VTIAX International fund - should I give up on it?

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bloom2708
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Re: VTIAX International fund - should I give up on it?

Post by bloom2708 » Wed Sep 25, 2019 3:07 pm

"They're just riskier and you < > get a premium for the risk."

I think there is a word missing. "could", "might", "maybe".

Not all risk is rewarded.
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TomCat96
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Re: VTIAX International fund - should I give up on it?

Post by TomCat96 » Wed Sep 25, 2019 4:07 pm

305pelusa wrote:
Wed Sep 25, 2019 2:36 pm
TomCat96 wrote:
Wed Sep 25, 2019 1:31 pm
Here's how you can argue if you want to say International will outperform:
International Markets are Superior. Market efficiency is limited.

By that logic, one could only argue that stocks have higher expected returns than bonds because *Stocks are Superior*.

But stocks aren't superior. They're just riskier and you get a premium for the risk. International right now IS riskier; it has a much bleaker future, the nations don't have the certainty of American stocks and more. So you should be rewarded for that. The market currently IS rewarding that via more attractive valuation.
TomCat96 wrote:
Wed Sep 25, 2019 1:31 pm
First, if this argument had any real teeth, the logical conclusion would be to go all in on International. Why invest in America at all?
If all you care about is higher returns without regards for risk, then yes go all in on International small cap value. But most of us want a mix of diversification and high returns: So we invest in assets with lower returns (bonds, US stocks) to bring down the risk and increase our risk-adjusted returns.
TomCat96 wrote:
Wed Sep 25, 2019 1:31 pm
The PhDs pushing the idea International is going to outperform the US would continue investing in International until the expected outperformance reaches "parity" with the US.
Nonsense. We all know stocks have higher expected returns than bonds. How come people don't "continue to invest in stocks until the expected outperformance reaches parity with bonds?"

Because you're completely ignoring the concept of RISK. Seriously, you're entire reply only looks at things from "returns" but ignores risk.
It was my understanding that the argument of the International crowd was never more risk more reward.

Indeed there is a difference between risk-adjusted reward. But the comparison of US stock to International stock has always been apples to apples. If you want to move the forum of the argument to apple to oranges, that is fine. But be ready to accept the ramifications of that.

You see once you say that International stocks are different from US stocks in the same way that Stocks and Bonds are not the same, the question is then not so much about International vs US, but rather why aren't you using the market's portfolio balance of Stocks to Bonds.

Global bond markets exceed stocks in size. If you use the argument of the Wisdom of the market's asset allocation as a rationale for 55/45, then it is completely inconsistent to turn around and say you're going to ignore the market's allocation of bonds to stocks. In fact, by this measure you should be 39% stocks, 61% bonds. Who are you to dare to buck the wisdom of the market? Doesn't the market know best?

Under that rationale, all of us should be 20% US stocks 19% international, and 61% bonds. Anything is just asking for it, bucking the wisdom of the market, and ignoring the rationale that none of us know anything.

https://www.fool.com/knowledge-center/5 ... -know.aspx


By arguing that International Stocks belong in the different risk class, the same way stocks and bonds belong in different risk classes, you open yourself to the criticism of forcing the international portfolio allocation, but selectively leaving out the same reasoning to stocks vs bonds.

tibbitts
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Re: VTIAX International fund - should I give up on it?

Post by tibbitts » Wed Sep 25, 2019 4:33 pm

305pelusa wrote:
Wed Sep 25, 2019 2:36 pm
International right now IS riskier; it has a much bleaker future, the nations don't have the certainty of American stocks and more. So you should be rewarded for that. The market currently IS rewarding that via more attractive valuation.
But certainly there was a recent time when Japanese stocks were widely perceived to be less risky than the facing-a-bleak-future US stocks, and those stocks were rewarded with appropriate valuations. They had the "certainty" of Japanese stocks - the superior Japanese culture and economic model that we were taught about in economics classes - going for them, after all. Until they didn't

bluquark
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Re: VTIAX International fund - should I give up on it?

Post by bluquark » Wed Sep 25, 2019 5:00 pm

I think the stock/bond AA connection is onto something, but my line of thinking goes somewhere different with it.

Modern research is increasingly pointing to the idea that the investor population's "desire to take risk" drives the equity risk premium, rather than predictions about the future: https://www.economist.com/finance-and-e ... et-returns

Given this, it could be simply that European/Japanese investors have less appetite to take risk than US investors do, and there isn't enough internationally mobile capital out there to make up the difference. In Europe today, bond valuations are high (negative yields) and equity valuations are low (30% lower P/E). It indicates that the average European investor's AA is probably more conservative than the average US investor's. This hypothesis neatly explains all of the international debates we're having lately on the forum.

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ruralavalon
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Re: VTIAX International fund - should I give up on it?

Post by ruralavalon » Wed Sep 25, 2019 5:46 pm

Jozxyqk wrote:
Wed Sep 25, 2019 12:48 pm
ruralavalon wrote:
Wed Sep 25, 2019 11:07 am
bogledogle87 wrote:
Tue Sep 24, 2019 10:53 am
ruralavalon wrote:
Sun Sep 22, 2019 10:50 am
Ipse dixit.
jibantik wrote:
Sat Sep 21, 2019 7:55 pm
The default, null position is to hold market weight. To speculate against that places the burden of proof on YOU.

. . .
Why is it that "The default, null position is to hold market weight"?

It's not true just because you say it is so. What is your reason for that opinion?
This is a great question that I would like to counter with another question - What else is a reasonable default - if not market cap weighted indexing?

If your goal is to capture the market in the most unbiased way possible, what alternatives exist beyond market weighting? I'm not saying there isn't one, I just can't come up with one myself that doesn't involve carrying more 'burden of proof' than exceeds my comfort level.
The reason to have an international stock allocation is for diversification. I look at the magnitude of the diversification benefit, and what it takes to capture the bulk of that benefit.
I don't think you've responded to the question. Your analysis assumes that the default position is investing in the companies of a single nation, and that holding any companies located in any other country requires additional justification.

Why is that? You might as well be saying "My core position is AAPL. The reason to [invest in other equities] is for diversification. I look at the magnitude of the diversification benefit, and what it takes to capture the bulk of that benefit."
Who would add any type of fund to their portfolio unless they reasonably expected some benefit from owning the fund?

I expect diversification from owning Vanguard Total International Stock Index Fund (VTIAX) in our porfolio. My default is the lower end of the 20-50% range of international stock allocation, because that has captured most of the diversification benefit.

Our asset allocation is about 25% of stocks in international stocks.

In my opinion the 2008 viewpoint is still good -- "Empirical and practical issues suggest a starting allocation to international stocks of 20%, with an upper limit based on the proportion of the global market they represent". I personally prefer the lower end of that range, thinking there is no reason to take extra international-related risks (like currency risk, political risk) for little or no readily apparent benefit.
Last edited by ruralavalon on Wed Sep 25, 2019 6:06 pm, edited 1 time in total.
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Elysium
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Re: VTIAX International fund - should I give up on it?

