thoughts on international funds

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TNOA
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Re: thoughts on international funds

Post by TNOA » Thu Aug 08, 2019 9:23 pm

abuss368 wrote:
Thu Aug 08, 2019 8:44 pm
Stay the course.
In case you've missed it, ... discussing what that course is: are you saying, 40% of equities into VXUS? Okay, got it. I agree. Stay the course!

visualguy
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Re: thoughts on international funds

Post by visualguy » Thu Aug 08, 2019 11:09 pm

nisiprius wrote:
Thu Aug 08, 2019 9:13 pm
jhawktx wrote:
Wed Aug 07, 2019 1:41 pm
...Given the higher cost associated with international, it is unlikely to perform better than US over the very long term for a US investor. You have to decide if the lower international return is worth it for the additional diversification...
I'm pretty skeptical about international stocks, but I don't think this argument holds water any more. The difference in costs--for big, low-cost index funds--have become, in my personal opinion, negligible.

To take one example, the expense ratios for the Vanguard Total [US] Stock Market Index Fund and the Vanguard International Stock Index Fund, VTSAX and VTIAX, are 0.04% and 0.11%, respectively. 0.07% difference.

To take another one, almost too obvious, the expense ratios for the Fidelity Zero Total [US] Market Index Fund and the Fidelity Zero Total International Index Fund, FZROX and FZILX, are... zero and zero, respectively, representing a difference of... zero.

Even if we get a bit exotic, the expense ratios for the DFA US Small-Cap Value Portfolio and the DFA International Small-cap Value Portfolio, DFSVX and DISVX, are 0.52% and 0.68%, a difference of 0.16%. That's not an awful lot.

It wouldn't take a very high conviction in the value of international diversification to think it might be worth an extra 0.07% or 0.16% on half of your portfolio. To say nothing of zero.
The problem is that there are other costs/inefficiencies, such as foreign taxes and currency valuations. The expense ratio difference isn't the big hit.

One thing that always frustrated me is the difference between the returns of native country indexing, and what you get from US ETFs/mutual funds when indexing those countries.

This is already bad-enough, but there are further reasons from my perspective for staying away, and those have been discussed enough in other threads on this topic.

mbasherp
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Re: thoughts on international funds

Post by mbasherp » Fri Aug 09, 2019 12:19 am

Returns aside, as a matter of logic:

I am comfortable with my parents holding nearly all US stocks. They are approaching retirement and their time horizon is much shorter than mine. No matter what, they’ll likely be fine.

I would be a fool to expect US outperformance for my investing horizon of 60+ years. There are too many obvious risks, demonstrated throughout history, to tying all investments to one economy, currency, political system and geography.

I am not chasing performance with international. I am mitigating risk. By my definition of risk, a US only portfolio of stocks and bonds for 60 years is FAR more risky than even 100% globally diversified stocks. Volatility and risk are not the same. I invest according to my risk tolerance.

Northern Flicker
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Re: thoughts on international funds

Post by Northern Flicker » Fri Aug 09, 2019 2:42 am

Vanguard's expense ratio on their US total stock index fund is 0.04 (or 0.03 for their equivalent ETF).

Vanguard's ER on their int'l fund = 0.11 (or 0.09 for the equivalent ETF).

So, Vanguard is economically incentivized to tilt as much as possible to International as possible (that is, as much as possible while still keeping a straight face). Given this conflict of interest, can we really trust Vanguard's recommendation here? I mean, the more we tilt to Int'l, the more Vanguard makes.
Huh? The ERs are expenses, not net profits. Vanguard gets no extra benefit from having more assets in non-US equity funds.

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Re: thoughts on international funds

Post by Northern Flicker » Fri Aug 09, 2019 2:55 am

I think much of the international ballyhoo is because many on this board have lost so much money vs the US over the last decade they are bitter and want to prove they were right from a theoretical standpoint. Those people will never in their lifetimes regain the losses they have incurred by stubbornly insisting on holding higher expense funds holding international stocks. Sad, but true.
Certainly not true of myself. Holding 75% US and 25% int’l, I certainly hope the US doesn't underperform over my lifetime. I hold non-US stocks to diversify inflation risk. From 1967 to 1981 the total real (inflation-corrected) return of the broad US stock market was zero. That’s with dividends reinvested too.

