US stocks only

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Erwin
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US stocks only

Post by Erwin »

I own a total world stock ETF (ACWI) plus an emerging markets ETF (DEM). However in the long run I see that only owning a US index fund does a well or better, specially if the fund is an index holding multinational companies based in the US, such as VIG. Correlations seem to be too close, the world feels small! So, does anyone only own US based stocks?
Erwin
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jidina80
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Re: US stocks only

Post by jidina80 »

Holding a Total International Stock index fund in addition to U.S. stocks provides a lot of industry diversification in addition to geographic diversification. Compared to the rest of the world, the U.S. is heavy in high-technology stocks. In contrast, overseas stocks have relatively more automotive and household durable goods. Overseas markets are not closely correlated enough to ignore it, in my opinion.
https://personal.vanguard.com/pdf/icriecr.pdf
golfallday
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Re: US stocks only

Post by golfallday »

Yes, mpt, there is a person...make that a genius...who only invests in US equity index funds. His initials are JOHN BOGLE.
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Re: US stocks only

Post by YDNAL »

mpt follower wrote:So, does anyone only own US based stocks?
Perhaps!

I'd like to ask you:
  • Would you limit investing your dollars in X companies based in one Region of the World?
    - or -
    Invest in X + Y + Z companies based in multiple Regions of the World?
Vanguard wrote:Vanguard 500 Index Fund Admiral Shares (VFIAX)
Number of stocks 504
Median market cap $49.9 billion
Price/earnings ratio 14.0x
Price/book ratio 2.1x
Return on equity 20.7%
Earnings growth rate 7.3%
Foreign holdings 0.2%
Turnover rate (as of fiscal year end December) 4.8%
Short-term reserves —
Fund total net assets $101.6 billion
Share class total net assets $51.2 billion

Vanguard Developed Markets Index Fund Admiral (VDMAX)
Number of stocks 958
Median market cap $30.8 billion
Price/earnings ratio 11.6x
Price/book ratio 1.3x
Return on equity 17.2%
Earnings growth rate –1.4%
Foreign holdings 99.3%
Turnover rate (as of fiscal year end October) 4.9%
Short-term reserves 0.7%
Fund total net assets $10.7 billion
Share class total net assets $538.0 million

Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX)
Number of stocks 917
Median market cap $16.0 billion
Price/earnings ratio 11.3x
Price/book ratio 1.7x
Return on equity 20.5%
Earnings growth rate 15.1%
Foreign holdings 99.7%
Turnover rate (as of fiscal year end October) 10.3%
Short-term reserves 0.1%
Fund total net assets $56.3 billion
Share class total net assets $6.3 billion
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Erwin
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Re: US stocks only

Post by Erwin »

Ydnal,

I stated above that I would pick an index that only holds multinational companies. The closest ETF is VIG. Income of multinational companies, like Coca Cola, Exxon, etc., draw their income from overseas, not one region. Giving this, would you still hold the same opinion.
Erwin
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Re: US stocks only

Post by Muchtolearn »

I have decided on a plan in which the only equities are the US total stock market index. I have gotten reasonable criticism from some on this site about that. Nonetheless, the costs are far lower, I live and breath US dollars, and I believe that more and more of the earnings will come internationally, in a similar ratio as the total world index. I just feel better about it. Maybe I give up some growth, maybe not.
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Erwin
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Re: US stocks only

Post by Erwin »

Muchtolearn wrote:I have decided on a plan in which the only equities are the US total stock market index. I have gotten reasonable criticism from some on this site about that. Nonetheless, the costs are far lower, I live and breath US dollars, and I believe that more and more of the earnings will come internationally, in a similar ratio as the total world index. I just feel better about it. Maybe I give up some growth, maybe not.
This is exactly my point, American companies, specially large caps, are exposed to international events no less than overseas companies and you get the assurance that they are properly regulated.
Erwin
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Re: US stocks only

Post by natureexplorer »

2011 proved that a US-based investor should not hold non-US equities. Jack Bogle was right.
JimInIllinois
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Re: US stocks only

Post by JimInIllinois »

natureexplorer wrote:2011 proofed that a US-based investor should not hold non-US equities. Jack Bogle was right.
1999 proved that internet stocks only go up and should form 100% of your portfolio.
exeunt
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Re: US stocks only