Post by Elysium » Wed Sep 25, 2019 6:01 pm

vineviz wrote:
Wed Sep 25, 2019 8:32 am
Elysium wrote:
Wed Sep 25, 2019 6:42 am
305pelusa wrote:
Tue Sep 24, 2019 3:57 pm
Only if you consider "Vanguard" to be "no one".
Absurd claim. If they did it is a dumb thing to do. What they have likely done is valuation based forecasts, I would have expected someone on this forum to know the difference between expected returns from two assets vs. valuation based forecasts. First one, doesn't of course look at current valuations or try to forecast future prices based on it, instead look at expected returns using standard accepted formulas. There is absolutely no reason for EAFE to have higher expected returns than US. Valuation based future forecasts is anyone's guess, and not worth very much in the context of portfolio planning.
Current valuations are ABSOLUTELY one of the inputs required to create a rational estimate for expected return.

If you truly don't believe that, I've got 1,000 shares of Coca-Cola (KO) that I'd be happy to sell you at $160/share. Your expected return is the same at $160 as it would be at $55, right?
According to that logic, you must expect EAFE to return higher than US at current valuations since US has performed far better than EAFE over the last 10 years, making EAFE valuation cheaper. But, how would you use that information in constructing a portfolio to determine allocation to US vs EAFE. Will you hold higher allocation to EAFE than US since it has higher expected returns, and for similar amount of risk? Why not? if you have an asset at higher expected returns for same level of risk you should hold more of it. That method is called market timing.

The other method is looking at expected returns given the risk premium for comparable indexes overseas and in US over risk-free returns. That is the equity premium you expect out of securities with similar level of risk.

Using your logic, you must be selling off (not owning any) the $160 Coca-cola shares and buying only cheaper securities, instead of passively holding index funds according to an IPS.

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Re: VTIAX International fund - should I give up on it?

Post by LFKB » Wed Sep 25, 2019 6:09 pm

VTIAX has been pretty frustrating but I fell below my allocation for international recently and bought another $25k today. It wasn't fun to do, but long term, it felt like the right move.

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305pelusa
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Re: VTIAX International fund - should I give up on it?

Post by 305pelusa » Wed Sep 25, 2019 6:10 pm

TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
It was my understanding that the argument of the International crowd was never more risk more reward.
The argument for International is and always will be diversification.
I'm not arguing you should invest more or less in International because it has more rewards or not. Valuations will change so it's possible roles will reverse in the future. Also, who am I to tell you how much return or risk to target?

I am simply making the observation that, currently, you'll get about 6.5 dollars of earnings for every 100 dollars put in Int stocks. On the other hand, you only get 3.25 dollars of earnings for the same 100 dollar investment in US stocks. International is yielding more. The only logical explanation is that those 6.5 dollars of earnings are subject to much more future risk and future uncertainty than the American 3.25. Otherwise, it'd be a free lunch 0_o
TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
But be ready to accept the ramifications of that.
Bring 'em.
TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
You see once you say that International stocks are different from US stocks in the same way that Stocks and Bonds are not the same,
By the way, I make this claim for EVERY asset. Corporate bonds aren't exactly treasuries. Emerging bonds aren't developed market bonds. Int stocks aren't US stocks. Instead, think of every asset as an investment with its own unique risk and return characteristics that can change with time. Never again will you ask yourself "are junk bonds bonds or stocks? What about preferred stocks? What about emerging market bonds?".

Instead, decompose it into its expected returns and risk. Once you do that, you can work with any asset class.
TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
Global bond markets exceed stocks in size. If you use the argument of the Wisdom of the market's asset allocation as a rationale for 55/45, then it is completely inconsistent to turn around and say you're going to ignore the market's allocation of bonds to stocks. In fact, by this measure you should be 39% stocks, 61% bonds. Who are you to dare to buck the wisdom of the market? Doesn't the market know best?
If your desired risk and returns happens to match the global portfolio, then you should use the global portfolio since we know it is on the efficient frontier.

If you want to target higher returns, you could do it two ways: Tilt towards International (based on current valuations) while maintaining the same allocation to bonds, or increase stocks while decreasing the bond allocation. The former should generally be superior because the correlation between US and Int stocks is high while the correlation to bonds is low. So the portfolio should be more efficient by maintaining the bond allocation high (risk parity).

This is why it's silly to sell International and stick to US stocks. If you did it for rational reasons (wanting to target lower risk), you're probably better off just leaving international alone and increasing the bond allocation. But I suspect the reasons for fully selling International and using only US have nothing to do with rational desires to lower risk and most likely have to do with personal biases, belief that US exceptionalism will mean higher returns that the market has not factored in, and so on.

Elysium
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Re: VTIAX International fund - should I give up on it?

Post by Elysium » Wed Sep 25, 2019 6:12 pm

305pelusa wrote:
Wed Sep 25, 2019 7:40 am
Elysium wrote:
Wed Sep 25, 2019 6:42 am
305pelusa wrote:
Tue Sep 24, 2019 3:57 pm
Only if you consider "Vanguard" to be "no one".
Absurd claim. If they did it is a dumb thing to do. What they have likely done is valuation based forecasts, I would have expected someone on this forum to know the difference between expected returns from two assets vs. valuation based forecasts. First one, doesn't of course look at current valuations or try to forecast future prices based on it, instead look at expected returns using standard accepted formulas. There is absolutely no reason for EAFE to have higher expected returns than US. Valuation based future forecasts is anyone's guess, and not worth very much in the context of portfolio planning.
Name one "standard accepted formula" for determining future expected returns that is not valuations or fundamentals-based please.

Valuations-based forecasts have been consistently by Rick Ferri, William Bernstein, Larry Swedroe, David Swensen and even Jack Bogle himself. And they tend to be predict reasonably well over the long term. It's certainly not "anyone's guess"; if anything, it's about one of the best guesses one can make for long term returns
Do you also alter your asset allocation then based on changing valuations? if not, why not?

If you believe equity premium over risk-free rate is same for securities with similar amount of risk, whether they are domiciled in EAFE or US, then what you have left is only diversification benefit, and a small diversification-premium in theory. Your AA is fixed already based on how much equity risk you need to take, and not based on future returns forecasts.

If you are a market timer, or change your AA based on future forecasts then all bets are off, you can tinker away as you like.

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305pelusa
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Re: VTIAX International fund - should I give up on it?

Post by 305pelusa » Wed Sep 25, 2019 6:30 pm

Elysium wrote:
Wed Sep 25, 2019 6:12 pm
305pelusa wrote:
Wed Sep 25, 2019 7:40 am
Elysium wrote:
Wed Sep 25, 2019 6:42 am
305pelusa wrote:
Tue Sep 24, 2019 3:57 pm
Only if you consider "Vanguard" to be "no one".
Absurd claim. If they did it is a dumb thing to do. What they have likely done is valuation based forecasts, I would have expected someone on this forum to know the difference between expected returns from two assets vs. valuation based forecasts. First one, doesn't of course look at current valuations or try to forecast future prices based on it, instead look at expected returns using standard accepted formulas. There is absolutely no reason for EAFE to have higher expected returns than US. Valuation based future forecasts is anyone's guess, and not worth very much in the context of portfolio planning.
Name one "standard accepted formula" for determining future expected returns that is not valuations or fundamentals-based please.