Developed markets int’l stocks slaughtered US stocks during that inflationary period, significantly outperforming US inflation (i.e. a robust positive real return). I hold developed markets int’l stocks (no emerging markets) because I have more faith in them holding up if the US has a major inflationary period. But the Vanguard developed markets index fund includes equities from Canada, S. Korea, and Poland (unlike a MSCI EAFE fund) so it’s about 82% of the total int’l index anyway.

Valuethinker
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Re: thoughts on international funds

Post by Valuethinker » Fri Aug 09, 2019 4:33 am

tea_pirate wrote:
Thu Aug 08, 2019 1:48 pm
I'm genuinely curious here, have you ever left the US? Like for anything more than some tourist trap vacation.
Unfortunately this subject area brings out the "little Englander" in Americans ;-).

We are enjoying the climax of that sentiment here, in the UK but let's avoid politics. By contrast UK financial markets have always been internationalised and that is particularly so now (the FTSE 100 is heavily weighted towards global companies; indeed they've recreated the FTSE 30 (abandoned as an index in favour of the F100 and the FTSE All-Share in 1984), I believe, to try to get an index which is more reflective of the UK domestic economy).

If you believe in efficient markets you should believe that the market can correctly price deficiencies in non US stock market listed companies. That the valuation should be lower. By and large, it is.

For an international investor global weighting is the best practical solution. Unless you buy currency-hedged equity funds (and that has a long term performance cost/ drag) you cannot hedge your FX exposure by holding your home market -- and if you do want to do that, you'd be better off holding the global index hedged into your domestic index.

There are arguments about dividend withholding tax & credits which I won't get into here, they vary by pairs of country.

For an American investor, with c. 60% of developed markets being their own index, it's a sin not to own international, but it's likely to not be a venal sin.

The empirical data says the best risk return tradeoff, historically, for a US based investor was somewhere between 20 & 40% of equity portfolio in international stocks (unhedged currency). Given the volatility, it's perfectly reasonable to aim at the low end of that.

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hisdudeness
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Re: thoughts on international funds

Post by hisdudeness » Fri Aug 09, 2019 5:36 am

tea_pirate wrote:
Thu Aug 08, 2019 1:48 pm
jhawktx wrote:
Thu Aug 08, 2019 1:21 pm
tea_pirate wrote:
Thu Aug 08, 2019 7:02 am
jhawktx wrote:
Wed Aug 07, 2019 7:09 pm
vineviz wrote:
Wed Aug 07, 2019 1:44 pm


Such a statement should be very easy to support or refute with evidence. Is there any evidence that would support this hypothesis?
Evidence? Instead of that, let's use common sense. Is there any reason to believe international will outperform (BEFORE taxes and expenses) the US total stock market over the period 2020-2200 for a US based investor? If the answer is no, we don't need anymore evidence and common sense will suffice. If it is a wash BEFORE taxes and expenses then the US clearly outperforms AFTER taxes and expenses for the US based investor. How much are you willing to underperform vs US to get your holy grail of diversification? I think much of the international ballyhoo is because many on this board have lost so much money vs the US over the last decade they are bitter and want to prove they were right from a theoretical standpoint. Those people will never in their lifetimes regain the losses they have incurred by stubbornly insisting on holding higher expense funds holding international stocks. Sad, but true.
Thanks for the laugh!

I haven't seen a post more worthy of saving to reference in the eventual "International: We Told You So" thread, so expect to see this one again in the future.
Which part do you find most hilarious? Is it the part about international being more expensive than US for US investors? It is a true statement of course.

Is it the part about there is no reason to believe the US will do better or worse than international over the next 180 years? Absent a crystal ball I think the safest assumption is they will perform equally BEFORE taxes and expenses. Maybe you get a good belly laugh from that. Not sure why.

Is it the part about a US based investor having to pay more in order to have international diversification? That is
also a true statement of course.