Post by exeunt »

Terrible idea. You're giving up important diversification. It also seems like you're market timing.
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Overseas Stocks = Industry Diversification

Post by jidina80 »

mpt follower wrote: . . . American companies, specially large caps, are exposed to international events no less than overseas companies and you get the assurance that they are properly regulated.
Those who think the Total U.S. Stock Market fund provides adequate diversification might find the following chart interesting. It shows how the U.S. stock market is heavily weighted towards computer software, hardware and IT services. Non-U.S. markets are more heavily weighted towards automobiles and durable household goods. When we buy non-U.S. stocks, we gain industry diversification that is difficult to achieve with U.S. stocks only.

Image

The full article on this topic, published almost 1 year ago: https://institutional.vanguard.com/VGAp ... nvestTrap2
Just
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zaboomafoozarg
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Re: US stocks only

Post by zaboomafoozarg »

JimInIllinois wrote:
natureexplorer wrote:2011 proofed that a US-based investor should not hold non-US equities. Jack Bogle was right.
1999 proved that internet stocks only go up and should form 100% of your portfolio.
Jim, I think you mean proofed, not proved.
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Re: Overseas Stocks = Industry Diversification

Post by dumbmoney »

jidina80 wrote:
mpt follower wrote: . . . American companies, specially large caps, are exposed to international events no less than overseas companies and you get the assurance that they are properly regulated.
Those who think the Total U.S. Stock Market fund provides adequate diversification might find the following chart interesting. It shows how the U.S. stock market is heavily weighted towards computer software, hardware and IT services. Non-U.S. markets are more heavily weighted towards automobiles and durable household goods. When we buy non-U.S. stocks, we gain industry diversification that is difficult to achieve with U.S. stocks only.

Image

The full article on this topic, published almost 1 year ago: https://institutional.vanguard.com/VGAp ... nvestTrap2
Just
Sure the industry mix is different than the world, but different is not the same as less diversified. It's just differently diversified.

The main advantage of international is diversification across different national/regional economies, which at least sometimes don't move in lock step.
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Re: US stocks only

Post by stemikger »

mpt follower wrote:I own a total world stock ETF (ACWI) plus an emerging markets ETF (DEM). However in the long run I see that only owning a US index fund does a well or better, specially if the fund is an index holding multinational companies based in the US, such as VIG. Correlations seem to be too close, the world feels small! So, does anyone only own US based stocks?
I feel the same way. I only invest in the US and then after reading so many folks here saying that I should add international, I decided to make a move last year and I did it at the worst time and it kept going down. I know I should think long-term, but I felt like I went against my belief that there is no need to add it and in the long term it will not make much of a difference, so I changed it back.

By the way here is what Mr. Bogle says about that very question:
Deep down, I remain absolutely confident that the vast majority of American families will be well served by owning their equity holding in an all-U.S. stock-market index portfolio and holding their bonds in an all-U.S. bond-market index portfolio."
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
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Re: US stocks only

Post by richard »

mpt follower wrote:in the long run I see that only owning a US index fund does a well or better
Does as well or better? Don't you mean over some specific time frames it has done as well or better?

For example, here's the last 10 years
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Cash
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Re: US stocks only

Post by Cash »

stemikger wrote: I feel the same way. I only invest in the US and then after reading so many folks here saying that I should add international, I decided to make a move last year and I did it at the worst time and it kept going down. I know I should think long-term, but I felt like I went against my belief that there is no need to add it and in the long term it will not make much of a difference, so I changed it back.
In other words, instead of sticking to a plan and simply rebalancing, you bought high and sold low. Congrats!

To me, the "why international" question is no different from the "why more than BRK" question or the "why more than S&P 500" question. One could make an argument that any of these is the "only" thing you need. Why are you holding the total stock market and not one of these subsets? The answer is diversification.
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Re: US stocks only

Post by YDNAL »

mpt follower wrote:Ydnal,

I stated above that I would pick an index that only holds multinational companies. The closest ETF is VIG. Income of multinational companies, like Coca Cola, Exxon, etc., draw their income from overseas, not one region. Giving this, would you still hold the same opinion.
Sure, you said "multinational companies based in the US, such as VIG."