Valuations-based forecasts have been consistently by Rick Ferri, William Bernstein, Larry Swedroe, David Swensen and even Jack Bogle himself. And they tend to be predict reasonably well over the long term. It's certainly not "anyone's guess"; if anything, it's about one of the best guesses one can make for long term returns
Do you also alter your asset allocation then based on changing valuations? if not, why not?

If you believe equity premium over risk-free rate is same for securities with similar amount of risk, whether they are domiciled in EAFE or US, then what you have left is only diversification benefit, and a small diversification-premium in theory. Your AA is fixed already based on how much equity risk you need to take, and not based on future returns forecasts.

If you are a market timer, or change your AA based on future forecasts then all bets are off, you can tinker away as you like.
You're changing the subject. You claimed that no one would ever claim that International would have higher expected returns. I'm telling you Vanguard has done that currently, as well as other writers (like Swedroe). There's nothing more to discuss there. It's a fact that well-respected institutions and writers have done exactly what you said no one ever would.

You then made this equally ridiculous claim that valuations is different from expected returns. That the former requires "standard accepted formulas" and the latter is anyone's guess.
I have asked you to provide such a formula because clearly I'm someone who doesn't get the difference. So enlighten me.
I then personally made the claim that valuations are one of the most powerful predictive returns tools and used by many respected writers. Just read "Common Sense on Mutual Funds". Or Four Pillars of Investment. Or Asset Allocation by Rick?.You'll learn that it is true there.

If you continue to claim that valuations and fundamentals are "anyone's guess" then provide evidence of that.

I don't have to explain my own personal usage of the above information, whether I market time or not. You are making claims. I am telling you that they're wrong and asking you to clarify. I am then making claims. Feel free to prove/disprove them.

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305pelusa
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Re: VTIAX International fund - should I give up on it?

Post by 305pelusa » Wed Sep 25, 2019 6:41 pm

tibbitts wrote:
Wed Sep 25, 2019 4:33 pm
305pelusa wrote:
Wed Sep 25, 2019 2:36 pm
International right now IS riskier; it has a much bleaker future, the nations don't have the certainty of American stocks and more. So you should be rewarded for that. The market currently IS rewarding that via more attractive valuation.
But certainly there was a recent time when Japanese stocks were widely perceived to be less risky than the facing-a-bleak-future US stocks, and those stocks were rewarded with appropriate valuations. They had the "certainty" of Japanese stocks - the superior Japanese culture and economic model that we were taught about in economics classes - going for them, after all. Until they didn't
The entire thread assumes the market is efficient. However, we know that markets sometimes turn to hysteria and madness. These are called "bubbles" and have happened for hundreds of years.
The nasty side-effect of a bubble is that the assets with very low future expected returns (like the overvalued Japanese stocks) happen to be extremely risky as well.

The best generic advice to combat bubbles is to diversify. This is precisely the reason why I'm so against people selling their International holdings and going purely US. It's like they don't think what occurred in Japan could ever happen to the US. If you want lower risk (once your portfolio is well-diversified), then de-risk it by allocating more to bonds and cash. Not by avoiding International.

Conversely, if you want higher risk, don't just invest 100% in Emerging market small cap value. Pick a more diversified portfolio and leverage it. Few need to do this since 100% diversified stock portfolios already tend to be well past the risk desires of most people.

TomCat96
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Re: VTIAX International fund - should I give up on it?

Post by TomCat96 » Wed Sep 25, 2019 6:44 pm

305pelusa wrote:
Wed Sep 25, 2019 6:10 pm
TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
It was my understanding that the argument of the International crowd was never more risk more reward.
The argument for International is and always will be diversification.
I'm not arguing you should invest more or less in International because it has more rewards or not. Valuations will change so it's possible roles will reverse in the future. Also, who am I to tell you how much return or risk to target?

I am simply making the observation that, currently, you'll get about 6.5 dollars of earnings for every 100 dollars put in Int stocks. On the other hand, you only get 3.25 dollars of earnings for the same 100 dollar investment in US stocks. International is yielding more. The only logical explanation is that those 6.5 dollars of earnings are subject to much more future risk and future uncertainty than the American 3.25. Otherwise, it'd be a free lunch 0_o
TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
But be ready to accept the ramifications of that.
Bring 'em.
TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
You see once you say that International stocks are different from US stocks in the same way that Stocks and Bonds are not the same,
By the way, I make this claim for EVERY asset. Corporate bonds aren't exactly treasuries. Emerging bonds aren't developed market bonds. Int stocks aren't US stocks. Instead, think of every asset as an investment with its own unique risk and return characteristics that can change with time. Never again will you ask yourself "are junk bonds bonds or stocks? What about preferred stocks? What about emerging market bonds?".

Instead, decompose it into its expected returns and risk. Once you do that, you can work with any asset class.
TomCat96 wrote:
Wed Sep 25, 2019 4:07 pm
Global bond markets exceed stocks in size. If you use the argument of the Wisdom of the market's asset allocation as a rationale for 55/45, then it is completely inconsistent to turn around and say you're going to ignore the market's allocation of bonds to stocks. In fact, by this measure you should be 39% stocks, 61% bonds. Who are you to dare to buck the wisdom of the market? Doesn't the market know best?
If your desired risk and returns happens to match the global portfolio, then you should use the global portfolio since we know it is on the efficient frontier.

If you want to target higher returns, you could do it two ways: Tilt towards International (based on current valuations) while maintaining the same allocation to bonds, or increase stocks while decreasing the bond allocation. The former should generally be superior because the correlation between US and Int stocks is high while the correlation to bonds is low. So the portfolio should be more efficient by maintaining the bond allocation high (risk parity).

This is why it's silly to sell International and stick to US stocks. If you did it for rational reasons (wanting to target lower risk), you're probably better off just leaving international alone and increasing the bond allocation. But I suspect the reasons for fully selling International and using only US have nothing to do with rational desires to lower risk and most likely have to do with personal biases, belief that US exceptionalism will mean higher returns that the market has not factored in, and so on.
I don't disagree that International is good for diversification. In fact, the argument for diversification is the single strongest overarching reason to invest Internationally. But looking at the rest of your arguments, I don't know what point you are trying to make.

First, the point of my arguments were to pick at several inherently conflicting rationales for International--the idea that you should invest in International because of the wisdom of the market, and that apparently Vanguard PhDs have said that International Stocks are poised to outperform the US in the decade to come. The two are irreconciliable.

I don't know what you are arguing because, your argument asserts that each asset has its own risk. That's neither here nor there. I do not disagree with it. But that's hardly a reason to invest in VTIAX or give up on it. The idea you are putting forth isn't an argument in any direction, it's just a statement. Very well. I do not disagree.

Secondly your point that you should do the Global portfolio if it matches your risk tolerance based on your prior point is once again, neither here nor there. You say so based on the idea that each asset has its own risk level. Very well. I do not disagree.

Third, the idea that you are purchasing more earnings per dollar in International vs the US is not by itself convincing. Why? Because if that was truly the best way, I would say go all in on Value stocks and call it a day. Why diversify in the market? Simply diversify in companies with low P/E ratios.

