding lack of diversification, the economies and markets would be linked, and there would be no reason to overweight any country. How do you explain "drag" without diversification?

cj2018
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Re: Why international?

Post by cj2018 » Sun Aug 05, 2018 4:50 pm

drk wrote:
Sun Aug 05, 2018 4:40 pm
cj2018 wrote:
Sun Aug 05, 2018 4:29 pm
I was referring to Buffet’s advice to retail investors regarding invest in diversified index fund such as S&P500.

What he does via Berkshire’s institutional money is totally different ballgame.

Do you have the ability to make controlling acquisition to individual corporations like Buffet? If the answer is yes, then you operate at a different level beyond paper securities (stock, bonds).
That wasn't his advice to retail investors. That was the direction that he gave to the administrator of his wife's trust. He's smarter than to offer investment recommendations to retail investors. His compliance personnel would surely throw a fit if he did that.
I would advise you to do a simple google search “buffett investment advice s&p 500 index fun” and see what comes up.

Or maybe YouTube the number of CNBC interviews he’s had over the years where you can hear it from him in person. If you regard this as him speaking to the administrator of his wife’s trust alone, then believe what you believe lol

drk
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Re: Why international?

Post by drk » Sun Aug 05, 2018 5:01 pm

cj2018 wrote:
Sun Aug 05, 2018 4:50 pm
I would advise you to do a simple google search “buffett investment advice s&p 500 index fun” and see what comes up.

Or maybe YouTube the number of CNBC interviews he’s had over the years where you can hear it from him in person. If you regard this as him speaking to the administrator of his wife’s trust alone, then believe what you believe lol
Feel free to interpret his vague statements about what would have served people well in the past as direct advice for the future. He's not called "the Oracle" for nothing.

Elysium
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Re: Why international?

Post by Elysium » Sun Aug 05, 2018 5:28 pm

OP and all others questioning why intl.

I can only speak to myself, what you are suffering from is recency bias, not home bias. I looked at my portfolio returns for the past 20 years data that I have and immediately saw the problem. International has not performed as well as US coming out of the global recession of 2008-09. Europe is having a slow recovery and Japan has been lagging for 30 years probably. I did not include EM data in this, but I already know EM is lagging.

That said, from 2003 to 2007, I am showing personal returns of over 21% for International and since my overall returns during this period is in the low teens, that makes US returns much lower. I remember threads asking for why not keep global equity weight of 50/50 US / Intl, as people could not get enough of Intl into their portfolios.

Personal returns show that if I take out 2009 when Intl gained 45% plus during the recovery after dropping 40% during the crash, returns are in the 6% range from 2010 up to 2018. This year again Intl is continuing to lag US.

Naturally, investors chase past performance, and experienced investors are not immune to this. It takes a lot of conviction in your strategy to stay the course. If someone truly believed it isn't required and decided to stay 100% US even when Intl is outperforming US then I have no problem with that.

Looking at past returns to decide an investment strategy is never a good idea. There could be reasons for not including Intl in your portfolio, but past returns aren't one of them.

asif408
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Re: Why international?

Post by asif408 » Sun Aug 05, 2018 5:30 pm

OP,

Let me help you. Here is a 12 year period international outperformed: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Of course I cherry picked the start and end dates but you get the idea, it has happened, and it looks even worse for the US if I stop it earlier than 2014. That sure is a long period of poor returns for the US, ins't it? In fact, if an investor started investing in Mar 2002 they could easily come to the opposite conclusion you have.

Culbretd
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Re: Why international?

Post by Culbretd » Sun Aug 05, 2018 7:44 pm

Duplicate
Last edited by Culbretd on Mon Aug 06, 2018 2:36 am, edited 1 time in total.

sambb
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Re: Why international?

Post by sambb » Sun Aug 05, 2018 8:03 pm

wonder if it woudl be different if it was intl minus japan
japan could happen in the us, and then youll wish you had intl

Culbretd
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Re: Why international?

Post by Culbretd » Mon Aug 06, 2018 2:37 am

cj2018 wrote:
Sun Aug 05, 2018 4:50 pm
drk wrote:
Sun Aug 05, 2018 4:40 pm
cj2018 wrote:
Sun Aug 05, 2018 4:29 pm
I was referring to Buffet’s advice to retail investors regarding invest in diversified index fund such as S&P500.