Keep laughing.
You're right, international does cost more to hold. A whopping 7 basis points more expensive to hold. How will my portfolio ever recover from that insane 0.11% expense ratio on VTIAX?

I'm genuinely curious here, have you ever left the US? Like for anything more than some tourist trap vacation.
I've got it now: International investing, like international travel, is good for the ego.

cheerfulcharlie
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Re: thoughts on international funds

Post by cheerfulcharlie » Fri Aug 09, 2019 11:58 am

tibbitts wrote:
Thu Aug 08, 2019 9:20 pm
I'm not sure it's an economic incentive for Vanguard to tilt one way or another. Even discounting the "profit" issue, you can't conclude anything from the gross amount/percentage taken in without considering the expenses incurred.
You and others have convinced me. I eat my humble pie. I was just being paranoid.

ERs are just one piece of the puzzle. A bigger ER doesn't necessarily point to a higher profit. Given how Vanguard sets ERs, a higher ER is most likely simply due to higher expenses. Indeed, Vanguard's policy requires that ERs track actual fund expenses (although I acknowledge that VG did revise their policies to allow them the ability to make limited deviations from this edict to respond to certain competitive pressures in the marketplace as necessary where competitors may play funny business with their own ERs).

So, encouraging a tilt to Int'l (and thus a fund with higher ERs) doesn't necessarily point to a higher profit for VG.

But, I'm glad everyone chimed in. Everyone's feedback is helpful in assuaging my paranoia about such things.

atdharris
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Re: thoughts on international funds

Post by atdharris » Fri Aug 09, 2019 1:25 pm

Northern Flicker wrote:
Fri Aug 09, 2019 2:55 am
I think much of the international ballyhoo is because many on this board have lost so much money vs the US over the last decade they are bitter and want to prove they were right from a theoretical standpoint. Those people will never in their lifetimes regain the losses they have incurred by stubbornly insisting on holding higher expense funds holding international stocks. Sad, but true.
Certainly not true of myself. Holding 75% US and 25% int’l, I certainly hope the US doesn't underperform over my lifetime. I hold non-US stocks to diversify inflation risk. From 1967 to 1981 the total real (inflation-corrected) return of the broad US stock market was zero. That’s with dividends reinvested too.

Developed markets int’l stocks slaughtered US stocks during that inflationary period, significantly outperforming US inflation (i.e. a robust positive real return). I hold developed markets int’l stocks (no emerging markets) because I have more faith in them holding up if the US has a major inflationary period. But the Vanguard developed markets index fund includes equities from Canada, S. Korea, and Poland (unlike a MSCI EAFE fund) so it’s about 82% of the total int’l index anyway.
The world in 1967 was not nearly as interconnected as it is today, so international outperforming made sense given the US was bogged down in an unwinnable war and fighting off the USSR at the same time. There were very few US multinationals. The same is not true today, where nearly half of the earnings from the S&P 500 are from foreign markets.

I agree with holding 25% or so in foreign equities, but I do not really expect a significant outperformance in my lifetime. I do hope someday they will at least keep pace with US equities, but they have yet to even take out their 2007 highs, but less catch the US.

Northern Flicker
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Re: thoughts on international funds

Post by Northern Flicker » Fri Aug 09, 2019 5:19 pm

The world in 1967 was not nearly as interconnected as it is today, so international outperforming made sense given the US was bogged down in an unwinnable war and fighting off the USSR at the same time. There were very few US multinationals. The same is not true today, where nearly half of the earnings from the S&P 500 are from foreign markets.
I agree. Also, in 1967 it was difficult and expensive for a US investor to hold int’l equities. What matters is the currency of the trade not just the market. Lots of commodities and oil are priced in dollars. Despite the changes in the world over the last 50 years, I still believe that an American is significantly less exposed to the risk of inflation holding some non-US equities vs an all-US portfolio.