I've been feeling a little lazy so rather answer with questions. Would you rather own Coca Cola exclusively or Coca Cola + Nestle (Swiss)? How about Exxon vs. Exxon + BP (British)?
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Re: US stocks only

Post by 403bob »

Vanguard, Fidelity, and similar graphs show that for lower equity allocations, the curve gets flatter and the international stock diversification benefit is reduced. It would seem that investors with smaller stock allocations (such as 30% or 20%) need not be so concerned with investing in international stocks, especially if one is nearing the end of the accumulation phase and is at or near his goal.

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Re: US stocks only

Post by stemikger »

Cash wrote: In other words, instead of sticking to a plan and simply rebalancing, you bought high and sold low. Congrats!
Thanks for the positive feedback. It's always nice when a fellow Bogglehead congratulates you.

Between you and me, it wasn't such a smart move, so I'm not sure why you would congratulate me.

Oh wait, you were being mean spirited and sarcastic. You were actually congratulating me on a stupid move and kind of rubbing it it my face.

Now why would you go out of the way to do that?
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Re: US stocks only

Post by nisiprius »

Note that John Bogle is not doctrinaire on this. Actually he's not doctrinaire on much. It's worth noting his exact words in an interview he gave Christine Benz in 10/2010, Why I Don't Invest Overseas. And this is exactly what he says:
I don't happen to use international because I think the market is going to be an equaliser. And international and emerging markets will probably do more or less the same as the US in the next 10 years. You don't know that, but if I were to put 20% in international, call half in developed markets and half in emerging markets, maybe I could add a percentage point if I did it for 20% of my portfolio. If they do 5% better, I am getting 1% of an extra return.

Well, I think, if you could just get out of your high-cost funds and into low-cost funds, you can pick up that 1 percentage point in a far easier way. So I could easily be wrong on that, but I think there are risks out there, unseen risks, currency risks, sovereign risks, and then the kind of risks that we have in international.

Each nation has its own kind of idiosyncrasies. Great Britain is in poorer shape than the US Japan seems still to be in the same troubled shape it was in almost two decades ago now. They have never recovered from that big boom. So I'd say I don't do it. If you have to do it, limit international to 20% of your portfolio, maybe half in emerging markets and half in developed.
Historically, the thing that leaps out is that it actually hasn't made very much difference how much international stocks you held, which is probably one of the reasons it generates so much argument. It seems to me that the thing to do is pick some reasonable number and stick to it. 0% is an extreme, but it's a reasonable number.
403bob wrote:Vanguard, Fidelity, and similar graphs show that for lower equity allocations, the curve gets flatter and the international stock diversification benefit is reduced. It would seem that investors with smaller stock allocations (such as 30% or 20%) need not be so concerned with investing in international stocks, especially if one is nearing the end of the accumulation phase and is at or near his goal.
That's a very interesting point, and one that I don't think has been made before. It's not a very strong effect, but, yeah, it's there in Vanguard's graphs. Makes me feel a little better about my low international allocation (happens to be 20% of equities), because my stock allocation is low and I am near the end of my accumulation phase.
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Re: US stocks only

Post by Cash »

stemikger wrote: Now why would you go out of the way to do that?
Because you gave the example in support of not owning international stocks--"I did it at the worst time and it kept going down . . . so I changed it back." Therefore, it was fair game to point out that you bought high and sold low and that your move was a very un-Boglehead one that should not be replicated. Whether you choose to own international stocks or not, change your investment plan only after much consideration and research, and then stick with it. The truth often hurts, but is also often good for you. :beer
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Re: US stocks only

Post by pkcrafter »

Wow, classic recency bias in action!

MPTFollower and Muchtolearn, I'm not singling you out, but your posts are excellent (and convenient) examples of how investors truly justify and rationalize what they want to do. It is the same process used when investors jump into hot funds, or when they want to swap bonds for stocks.
I own a total world stock ETF (ACWI) plus an emerging markets ETF (DEM). However in the long run I see that only owning a US index fund does a well or better, specially if the fund is an index holding multinational companies based in the US, such as VIG. Correlations seem to be too close, the world feels small! So, does
anyone only own US based stocks?
I have decided on a plan in which the only equities are the US total stock market index. I have gotten reasonable criticism from some on this site about that. Nonetheless, the costs are far lower, I live and breath US dollars, and I believe that more and more of the earnings will come internationally, in a similar ratio as the total world index. I just feel better about it. Maybe I give up some growth, maybe not.
I don't know what your actual allocations are for international, but maybe they are too high, especially if over 40%. If over 40%, the same flawed logic was used to justify that allocation. In any case, it may be reasonable to cut back using something like Bogle's TA suggestion. Moving all in and all out of asset classes seems too extreme. Invest with a margin of error, so you don't get killed when you are wrong.