What he does via Berkshire’s institutional money is totally different ballgame.

Do you have the ability to make controlling acquisition to individual corporations like Buffet? If the answer is yes, then you operate at a different level beyond paper securities (stock, bonds).
That wasn't his advice to retail investors. That was the direction that he gave to the administrator of his wife's trust. He's smarter than to offer investment recommendations to retail investors. His compliance personnel would surely throw a fit if he did that.
I would advise you to do a simple google search “buffett investment advice s&p 500 index fun” and see what comes up.

Or maybe YouTube the number of CNBC interviews he’s had over the years where you can hear it from him in person. If you regard this as him speaking to the administrator of his wife’s trust alone, then believe what you believe lol
I’ve heard him say that before too but he himself invest internationally because he understands the importance of being diversefied. For someone with no investing knowledge the S&p 500 is just fine. Very simplistic and there is a place for that. But to say Buffet doesn’t believe in international isn’t true. He buys/invest his ,money internationally because he understands the value it has. Let’s be real he prolly knows more than all of us about the stock market and he knows if people are giving him money to invest he needs to be diversified.

KSActuary
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Re: Why international?

Post by KSActuary » Mon Aug 06, 2018 8:52 am

Prior to 2010 when QE kicked in, it was quite common for other asset categories to outperform the S&P 500 including other US assets like real estate so investing in a diversified portfolio really paid off. Until we return, if ever, to a more normal state of affairs, it is hard to bet against the US.

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ruralavalon
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Re: Why international?

Post by ruralavalon » Mon Aug 06, 2018 9:19 am

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
I looked at VGTSX (Vanguard Total International) vs VFINX (Vanguard S&P500) using the Backtest Portfolio tool and could not find any time period 5 years or longer where International performance exceeded domestic. In fact, International performance was outright lousy (relative to domestic) in all time periods of any significance. Why then is international diversification touted by all the financial advisers and also on Bogleheads?

In addition these international funds generate large distributions that are unqualified creating a further drag on returns. It seems to me just a lose lose proposition.

I've already lost 11% of my capital to date but continue to invest but considering stopping it and if I break even on my existing holdings sometime in the future I may just move everything back to domestic equities. Is this a good idea? Am I missing something here?
Over longer periods of time there has been a small diversification benefit to holding international stocks.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

SalarySlv
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Re: Why international?

Post by SalarySlv » Mon Aug 06, 2018 10:16 am

Let me bring up a few points / counterppints in support of International that haven't been raised in this thread:

1) Different industry mix - the usual example given is that the majority of car manufacturers are international. Same for mining, finance, and a number of other industries. By not going international you are skewing your industry mix from total world market cap.

2) It's true that most large US Companies are in essence multinationals with many generating ~50% of profits outside the US. However, the same is true for international companies, they are multinationals that sell INTO the US. To use my previous example, by not going international you are missing out on Japanese/German car sales in the U.S., or on gains from the sale of Nintendo systems in the US, etc.

3) There is absolutely more room to grow internationally, especially in developing markets. We are talking about countries where growth rates are many multiples of what they are in the U.S., with millions of people being pulled out of poverty. These people will need diapers / AC / etc. In some of these countries, US companies have little or no presence, sometimes due to government interference.

4) Relating to point #3 above, many international companies have the explicit or implicit backing of local governments. China isn't going to let Alibaba or Tencent fail, and they'll do whatever they can to keep Google / Amazon out of China, including onerous regulations. Investing internationally gives you a piece of the pie protected by the interests of local governments.

Those are just a few points, even excluding the explicit bias / stock picking inherent in not investing in total world market cap.

Elysium
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Re: Why international?