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abuss368
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Re: thoughts on international funds

Post by abuss368 » Fri Aug 09, 2019 7:17 pm

TNOA wrote:
Thu Aug 08, 2019 9:23 pm
abuss368 wrote:
Thu Aug 08, 2019 8:44 pm
Stay the course.
In case you've missed it, ... discussing what that course is: are you saying, 40% of equities into VXUS? Okay, got it. I agree. Stay the course!
As Jack Bogle has said countless times “stay the course”. No one knows in advance what funds or asset class will work over the long term. One is probably fine with or without international.
Last edited by abuss368 on Fri Aug 09, 2019 11:48 pm, edited 1 time in total.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

jibantik
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Re: thoughts on international funds

Post by jibantik » Fri Aug 09, 2019 7:45 pm

abuss368 wrote:
Fri Aug 09, 2019 7:17 pm
TNOA wrote:
Thu Aug 08, 2019 9:23 pm
abuss368 wrote:
Thu Aug 08, 2019 8:44 pm
Stay the course.
In case you've missed it, ... discussing what that course is: are you saying, 40% of equities into VXUS? Okay, got it. I agree. Stay the course!
As Jack Bogle has said countless times “stay the course”. No one knows in advance what funds or asset class will work over the long term. One is probably fine with out without international.
Maybe... maybe not. For some of the older folks on this forum, sure if you have 10 years investment lifetime left, OK. But, it's disgraceful that some members tell young people, with a 60 year investment horizon, to be 100% US. That is DANGEROUS. And it's unacceptable to give that kind of advice to a young person new to investing.

Has anyone on this forum ever seen a good argument as to why we should deviate from the null position (investing at market weight) to slice and dice. The only arguments I see people bring up are based on past performance, american exceptionalism bias, and sometimes anecdotes of people who went to France for a week and felt like the workers took too long of a lunch break therefore they are now an expert on how thousands of international companies will perform decades into the future.

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Taylor Larimore
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Re: Thoughts on international funds

Post by Taylor Larimore » Fri Aug 09, 2019 10:21 pm

jibantik wrote:
Fri Aug 09, 2019 7:45 pm

Has anyone on this forum ever seen a good argument as to why we should deviate from the null position (investing at market weight) to slice and dice. The only arguments I see people bring up are based on past performance, american exceptionalism bias, and sometimes anecdotes of people who went to France for a week and felt like the workers took too long of a lunch break therefore they are now an expert on how thousands of international companies will perform decades into the future.
jibantik:

Please read my Opening Post (OP) in this Conversation.

Why Mr. Bogle Prefers U.S. Stocks

Please note that Mr. Bogle's reasons for preferring U.S. stocks has nothing to do with past performance or "American exceptionalism.

Best wishes.
Taylor
Mr. Bogle's Words of Wisdom: "In my book, 'Bogle on Mutual Funds,' I said, for a lot of reasons, you don't need to own international stock." (He's been right since he wrote the book in 1993).
"Simplicity is the master key to financial success." -- Jack Bogle

stocknoob4111
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Re: thoughts on international funds

Post by stocknoob4111 » Sat Aug 10, 2019 12:10 am

International is performing very poorly right now... I have a Emerging market fund that I bought in Jan 2018 and it's still negative, infact, it hasn't been positive ever in the last 18 months. The expert thesis is that International will outperform in the next decade due to low starting valuations. The counter to that is that those valuations are in line with history i.e. International valuations have always been much lower than US so they aren't particularly low by historical standards and therefore International will continue to bleed money.

Northern Flicker
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Re: thoughts on international funds

Post by Northern Flicker » Sat Aug 10, 2019 2:06 am

International is performing very poorly right now...
Your posting was at 10:10pm on 8/9/19. Markets were closed at that time. How could int’l equities have been performing very poorly at that point in time?

jibantik
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Re: Thoughts on international funds

Post by jibantik » Sat Aug 10, 2019 1:17 pm

Taylor Larimore wrote:
Fri Aug 09, 2019 10:21 pm
jibantik wrote:
Fri Aug 09, 2019 7:45 pm

Has anyone on this forum ever seen a good argument as to why we should deviate from the null position (investing at market weight) to slice and dice. The only arguments I see people bring up are based on past performance, american exceptionalism bias, and sometimes anecdotes of people who went to France for a week and felt like the workers took too long of a lunch break therefore they are now an expert on how thousands of international companies will perform decades into the future.
jibantik:

Please read my Opening Post (OP) in this Conversation.