The reason why the earnings issue is so beguiling is because tech stocks and growth stocks have completely undermined the utility of earnings as a measure of expected future growth. Companies like Amazon can and do lose money for years, but at this point Amazon is so thoroughly entrenched that is a part of the Global economy. There are a number of such companies where all you are buying bookwise, is a pile of debt.

In fact, considering most of the growth in the US equity market has been through FAANG, and considering that such growth is cited as one of the reasons why US has outperformed International in the past decade, I'd say it is a mathematical truism that by purchasing international you are indeed going to get more earnings per dollar spent purchasing such stocks. But I would also argue you could accomplish such by simply excluding FAANG.

In other words, concerning your observation that you are buying more earnings per dollar spent in International than the US, I would say that that argument is the exact one used for arguing why Value is superior to Growth. Empirically the jury's been out on that one for the past 20 years. I'll concede that if you had asked me that question 20 years ago, I would have told you unequivocally that buying up 6 dollars worth of earnings for every one dollar spent is clearly superior to buying up 3 dollars for every dollar. But in the 20 year experiment that has been growth and tech stock valuations, Im saying that position is either untenable or very much up for debate.

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Re: VTIAX International fund - should I give up on it?

Post by Jozxyqk » Wed Sep 25, 2019 6:59 pm

ruralavalon wrote:
Wed Sep 25, 2019 5:46 pm
Jozxyqk wrote:
Wed Sep 25, 2019 12:48 pm

I don't think you've responded to the question. Your analysis assumes that the default position is investing in the companies of a single nation, and that holding any companies located in any other country requires additional justification.

Why is that? You might as well be saying "My core position is AAPL. The reason to [invest in other equities] is for diversification. I look at the magnitude of the diversification benefit, and what it takes to capture the bulk of that benefit."
Who would add any type of fund to their portfolio unless they reasonably expected some benefit from owning the fund?
Well sure. But you've implicitly decided that something is the default portfolio to which additions must be justified.

Why would a US-only portfolio be the default? Why wouldn't a worldwide market weight portfolio be the default?

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305pelusa
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Re: VTIAX International fund - should I give up on it?

Post by 305pelusa » Wed Sep 25, 2019 7:01 pm

TomCat96 wrote:
Wed Sep 25, 2019 6:44 pm
First, the point of my arguments were to pick at several inherently conflicting rationales for International--the idea that you should invest in International because of the wisdom of the market, and that apparently Vanguard PhDs have said that International Stocks are poised to outperform the US in the decade to come. The two are irreconciliable.
I never once said to invest in International because it has higher expected returns.
TomCat96 wrote:
Wed Sep 25, 2019 6:44 pm

I don't know what you are arguing because, your argument asserts that each asset has its own risk. That's neither here nor there. I do not disagree with it. But that's hardly a reason to invest in VTIAX or give up on it. The idea you are putting forth isn't an argument in any direction, it's just a statement. Very well. I do not disagree.
I only argued that International is poised to have higher expected returns and risk. Absolutely nothing else. It sounds like you thought I was arguing FOR International BECAUSE it will have higher returns. I was not but can see why you'd be confused.
TomCat96 wrote:
Wed Sep 25, 2019 6:44 pm

Secondly your point that you should do the Global portfolio if it matches your risk tolerance based on your prior point is once again, neither here nor there. You say so based on the idea that each asset has its own risk level. Very well. I do not disagree.
You were saying that by "my logic", everyone should invest with the market portfolio. I was just saying that the only ones who should do that are the ones with the same risk tolerance as the market portfolio, NOT everyone. That's all.
TomCat96 wrote:
Wed Sep 25, 2019 6:44 pm
Third, the idea that you are purchasing more earnings per dollar in International vs the US is not by itself convincing. Why? Because if that was truly the best way, I would say go all in on Value stocks and call it a day. Why diversify in the market? Simply diversify in companies with low P/E ratios.
I don't know what you mean by "convincing". It's just factual. However, I'm not saying that what you should do. I never claimed it was the best way either. Investing in value has higher returns and higher risks; it's one of the main factors.
TomCat96 wrote:
Wed Sep 25, 2019 6:44 pm

The reason why the earnings issue is so beguiling is because tech stocks and growth stocks have completely undermined the utility of earnings as a measure of expected future growth. Companies like Amazon can and do lose money for years, but at this point Amazon is so thoroughly entrenched that is a part of the Global economy. There are a number of such companies where all you are buying bookwise, is a pile of debt.

In fact, considering most of the growth in the US equity market has been through FAANG, and considering that such growth is cited as one of the reasons why US has outperformed International in the past decade, I'd say it is a mathematical truism that by purchasing international you are indeed going to get more earnings per dollar spent purchasing such stocks. But I would also argue you could accomplish such by simply excluding FAANG.

In other words, concerning your observation that you are buying more earnings per dollar spent in International than the US, I would say that that argument is the exact one used for arguing why Value is superior to Growth. Empirically the jury's been out on that one for the past 20 years. I'll concede that if you had asked me that question 20 years ago, I would have told you unequivocally that buying up 6 dollars worth of earnings for every one dollar spent is clearly superior to buying up 3 dollars for every dollar. But in the 20 year experiment that has been growth and tech stock valuations, Im saying that position is either untenable or very much up for debate.
Valuations and fundamentals models take both current earnings as well as future earnings growth. Dividend models do the same thing; they take dividends AND dividend growths into account. That's not what my personal example showed, which is a fair criticism. Good catch. But models from Vanguard and Bogle's Occam's Razor took both into account.

So to be clear: Vanguard has taken into account current earnings. They took into account future earnings growth. They put it into their valuation model and from there they determined that Developed ex-US is fairly valued while US and EM were both "overvalued". It just so happens that Developed ex-US is more value oriented than US.

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Re: VTIAX International fund - should I give up on it?

Post by Elysium » Wed Sep 25, 2019 7:11 pm

305pelusa wrote:
Wed Sep 25, 2019 6:30 pm
Elysium wrote:
Wed Sep 25, 2019 6:12 pm
305pelusa wrote:
Wed Sep 25, 2019 7:40 am
Elysium wrote:
Wed Sep 25, 2019 6:42 am
305pelusa wrote:
Tue Sep 24, 2019 3:57 pm
Only if you consider "Vanguard" to be "no one".
Absurd claim. If they did it is a dumb thing to do. What they have likely done is valuation based forecasts, I would have expected someone on this forum to know the difference between expected returns from two assets vs. valuation based forecasts. First one, doesn't of course look at current valuations or try to forecast future prices based on it, instead look at expected returns using standard accepted formulas. There is absolutely no reason for EAFE to have higher expected returns than US. Valuation based future forecasts is anyone's guess, and not worth very much in the context of portfolio planning.
Name one "standard accepted formula" for determining future expected returns that is not valuations or fundamentals-based please.

Valuations-based forecasts have been consistently by Rick Ferri, William Bernstein, Larry Swedroe, David Swensen and even Jack Bogle himself. And they tend to be predict reasonably well over the long term. It's certainly not "anyone's guess"; if anything, it's about one of the best guesses one can make for long term returns
Do you also alter your asset allocation then based on changing valuations? if not, why not?