Post by Elysium » Mon Aug 06, 2018 7:21 pm

KSActuary wrote:
Mon Aug 06, 2018 8:52 am
Prior to 2010 when QE kicked in, it was quite common for other asset categories to outperform the S&P 500 including other US assets like real estate so investing in a diversified portfolio really paid off. Until we return, if ever, to a more normal state of affairs, it is hard to bet against the US.
This. US lareg caps have performed really well with the support of QE post 2008-09 recession. The cycle is already shifting though with the Fed raising rates and unemployment remaining low, S&P 500 could be in for taking a hit. Diversification will come back into fashion again. Just wanted to add that, in the late 90's all you needed was an S&P 500 index funds or large growth as it was outperforming every other asset class, same thing is happening now, only difference is there is no mania for tech unlike the late 90's.

andysnp
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Re: Why international?

Post by andysnp » Tue Feb 12, 2019 3:26 pm

If I use Backtest Portfolio, VGTSX only shows performance from 1997 to now.

Anyone know how the International Index performed from early 1900 to now? I know there was no Index back then, but some kind of performance from as far back as possible would be good to know.

I personally have 20% International index, but I just want know to know this information for learning purposes.

Thanks!

bg5
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Re: Why international?

Post by bg5 » Tue Feb 12, 2019 3:49 pm

I have a portfolion with 100% of my retirement invested into VTSAX. I feel better with my cash invested in domestic stocks but that is just what makes me sleep better at night. There was a time where I was in to 90%-10% ratio or 80%-20% for domestic vs. international. Bottom line is this....it probably does not really matter what you do because 10% or 20% international is not gonna make a huge difference either way.

The most important thing you can do is invest money as often as possible and try to put away 15%-20% of your income into retirement. Those are the types of things that matter the most. We often times debate how much international we should have but bottom line is is probably wont make that big of a difference one way or the other. If you have a 50%-50% portfolio is might be different but 10%-20% international will not make a huge difference one way or the other.

The biggest thing is to save as much as you can and still enjoy life. We are never guarenteed anything in life and you never know when your life will come to an end.

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munemaker
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Re: Why international?

Post by munemaker » Tue Feb 12, 2019 4:06 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
Why then is international diversification touted by all the financial advisers and also on Bogleheads?
One word: Diversification

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stemikger
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Re: Why international?

Post by stemikger » Tue Feb 12, 2019 4:11 pm

I like what Jack has to say about this subject in this video:

https://www.youtube.com/watch?v=hvgptl5-Kcc
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

Jimmie
Posts: 431
Joined: Tue Mar 07, 2017 7:05 pm

Re: Why international?

Post by Jimmie » Tue Feb 12, 2019 4:22 pm

cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.
I am on the side of "pro US - anti-international". It just never made sense to me to bet against the US. There is too much negative potential for other countries when it comes to their economies.

My question to those who advocate international as "diversification", where does it end? "Total Solar System"? "Total Milky Way"? "Total Universe"?

Thanks, but I'm happy with a majority in Total US Stock and sleep very well every night, thanks.

X528
Posts: 96
Joined: Fri Nov 30, 2018 8:51 am

Re: Why international?

Post by X528 » Tue Feb 12, 2019 4:28 pm

munemaker wrote:
Tue Feb 12, 2019 4:06 pm
stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
Why then is international diversification touted by all the financial advisers and also on Bogleheads?
One word: Diversification

Diversification. Also look at what happened to Japan.

User avatar
tadamsmar
Posts: 8958
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Re: Why international?

Post by tadamsmar » Tue Feb 12, 2019 4:34 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
Am I missing something here?
You are missing the fact the having an allocation to international lowers overall trailing risk-adjusted returns. You are focusing 100% only on the trailing returns that you managed to find.

02nz
Posts: 3929
Joined: Wed Feb 21, 2018 3:17 pm

Re: Why international?

Post by 02nz » Tue Feb 12, 2019 4:51 pm

Jimmie wrote:
Tue Feb 12, 2019 4:22 pm
cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.
I am on the side of "pro US - anti-international". It just never made sense to me to bet against the US. There is too much negative potential for other countries when it comes to their economies.

My question to those who advocate international as "diversification", where does it end? "Total Solar System"? "Total Milky Way"? "Total Universe"?

Thanks, but I'm happy with a majority in Total US Stock and sleep very well every night, thanks.
(Emphasis mine) I think this line came from Warren Buffett but in any case it's a meaningless argument against international. Investing in international isn't betting "against" the U.S., unless maybe you overweight international (over 45% or so of stock allocation).