Why Mr. Bogle Prefers U.S. Stocks

Please note that Mr. Bogle's reasons for preferring U.S. stocks has nothing to do with past performance or "American exceptionalism.

Best wishes.
Taylor
Mr. Bogle's Words of Wisdom: "In my book, 'Bogle on Mutual Funds,' I said, for a lot of reasons, you don't need to own international stock." (He's been right since he wrote the book in 1993).
I did read that and even the first point was american exceptionalism bias. Here is point one:
1. "Here in the United States we have, at least at the moment, the most productive economy, the greatest innovation, the most hospitable legal environment, and the fines capital markets on the globe."
Most of it is subjective, and I think some of it is even objectively wrong. Even IF point one were true, why is that not priced in already? Is it some secret that only Bogleheads know that the market doesn't?

Also, be careful with saying Bogle was "right" about US and international. You seem to be implying that because US outperformed international (in whatever window you are talking about) that means investing only in US was the right decision. That is confusing outcome with strategy. Otherwise, you would need to say that putting all your retirement on AAPL was the right decision, in which case Bogle would have been wrong.

TNOA
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Re: thoughts on international funds

Post by TNOA » Sun Aug 11, 2019 7:14 pm

abuss368 wrote:
Fri Aug 09, 2019 7:17 pm
TNOA wrote:
Thu Aug 08, 2019 9:23 pm
abuss368 wrote:
Thu Aug 08, 2019 8:44 pm
Stay the course.
In case you've missed it, ... discussing what that course is: are you saying, 40% of equities into VXUS? Okay, got it. I agree. Stay the course!
As Jack Bogle has said countless times “stay the course”. No one knows in advance what funds or asset class will work over the long term. One is probably fine with or without international.
Honestly, still struggling with the whole International topic. I simply just cannot imagine in the life of me not having invested in The World and when I say that, roughly sticking to the allocations offered by VT. Just, through the lens of diversifying, I can't think of any other way (accordingly, have 40% of my stocks in VXUS). I am very aware of tons of pages of discussion on the topic, and certainly 20% being the key number on the low end, and high end depending on which camp you belong. But I so have the intuition that the world investment is the way to go. But after so many years, I certainly have not been rewarded for 40% VXUS in my stocks portfolio (55%/45% stocks/bonds = my allocation). I am still thinking at some point future may look different than past performance and sticking with it. Yet, certainly, I am being "tested" after so many years.

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abuss368
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Re: thoughts on international funds

Post by abuss368 » Sun Aug 11, 2019 7:51 pm

TNOA wrote:
Sun Aug 11, 2019 7:14 pm
abuss368 wrote:
Fri Aug 09, 2019 7:17 pm
TNOA wrote:
Thu Aug 08, 2019 9:23 pm
abuss368 wrote:
Thu Aug 08, 2019 8:44 pm
Stay the course.
In case you've missed it, ... discussing what that course is: are you saying, 40% of equities into VXUS? Okay, got it. I agree. Stay the course!
As Jack Bogle has said countless times “stay the course”. No one knows in advance what funds or asset class will work over the long term. One is probably fine with or without international.
Honestly, still struggling with the whole International topic. I simply just cannot imagine in the life of me not having invested in The World and when I say that, roughly sticking to the allocations offered by VT. Just, through the lens of diversifying, I can't think of any other way (accordingly, have 40% of my stocks in VXUS). I am very aware of tons of pages of discussion on the topic, and certainly 20% being the key number on the low end, and high end depending on which camp you belong. But I so have the intuition that the world investment is the way to go. But after so many years, I certainly have not been rewarded for 40% VXUS in my stocks portfolio (55%/45% stocks/bonds = my allocation). I am still thinking at some point future may look different than past performance and sticking with it. Yet, certainly, I am being "tested" after so many years.
Well said. Yes, it has definitely been testing and trying during this stretch. I too am hoping that at some point it is a different investment environment internationally.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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