If you believe equity premium over risk-free rate is same for securities with similar amount of risk, whether they are domiciled in EAFE or US, then what you have left is only diversification benefit, and a small diversification-premium in theory. Your AA is fixed already based on how much equity risk you need to take, and not based on future returns forecasts.

If you are a market timer, or change your AA based on future forecasts then all bets are off, you can tinker away as you like.
You're changing the subject. You claimed that no one would ever claim that International would have higher expected returns. I'm telling you Vanguard has done that currently, as well as other writers (like Swedroe). There's nothing more to discuss there. It's a fact that well-respected institutions and writers have done exactly what you said no one ever would.

You then made this equally ridiculous claim that valuations is different from expected returns. That the former requires "standard accepted formulas" and the latter is anyone's guess.
I have asked you to provide such a formula because clearly I'm someone who doesn't get the difference. So enlighten me.
I then personally made the claim that valuations are one of the most powerful predictive returns tools and used by many respected writers. Just read "Common Sense on Mutual Funds". Or Four Pillars of Investment. Or Asset Allocation by Rick?.You'll learn that it is true there.

If you continue to claim that valuations and fundamentals are "anyone's guess" then provide evidence of that.

I don't have to explain my own personal usage of the above information, whether I market time or not. You are making claims. I am telling you that they're wrong and asking you to clarify. I am then making claims. Feel free to prove/disprove them.
It's not my fault that you aren't following the distinction between expected equity premium over risk-free rate (this is important for portfolio construction) and forecasts based on asset valuations that people make (these predictions have nearly no value in a portfolio construction, but may have on sustainability rates and retirement date planning).

I said no one would claim equity premiums over risk-free rates are higher for comparable indexes such as EAFE and S&P 500.

The formula for calculating equity risk premium over risk-free rate is called CAPM. It requires three variables: rf = risk-free rate (usually 3-month t-bills), rm = overall stock market risk, B = beta. You can figure this out with some research.

If you wish to continue to believe large cap stocks in EAFE countries have higher expected equity premium than large cap stocks in US for same amount of risk, then I have a large red bridge to sell to you.

You could make a case for higher premiums for Small stocks, Value stocks, and EM stocks, but that is based on a risk story, as they are expected to have higher risk and therefore there is merit in claiming higher premium. There is no basis for claiming higher premiums for companies domiciled in large developed countries with similar economic structures, governments, and same level of access to global capital cycles.

In other words, BP and Shell, Nestle and Coca-cola, Novartis AG and Merck & co, all have same level of expected returns and risk. No reason to believe otherwise, you get diversification benefits theoretically, however some would say if you invest in Shell then you do not need BP, so on.
Last edited by Elysium on Wed Sep 25, 2019 7:24 pm, edited 3 times in total.

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Re: VTIAX International fund - should I give up on it?

Post by bluquark » Wed Sep 25, 2019 7:13 pm

305pelusa wrote:
Wed Sep 25, 2019 7:01 pm
Valuations and fundamentals models take both current earnings as well as future earnings growth.
More precisely, they typically project the currently seen earnings growth curve (and growth-of-growth curve) as though it was going to continue into the future. That sort of model is unable to correctly value Amazon, where the potential for earnings continually increases without being aggressively realized.

We can presume that the models used by active managers to price Amazon are more sophisticated than Vanguard's valuation model.

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Re: VTIAX International fund - should I give up on it?

Post by vineviz » Wed Sep 25, 2019 8:04 pm

Elysium wrote:
Wed Sep 25, 2019 6:01 pm
According to that logic, you must expect EAFE to return higher than US at current valuations since US has performed far better than EAFE over the last 10 years, making EAFE valuation cheaper. But, how would you use that information in constructing a portfolio to determine allocation to US vs EAFE.
How you'd use that information would depend on a host of factors, not least of which would be how confident you are in your expectation of higher returns and how you want to balance portfolio diversification against return maximization.

Personally, I tend to put little weight on expected return when setting asset allocation but I do consider it. YMMV.
"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: VTIAX International fund - should I give up on it?

Post by vineviz » Wed Sep 25, 2019 8:08 pm

Elysium wrote:
Wed Sep 25, 2019 7:11 pm
It's not my fault that you aren't following the distinction between expected equity premium over risk-free rate (this is important for portfolio construction) and forecasts based on asset valuations that people make (these predictions have nearly no value in a portfolio construction, but may have on sustainability rates and retirement date planning).
I hope that no one is following that distinction, because there is no distinction there: the expected return on stocks is the risk-free rate + the expected risk premium.
"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: VTIAX International fund - should I give up on it?

Post by Jags4186 » Wed Sep 25, 2019 10:18 pm

selters wrote:
Wed Sep 25, 2019 10:58 am
Jags4186 wrote:
Sun Sep 08, 2019 11:59 am
tibbitts wrote:
Sun Sep 08, 2019 11:48 am
Jags4186 wrote:
Sat Sep 07, 2019 4:44 pm
UpsetRaptor wrote:
Sat Sep 07, 2019 4:16 pm
Lot of posts in this thread parroting the "recency bias" fallacy. 200 years ago the US was not even a top 10 economy, and even in the late 19th century was still behind Britain. It has absolutely outperformed in the past 1-2 centuries.
Yes. The US also has significant cultural, demographic, and geographic advantages over most every other country that have greatly contributed to those returns. We all hope those advantages continue into the future.
All those things were known a few decades ago when the consensus was that Japan was going to take over the world. What's deemed an advantage today has a way of becoming a disadvantage tomorrow.
Despite whatever the latest news cycle says, and despite how corny it sounds, America has proven to be “exceptional”
Why haven't markets priced in that exceptionalism, then?

Markets are unable to price in intangibles which have unknown or difficult to determine variables and effects.

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Re: VTIAX International fund - should I give up on it?

Post by tibbitts » Wed Sep 25, 2019 11:15 pm

305pelusa wrote:
Wed Sep 25, 2019 6:41 pm
tibbitts wrote:
Wed Sep 25, 2019 4:33 pm
305pelusa wrote:
Wed Sep 25, 2019 2:36 pm
International right now IS riskier; it has a much bleaker future, the nations don't have the certainty of American stocks and more. So you should be rewarded for that. The market currently IS rewarding that via more attractive valuation.
But certainly there was a recent time when Japanese stocks were widely perceived to be less risky than the facing-a-bleak-future US stocks, and those stocks were rewarded with appropriate valuations. They had the "certainty" of Japanese stocks - the superior Japanese culture and economic model that we were taught about in economics classes - going for them, after all. Until they didn't
The entire thread assumes the market is efficient. However, we know that markets sometimes turn to hysteria and madness. These are called "bubbles" and have happened for hundreds of years.
The nasty side-effect of a bubble is that the assets with very low future expected returns (like the overvalued Japanese stocks) happen to be extremely risky as well.

The best generic advice to combat bubbles is to diversify. This is precisely the reason why I'm so against people selling their International holdings and going purely US. It's like they don't think what occurred in Japan could ever happen to the US. If you want lower risk (once your portfolio is well-diversified), then de-risk it by allocating more to bonds and cash. Not by avoiding International.