And could you be more specific about "too much negative potential" for other countries, and, more importantly, what gives you special insight into this negative potential that the markets haven't priced in? The U.S. was the engine of economic growth in the 20th century; it was not always so, and it may not always be so. All economies have positives and negatives. Without getting into politics, there's a pretty long list of things that could weigh on future U.S. economic growth, as well as positive factors. The same could be said of pretty much every major economy.

As for a Total Universe fund - talk about a straw man argument. But the day Vanguard offers such a fund I'll be happy to invest in it.

BoggledHead2
Posts: 558
Joined: Tue Jun 12, 2018 6:50 pm

Re: Why international?

Post by BoggledHead2 » Tue Feb 12, 2019 5:19 pm

sometimes US outperforms ... sometimes Asia/Europe/Emerging Markets will outperform ... the world is changing ... the US is changing ...

I'll just own everything and accept I can't predict the future.

UpperNwGuy
Posts: 3547
Joined: Sun Oct 08, 2017 7:16 pm

Re: Why international?

Post by UpperNwGuy » Tue Feb 12, 2019 5:20 pm

Jimmie wrote:
Tue Feb 12, 2019 4:22 pm
It just never made sense to me to bet against the US.
Huh? Who said anything about betting against the US?

Jimmie
Posts: 431
Joined: Tue Mar 07, 2017 7:05 pm

Re: Why international?

Post by Jimmie » Tue Feb 12, 2019 5:38 pm

UpperNwGuy wrote:
Tue Feb 12, 2019 5:20 pm
Jimmie wrote:
Tue Feb 12, 2019 4:22 pm
It just never made sense to me to bet against the US.
Huh? Who said anything about betting against the US?
You may consider that a poor choice of words, but I'm comfortable investing in my own country. To me, a dollar I don't invest in my own country is a dollar invested AGAINST my own country. I know, the home bias thing, but that's how I feel comfortable in my investment plan. To each, his own.

H-Town
Posts: 2754
Joined: Sun Feb 26, 2017 2:08 pm

Re: Why international?

Post by H-Town » Tue Feb 12, 2019 5:39 pm

Jimmie wrote:
Tue Feb 12, 2019 4:22 pm
cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.
I am on the side of "pro US - anti-international". It just never made sense to me to bet against the US. There is too much negative potential for other countries when it comes to their economies.

My question to those who advocate international as "diversification", where does it end? "Total Solar System"? "Total Milky Way"? "Total Universe"?

Thanks, but I'm happy with a majority in Total US Stock and sleep very well every night, thanks.
Why just not one state? Better yet, why just not one city? Don't bet against my city. See how ridiculous that sounds?

The good time to buy U.S. stock is decades ago. If you are buying U.S. stock now, you're holding the sticky-end of the deal. How to counteract it? Buy the entire world equity. [Drop mic].

hohum
Posts: 37
Joined: Thu Jan 03, 2019 2:34 pm

Re: Why international?

Post by hohum » Tue Feb 12, 2019 6:01 pm

I would agree that in theory international diversification makes sense. Except, the way we are told to practice it is by buying the global market weight portfolio. Which means most of the money goes into the international megacaps that are 99% correlated with US megacaps.

So where is the diversification benefit? If I'm going to buy a diversifier ... I want it to actually diversify. Otherwise, why bother?

VTI vs VEU: 0.89 (international)
VTI vs VSS: 0.87 (international small cap)
VTI vs VWO: 0.83 (emerging market)
VTI vs VNQI: 0.81 (international real estate)
VTI vs RSX: 0.74 (Russia)
VTI vs VNQ: 0.73 (US REITS !)
VTI vs TUR: 0.68 (Turkey)
VTI vs GLD: 0.03 (gold)

Note that US REITs are less correlated with the US stock market than international real estate is.
55% VOO 20% IAU 15% AVDV 10% EDV

lostdog
Posts: 2694
Joined: Thu Feb 04, 2016 2:15 pm

Re: Why international?