Conversely, if you want higher risk, don't just invest 100% in Emerging market small cap value. Pick a more diversified portfolio and leverage it. Few need to do this since 100% diversified stock portfolios already tend to be well past the risk desires of most people.
Yes that was my point, and it does seem that everyone assumes, given hindsight, that the Japanese situation was obvious. Yet at the time it clearly wasn't. I don't believe the U.S. is in a similar situation now, at least not to that degree, but I could be wrong. It seemed at the time that everyone felt that if Japan's market fell, however unlikely, the rest of the world would be certain to take a similar or worse hit, for probably about the same duration.

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Re: VTIAX International fund - should I give up on it?

Post by ruralavalon » Thu Sep 26, 2019 9:59 am

Jozxyqk wrote:
Wed Sep 25, 2019 6:59 pm
ruralavalon wrote:
Wed Sep 25, 2019 5:46 pm
Jozxyqk wrote:
Wed Sep 25, 2019 12:48 pm

I don't think you've responded to the question. Your analysis assumes that the default position is investing in the companies of a single nation, and that holding any companies located in any other country requires additional justification.

Why is that? You might as well be saying "My core position is AAPL. The reason to [invest in other equities] is for diversification. I look at the magnitude of the diversification benefit, and what it takes to capture the bulk of that benefit."
Who would add any type of fund to their portfolio unless they reasonably expected some benefit from owning the fund?
Well sure. But you've implicitly decided that something is the default portfolio to which additions must be justified.

Why would a US-only portfolio be the default? Why wouldn't a worldwide market weight portfolio be the default?
I do not say that U.S. only is the default choice or my own choice. I stated my opinion on default choice for international stock allocation, and gave my reasons.

Why would "worldwide market weight" be the default choice? The original question to another poster was
Why is it that "The default, null position is to hold market weight"?

It's not true just because you say it is so. What is your reason for that opinion?
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Re: VTIAX International fund - should I give up on it?

Post by Rowan Oak » Thu Sep 26, 2019 4:35 pm

siamond wrote:
Mon Sep 23, 2019 5:10 pm
bluquark wrote:
Mon Sep 23, 2019 3:49 pm
One thing I notice is that investing strategies tend to have a foundation in the investor's sense of identity. US-only investors are proud patriots, and international-market-cap investors are proud cosmopolitans. Factor investors are proudly math/finance-theory-literate, and vanilla-index investors are proudly common-sensical.

In the event that an investor is temporarily convinced to go with a strategy that cuts against their sense of who they are and what matters, it is difficult to stay the course.
Best post of the entire thread (and similar threads). I agree 100%.
Investing against the grain.
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Re: VTIAX International fund - should I give up on it?

Post by abuss368 » Thu Sep 26, 2019 4:37 pm

Recent bias aside I am more convinced than ever to maintain diversification and stay the course.

Investors are wise to tune out the noise.
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Re: VTIAX International fund - should I give up on it?

Post by Noobvestor » Fri Sep 27, 2019 9:27 am

Stinky wrote:
Mon Sep 23, 2019 4:24 am
Noobvestor wrote:
Mon Sep 23, 2019 2:34 am

Buy high, sell low, as Jack always said.
I think you’ve got that backwards?? :confused
I was trying to make the point that selling a lagging asset class is generally a bad idea and driven by emotional thinking (there are exceptions - like if you invested heavily in a niche sector or a specific stock that you shouldn't have bought in the first place, etc...). One gut check I use for myself if I'mt tempted to make even small adjustments is 'am I selling up or down' - if I am selling what's up, I give myself more latitude.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: VTIAX International fund - should I give up on it?

Post by Stinky » Fri Sep 27, 2019 9:41 am

Noobvestor wrote:
Fri Sep 27, 2019 9:27 am
Stinky wrote:
Mon Sep 23, 2019 4:24 am
Noobvestor wrote:
Mon Sep 23, 2019 2:34 am

Buy high, sell low, as Jack always said.
I think you’ve got that backwards?? :confused
I was trying to make the point that selling a lagging asset class is generally a bad idea and driven by emotional thinking
I agree.

I’ve been sorely tempted to lighten up my allocation to VTIAX. But I know that the day after I sell, the asset class will start outperforming. :oops:
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Re: VTIAX International fund - should I give up on it?

Post by wesgreen » Fri Sep 27, 2019 10:42 am

That could happen, but what matters is your personal investment horizon, not the short term.
We should already be well into this decade of Int. out performance, long predicted by Vanguard and others. The under performance vs. US so far will logically have to be compensated by tremendous out performance in the next few years. Aside from an eventual weakening the US Dollar, I don't see what will bring this on, but I'm ready to be surprised and learn.
It looks to me like Vanguard's and others' aggressive pushing of Int. over Bogle/Buffett - recommended TSM or S&P 500 - only investing has done a disservice to many investors who listened. If the prediction doesn't pan out soon, I wonder if eventually someone will take responsibility.

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Re: VTIAX International fund - should I give up on it?

Post by asif408 » Fri Sep 27, 2019 2:07 pm

wesgreen wrote:
Fri Sep 27, 2019 10:42 am
We should already be well into this decade of Int. out performance, long predicted by Vanguard and others. The under performance vs. US so far will logically have to be compensated by tremendous out performance in the next few years. Aside from an eventual weakening the US Dollar, I don't see what will bring this on, but I'm ready to be surprised and learn.
Can you elaborate on why we should already be well into a decade of international outperformance. Such as is there a certain timeline when the pendulum should swing the other way. You seem to have a clearer crystal ball than me.

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Re: VTIAX International fund - should I give up on it?

Post by wesgreen » Fri Sep 27, 2019 2:33 pm

It's Vanguard's prediction, not mine. I don't have a crystal ball.

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Re: VTIAX International fund - should I give up on it?

Post by lazyday » Sat Sep 28, 2019 10:24 am

bluquark wrote:
Mon Sep 23, 2019 3:49 pm
One thing I notice is that investing strategies tend to have a foundation in the investor's sense of identity. US-only investors are proud patriots, and international-market-cap investors are proud cosmopolitans. Factor investors are proudly math/finance-theory-literate, and vanilla-index investors are proudly common-sensical.

In the event that an investor is temporarily convinced to go with a strategy that cuts against their sense of who they are and what matters, it is difficult to stay the course.
Perhaps value investors are proudly frugal?

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Re: VTIAX International fund - should I give up on it?

Post by lazyday » Sat Sep 28, 2019 10:31 am

Noobvestor wrote:
Fri Sep 27, 2019 9:27 am
One gut check I use for myself if I'm tempted to make even small adjustments is 'am I selling up or down' - if I am selling what's up, I give myself more latitude.
I also do this. I like to check if it has outperformed over the last 3 years.

On this forum, people sometimes justify a portfolio change saying that they are fixing a mistake or improving the portfolio because they know more today. But strangely, most of those posts are about buying an asset that has done well lately, or selling one which has done poorly.

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Re: VTIAX International fund - should I give up on it?

Post by RJC » Sat Sep 28, 2019 12:37 pm

I am unable to think of a scenario where international will greatly outperforming the US when today's US companies are so global. Novice investors should focus on their savings rate. An AA of 0-50% ex-US is fine IMO.

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Re: VTIAX International fund - should I give up on it?