Post by lostdog » Tue Feb 12, 2019 6:02 pm

H-Town wrote:
Tue Feb 12, 2019 5:39 pm
Jimmie wrote:
Tue Feb 12, 2019 4:22 pm
cj2018 wrote:
Sun Aug 05, 2018 3:01 pm
I sleep very well at night having all my money in domestic equities - it's good enough for me. To keep this simple, having international exposure is simply a hedge against U.S. as a nation go bust. Is it a legit risk? Absolutely. How likely in you or my lifetime? Unlikely.

Hence, in my world, it's pointless to hedge against U.S. go bust and if that were to happen, I will have much bigger issue to worry about than my stock portfolio assuming you live and work in U.S.
I am on the side of "pro US - anti-international". It just never made sense to me to bet against the US. There is too much negative potential for other countries when it comes to their economies.

My question to those who advocate international as "diversification", where does it end? "Total Solar System"? "Total Milky Way"? "Total Universe"?

Thanks, but I'm happy with a majority in Total US Stock and sleep very well every night, thanks.
Why just not one state? Better yet, why just not one city? Don't bet against my city. See how ridiculous that sounds?

The good time to buy U.S. stock is decades ago. If you are buying U.S. stock now, you're holding the sticky-end of the deal. How to counteract it? Buy the entire world equity. [Drop mic].
+1

Why not just hold healthcare? Or Information Technology? Or Apple? Or...
Global Market Cap Equity || Taxable: VTSAX+VTIAX || IRA: VTWAX

welsie
Posts: 91
Joined: Tue Feb 12, 2019 6:11 pm

Re: Why international?

Post by welsie » Tue Feb 12, 2019 6:14 pm

SalarySlv wrote:
Mon Aug 06, 2018 10:16 am
Let me bring up a few points / counterppints in support of International that haven't been raised in this thread:

1) Different industry mix - the usual example given is that the majority of car manufacturers are international. Same for mining, finance, and a number of other industries. By not going international you are skewing your industry mix from total world market cap.

2) It's true that most large US Companies are in essence multinationals with many generating ~50% of profits outside the US. However, the same is true for international companies, they are multinationals that sell INTO the US. To use my previous example, by not going international you are missing out on Japanese/German car sales in the U.S., or on gains from the sale of Nintendo systems in the US, etc.

3) There is absolutely more room to grow internationally, especially in developing markets. We are talking about countries where growth rates are many multiples of what they are in the U.S., with millions of people being pulled out of poverty. These people will need diapers / AC / etc. In some of these countries, US companies have little or no presence, sometimes due to government interference.

4) Relating to point #3 above, many international companies have the explicit or implicit backing of local governments. China isn't going to let Alibaba or Tencent fail, and they'll do whatever they can to keep Google / Amazon out of China, including onerous regulations. Investing internationally gives you a piece of the pie protected by the interests of local governments.

Those are just a few points, even excluding the explicit bias / stock picking inherent in not investing in total world market cap.
+1

I think this is spot on.

UpperNwGuy
Posts: 3547
Joined: Sun Oct 08, 2017 7:16 pm

Re: Why international?

Post by UpperNwGuy » Tue Feb 12, 2019 6:22 pm

Jimmie wrote:
Tue Feb 12, 2019 5:38 pm
UpperNwGuy wrote:
Tue Feb 12, 2019 5:20 pm
Jimmie wrote:
Tue Feb 12, 2019 4:22 pm
It just never made sense to me to bet against the US.
Huh? Who said anything about betting against the US?
You may consider that a poor choice of words, but I'm comfortable investing in my own country. To me, a dollar I don't invest in my own country is a dollar invested AGAINST my own country. I know, the home bias thing, but that's how I feel comfortable in my investment plan. To each, his own.
That's just crazy talk! My 60/40 allocation includes 20% of stock going to international. I most certainly don't consider that to be betting against the US. Yes, you made a poor choice of words, a very poor choice. You can invest however you want, but don't accuse the rest of us of betting against the US. Geez....

andysnp
Posts: 29
Joined: Mon Aug 20, 2018 5:53 pm

Re: Why international?

Post by andysnp » Tue Feb 12, 2019 6:34 pm

I have read many of the arguments on this board from both sides, but I can't seem to get data for this simple question.

Does anyone have the data for how International Index has performed since 1900 or around that time, and how has that has compared to SNP?