Post by l1am » Sat Sep 28, 2019 12:52 pm

I'm curious how VTSAX compares to VTIAX if you exclude technology (FAANG etc.) stocks?

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Re: VTIAX International fund - should I give up on it?

Post by UpperNwGuy » Sat Sep 28, 2019 12:55 pm

lazyday wrote:
Sat Sep 28, 2019 10:31 am
On this forum, people sometimes justify a portfolio change saying that they are fixing a mistake or improving the portfolio because they know more today. But strangely, most of those posts are about buying an asset that has done well lately, or selling one which has done poorly.
Not strange at all. Sometimes unexpected good or poor performance is what motivates an investor to do additional research. More knowledge often calls into question the assumptions upon which an earlier AA decision was based.

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Re: VTIAX International fund - should I give up on it?

Post by wesgreen » Sat Sep 28, 2019 1:11 pm

Good points. It also depends on your Bonds/Stock mix. At 100% equity, like I was, you're bound to be more concerned about your Int. equity allocation than at 50% Stocks/50% Bonds.
One scenario economists bring up, that could change the game, would be the US dollar losing it's status as reference currency. Nothing lasts forever. I'm just guessing that this won't happen during my life, and even if it happens, it won't happen overnight. But the last few years, I think, have made it a little more imagineable.

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Re: VTIAX International fund - should I give up on it?

Post by SemperLocuples » Sat Sep 28, 2019 1:40 pm

If you believe Peter Zeihan , which I tend to, I’d ditch it.
He is worth a read.

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Re: VTIAX International fund - should I give up on it?

Post by wesgreen » Sat Sep 28, 2019 2:43 pm

Mr. Zeihan, I presume?

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Re: VTIAX International fund - should I give up on it?

Post by ruralavalon » Sat Sep 28, 2019 2:43 pm

RJC wrote:
Sat Sep 28, 2019 12:37 pm
I am unable to think of a scenario where international will greatly outperforming the US when today's US companies are so global. Novice investors should focus on their savings rate. An AA of 0-50% ex-US is fine IMO.
New investors should focus on their savings rate, which will probably have a larger impact than the decision on international stock allocation.

In my opinion international stocks anywhere in the range of 20-50% of total stocks would be reasonable.
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Re: VTIAX International fund - should I give up on it?

Post by Noobvestor » Sun Sep 29, 2019 3:03 pm

UpperNwGuy wrote:
Sat Sep 28, 2019 12:55 pm
lazyday wrote:
Sat Sep 28, 2019 10:31 am
On this forum, people sometimes justify a portfolio change saying that they are fixing a mistake or improving the portfolio because they know more today. But strangely, most of those posts are about buying an asset that has done well lately, or selling one which has done poorly.
Not strange at all. Sometimes unexpected good or poor performance is what motivates an investor to do additional research. More knowledge often calls into question the assumptions upon which an earlier AA decision was based.
The data supports international diversification. Vanguard whitepapers for instance show volatility reductions from 0 to 40% intl, and they recommend anywhere from 20-50%. More research into this should lead one not to discard but rather to embrace global investing.

The only reasons I can see for discarding it are (1) recency bias, (2) currency risk (which cuts both ways), and (3) an unsupported belief that US market exceptionalism not only exists and will persist but also that all of this isn't factored in by the (otherwise mostly efficient) market.

The cognitive dissonance surrounding the last one is always strange to me - people don't think they can pick winning stocks or sectors, but do think they can pick winning countries. Past performance and all that. In this thread, recency bias seems to be the dominating factor, though - hard to imagine this debate going on at another point (say, the late aughts) after years of US underperformance. /2 cents
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: VTIAX International fund - should I give up on it?

Post by catalina355 » Sun Sep 29, 2019 3:25 pm

Noobvestor wrote:
Sun Sep 29, 2019 3:03 pm
UpperNwGuy wrote:
Sat Sep 28, 2019 12:55 pm
lazyday wrote:
Sat Sep 28, 2019 10:31 am
On this forum, people sometimes justify a portfolio change saying that they are fixing a mistake or improving the portfolio because they know more today. But strangely, most of those posts are about buying an asset that has done well lately, or selling one which has done poorly.
Not strange at all. Sometimes unexpected good or poor performance is what motivates an investor to do additional research. More knowledge often calls into question the assumptions upon which an earlier AA decision was based.
The data supports international diversification. Vanguard whitepapers for instance show volatility reductions from 0 to 40% intl, and they recommend anywhere from 20-50%. More research into this should lead one not to discard but rather to embrace global investing.

The only reasons I can see for discarding it are (1) recency bias, (2) currency risk (which cuts both ways), and (3) an unsupported belief that US market exceptionalism not only exists and will persist but also that all of this isn't factored in by the (otherwise mostly efficient) market.

The cognitive dissonance surrounding the last one is always strange to me - people don't think they can pick winning stocks or sectors, but do think they can pick winning countries. Past performance and all that. In this thread, recency bias seems to be the dominating factor, though - hard to imagine this debate going on at another point (say, the late aughts) after years of US underperformance. /2 cents
I agree the data supports international diversification, however, the Vanguard white papers do show only a small volatility reduction for US based investors of around 0.5%.

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Re: VTIAX International fund - should I give up on it?

Post by UpperNwGuy » Sun Sep 29, 2019 7:16 pm

Noobvestor wrote:
Sun Sep 29, 2019 3:03 pm
UpperNwGuy wrote:
Sat Sep 28, 2019 12:55 pm
lazyday wrote:
Sat Sep 28, 2019 10:31 am
On this forum, people sometimes justify a portfolio change saying that they are fixing a mistake or improving the portfolio because they know more today. But strangely, most of those posts are about buying an asset that has done well lately, or selling one which has done poorly.
Not strange at all. Sometimes unexpected good or poor performance is what motivates an investor to do additional research. More knowledge often calls into question the assumptions upon which an earlier AA decision was based.
The data supports international diversification. Vanguard whitepapers for instance show volatility reductions from 0 to 40% intl, and they recommend anywhere from 20-50%. More research into this should lead one not to discard but rather to embrace global investing.

The only reasons I can see for discarding it are (1) recency bias, (2) currency risk (which cuts both ways), and (3) an unsupported belief that US market exceptionalism not only exists and will persist but also that all of this isn't factored in by the (otherwise mostly efficient) market.

The cognitive dissonance surrounding the last one is always strange to me - people don't think they can pick winning stocks or sectors, but do think they can pick winning countries. Past performance and all that. In this thread, recency bias seems to be the dominating factor, though - hard to imagine this debate going on at another point (say, the late aughts) after years of US underperformance. /2 cents
I think you responded to the wrong comment. I didn't say anything about discarding international. I simply took issue with the notion that everyone who changes their AA after doing more research is performance chasing.

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Re: VTIAX International fund - should I give up on it?

Post by 2commaBH » Sun Sep 29, 2019 8:16 pm

Noobvestor wrote:
Sun Sep 29, 2019 3:03 pm
The data supports international diversification. Vanguard whitepapers for instance show volatility reductions from 0 to 40% intl, and they recommend anywhere from 20-50%. More research into this should lead one not to discard but rather to embrace global investing.
Sorry if this is a dumb question, but I would think that if international provided diversification benefits we'd see it in the historical performance, no? Instead when I look at a chart of VTIAX and VTSAX across the life of both, they seem largely in sync and correlated to me. What am I missing?