I know I know, past doesn't guarantee future performance, and look at Japan, but I want the data so I know what is was.

Thanks!
Last edited by andysnp on Tue Feb 12, 2019 6:42 pm, edited 1 time in total.

User avatar
Taylor Larimore
Advisory Board
Posts: 29422
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Why international?

Post by Taylor Larimore » Tue Feb 12, 2019 6:40 pm

Why International?
stocknoob4111 :

You may find this post helpful:

How Much International Stock?
A Suggestion


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

visualguy
Posts: 1933
Joined: Thu Jan 30, 2014 1:32 am

Re: Why international?

Post by visualguy » Tue Feb 12, 2019 7:03 pm

andysnp wrote:
Tue Feb 12, 2019 6:34 pm
I have read many of the arguments on this board from both sides, but I can't seem to get data for this simple question.

Does anyone have the data for how International Index has performed since 1900 or around that time, and how has that has compared to SNP?

I know I know, past doesn't guarantee future performance, and look at Japan, but I want the data so I know what is was.

Thanks!
There was a study along these lines which was published in a book. It was quoted here in the past. I don't remember the details all that well, but I believe it showed that ex-US performed worse than US by a couple of percentage points a year over that long period. It's just a vague recollection, so don't quote me. Maybe someone can dig it up.

HEDGEFUNDIE
Posts: 4793
Joined: Sun Oct 22, 2017 2:06 pm

Re: Why international?

Post by HEDGEFUNDIE » Tue Feb 12, 2019 9:04 pm

hohum wrote:
Tue Feb 12, 2019 6:01 pm
I would agree that in theory international diversification makes sense. Except, the way we are told to practice it is by buying the global market weight portfolio. Which means most of the money goes into the international megacaps that are 99% correlated with US megacaps.

So where is the diversification benefit? If I'm going to buy a diversifier ... I want it to actually diversify. Otherwise, why bother?

VTI vs VEU: 0.89 (international)
VTI vs VSS: 0.87 (international small cap)
VTI vs VWO: 0.83 (emerging market)
VTI vs VNQI: 0.81 (international real estate)
VTI vs RSX: 0.74 (Russia)
VTI vs VNQ: 0.73 (US REITS !)
VTI vs TUR: 0.68 (Turkey)
VTI vs GLD: 0.03 (gold)

Note that US REITs are less correlated with the US stock market than international real estate is.
What is interesting to me is that the high correlations between international and US only started after the financial crisis. Would love to hear speculation why this happened, and what might cause this to change going forward.

asif408
Posts: 1958
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Why international?

Post by asif408 » Tue Feb 12, 2019 10:07 pm

andysnp wrote:
Tue Feb 12, 2019 6:34 pm
I have read many of the arguments on this board from both sides, but I can't seem to get data for this simple question.

Does anyone have the data for how International Index has performed since 1900 or around that time, and how has that has compared to SNP?

I know I know, past doesn't guarantee future performance, and look at Japan, but I want the data so I know what is was.

Thanks!
Try the Credit Suisse annual yearbook:
https://www.credit-suisse.com/media/ass ... y-2018.pdf

There was no international index before 1970, but this has individual country returns.

pdavi21
Posts: 1296
Joined: Sat Jan 30, 2016 4:04 pm

Re: Why international?

Post by pdavi21 » Tue Feb 12, 2019 10:17 pm

stocknoob4111 wrote:
Sun Aug 05, 2018 1:58 pm
...could not find any time period 5 years or longer where International performance exceeded domestic.
Did you check the future?
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

lostdog
Posts: 2694
Joined: Thu Feb 04, 2016 2:15 pm

Re: Why international?

Post by lostdog » Wed Feb 13, 2019 9:16 am

Investing in the rear view mirror.
Recency bias.
Jack and Warren said so.
Personal biases.
Ideologies.
Political reasons.
Countries outide of the U.S. are corrupt.



I don't invest on any of these. Logic,reason and accepting that I cannot beat the market brings me to world market cap.
Last edited by lostdog on Wed Feb 13, 2019 9:22 am, edited 1 time in total.
Global Market Cap Equity || Taxable: VTSAX+VTIAX || IRA: VTWAX

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