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Re: VTIAX International fund - should I give up on it?

Post by Luckywon » Sun Sep 29, 2019 8:39 pm

Have not read the previous 291 posts In this thread. Was there anything new in them compared to the last thread on this? :twisted:

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Re: VTIAX International fund - should I give up on it?

Post by Stinky » Mon Sep 30, 2019 9:04 am

Luckywon wrote:
Sun Sep 29, 2019 8:39 pm
Have not read the previous 291 posts In this thread. Was there anything new in them compared to the last thread on this? :twisted:
Summary -

Diversification outside US is necessary.

Diversification outside US is unnecessary.

The discussion continues ......
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Re: VTIAX International fund - should I give up on it?

Post by asif408 » Mon Sep 30, 2019 1:00 pm

2commaBH wrote:
Sun Sep 29, 2019 8:16 pm
Sorry if this is a dumb question, but I would think that if international provided diversification benefits we'd see it in the historical performance, no? Instead when I look at a chart of VTIAX and VTSAX across the life of both, they seem largely in sync and correlated to me. What am I missing?
Correlation tells you nothing about the magnitude of returns. Since November 2007, correlations have been around 0.9, while returns have differed by 7% CAGR in favor of the US. From October 2002-October 2007, correlations were about 0.9 between US & international funds, yet international returned 10% more CAGR.

To use an extreme example, the Direxion 3x S&P 500 bull fund has a correlation of 1 with the S&P 500. Yet since October of last year it lost money: https://www.portfoliovisualizer.com/ass ... &months=36 while the S&P has made money. So just because one fund is highly or even completely correlated with another doesn't mean the returns will be the same.

I'm not sure what charts you are looking at, but the returns of VTIAX and VTSAX have looked different since 2011: https://finance.yahoo.com/chart/VTSMX#e ... AwMDAwMH19

And looked dramatically different from 2002-2007: https://finance.yahoo.com/chart/VTSMX#e ... IwMDAwMH19

Really the only period they've looked pretty similar was during the 2007-2011 time frame, which also happened to be a period of their highest correlations. The correlations have actually fallen since then.

2commaBH
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Re: VTIAX International fund - should I give up on it?

Post by 2commaBH » Mon Sep 30, 2019 2:12 pm

asif408 wrote:
Mon Sep 30, 2019 1:00 pm
2commaBH wrote:
Sun Sep 29, 2019 8:16 pm
Sorry if this is a dumb question, but I would think that if international provided diversification benefits we'd see it in the historical performance, no? Instead when I look at a chart of VTIAX and VTSAX across the life of both, they seem largely in sync and correlated to me. What am I missing?
Correlation tells you nothing about the magnitude of returns. Since November 2007, correlations have been around 0.9, while returns have differed by 7% CAGR in favor of the US. From October 2002-October 2007, correlations were about 0.9 between US & international funds, yet international returned 10% more CAGR.

To use an extreme example, the Direxion 3x S&P 500 bull fund has a correlation of 1 with the S&P 500. Yet since October of last year it lost money: https://www.portfoliovisualizer.com/ass ... &months=36 while the S&P has made money. So just because one fund is highly or even completely correlated with another doesn't mean the returns will be the same.

I'm not sure what charts you are looking at, but the returns of VTIAX and VTSAX have looked different since 2011: https://finance.yahoo.com/chart/VTSMX#e ... AwMDAwMH19

And looked dramatically different from 2002-2007: https://finance.yahoo.com/chart/VTSMX#e ... IwMDAwMH19

Really the only period they've looked pretty similar was during the 2007-2011 time frame, which also happened to be a period of their highest correlations. The correlations have actually fallen since then.
Thanks, this is helpful. I figured I was probably using the wrong terms. Basically, I was looking to see if there were sustained times VTIAX was "up" when VTSAX was "down". Answer is not really, but VTIAX vs VTSAX only takes us back to 2011. If we extend to Investor Class shares and pick up the 2002-10 timeframe we do see the international at times outperforming the domestic.

asif408
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Re: VTIAX International fund - should I give up on it?

Post by asif408 » Mon Sep 30, 2019 2:36 pm

2commaBH wrote:
Mon Sep 30, 2019 2:12 pm
Thanks, this is helpful. I figured I was probably using the wrong terms. Basically, I was looking to see if there were sustained times VTIAX was "up" when VTSAX was "down". Answer is not really, but VTIAX vs VTSAX only takes us back to 2011. If we extend to Investor Class shares and pick up the 2002-10 timeframe we do see the international at times outperforming the domestic.
That's pretty much true. Usually if one is down a lot the other will be down a lot, too, and vice versa, and more recently it's been international stocks down more. But that has not always been the case.

US stocks fell more during the 1998 correction, and there was a brief period from February to May 2002 that international stocks were up about 8% and US stocks were down about 3%. That also happened to be a year both were down but international was down less. You'll find a similar story in you look at, for example, the returns of the UK vs the US in the 1929-1932 bear market, and Japan vs. the US in the 1973-1974 bear market. So there is no precedent for international stocks, and especially individual countries, to always be the poorer performer during a bear market in the US.

The other thing to note is that during the 2000-2002 bear market, although international stocks fell slightly more from peak to trough, they recovered faster than US stocks, in 2 years vs almost 4 years for US stocks. And people talk about how volatile emerging markets are, but during the 2000-2002 crash, emerging markets fell the least among US, developed ex-US, and EM and recovered the fastest. So they were actually the "safest" investments from a maximum drawdown and time to recovery standpoint.

bogledogle87
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Re: VTIAX International fund - should I give up on it?

Post by bogledogle87 » Tue Oct 01, 2019 10:15 am

I'm curious if anyone here is brave enough to not only give up on (or continue to avoid) international, but take their convictions a step further and to buy RWUI - Direxion FTSE Russell US Over International?

At 150% Long US / 50% Short International, it's not your traditional leveraged ETF. You start with 100% US returns and receive an additional premium return whenever US outperforms, and a drag when it doesn't. Rebalancing is monthly with 0.46 ER. Since inception on 1/16/2019, the NAV is +4% over Total US and +12% over Total Int'l.

For anyone confident in 100% US over International for the long term, why not consider this ETF to boost your returns?
VTWAX and chill

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whodidntante
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Re: VTIAX International fund - should I give up on it?

Post by whodidntante » Tue Oct 01, 2019 10:27 am

vineviz wrote:
Mon Sep 23, 2019 1:57 pm
visualguy wrote:
Mon Sep 23, 2019 1:08 pm
What major new public companies and industries have emerged in the EU or Japan in recent decades? Why would we expect that to change?
Apparently, many pseudo-Bogleheads are waiting to globally diversify their portfolios until they see a press release announcing the upcoming outperformance of ex-US stocks.

Because that's ALWAYS how it works. :oops:
Momentum is real and so is recency bias. But which is the chicken and which is the egg? Or are they both chickens and eggs? Or maybe a turkey? Does it depend? :happy

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