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stemikger
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Re: US stocks only

Post by stemikger »

Cash wrote:
stemikger wrote: Now why would you go out of the way to do that?
Because you gave the example in support of not owning international stocks--"I did it at the worst time and it kept going down . . . so I changed it back." Therefore, it was fair game to point out that you bought high and sold low and that your move was a very un-Boglehead one that should not be replicated. Whether you choose to own international stocks or not, change your investment plan only after much consideration and research, and then stick with it. The truth often hurts, but is also often good for you. :beer
Trust me, I know it was an extremely un-Bogglehead move and I was disappointed with myself for not sticking to my original two fund plan and going international when I really felt in my heart it wasn't the thing for me, but like many investors (Boggleheads and others) emotions are hard to fight sometimes. Having said that I believe I am on the right track for 2012 and am trying to stay away from all the talking heads that may make me do something that isn't part of my plan.

Also, as much as I love this forum, I am even limiting myself on how much I visit.

Thanks for the feedback. :beer
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Re: US stocks only

Post by Johm221122 »

exeunt wrote:Terrible idea. You're giving up important diversification. It also seems like you're market timing.
I agree, hope this is not just because of recent returns
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Re: US stocks only

Post by YDNAL »

stemikger wrote:
mpt follower wrote:I own a total world stock ETF (ACWI) plus an emerging markets ETF (DEM). However in the long run I see that only owning a US index fund does a well or better, specially if the fund is an index holding multinational companies based in the US, such as VIG. Correlations seem to be too close, the world feels small! So, does anyone only own US based stocks?
I feel the same way. I only invest in the US and then after reading so many folks here saying that I should add international, I decided to make a move last year and I did it at the worst time and it kept going down. I know I should think long-term, but I felt like I went against my belief that there is no need to add it and in the long term it will not make much of a difference, so I changed it back.
Stemikger,

Feelings and investing don't usually work well together.
  • The fact is that investing in Foreign companies today is simple, cost effective, and provides MUCH added diversification.
  • If we learned anything from Japan's experiences, it should be that investing in a specific country can have a lasting negative impact on your financial health.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Cash
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Re: US stocks only

Post by Cash »

pkcrafter wrote:I don't know what your actual allocations are for international, but maybe they are too high, especially if over 40%. If over 40%, the same flawed logic was used to justify that allocation.
I hold over 40%, and my logic is that I wish to have a portfolio that is largely representative of the global market (with a small value tilt). We may disagree on the wisdom of that decision, but it's not a result of recency bias (though I agree that many investment decisions, including several given in this thread, do appear to be the result of recency bias).
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Erwin
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Re: US stocks only

Post by Erwin »

YDNAL wrote:
stemikger wrote:
mpt follower wrote:I own a total world stock ETF (ACWI) plus an emerging markets ETF (DEM). However in the long run I see that only owning a US index fund does a well or better, specially if the fund is an index holding multinational companies based in the US, such as VIG. Correlations seem to be too close, the world feels small! So, does anyone only own US based stocks?
I feel the same way. I only invest in the US and then after reading so many folks here saying that I should add international, I decided to make a move last year and I did it at the worst time and it kept going down. I know I should think long-term, but I felt like I went against my belief that there is no need to add it and in the long term it will not make much of a difference, so I changed it back.
Stemikger,

Feelings and investing don't usually work well together.
  • The fact is that investing in Foreign companies today is simple, cost effective, and provides MUCH added diversification.
  • If we learned anything from Japan's experiences, it should be that investing in a specific country can have a lasting negative impact on your financial health.

It seems that I should have explained myself better. When I said that my experience has been that the world is too small and that diversification is hard to get, I wasn't referring to using the standard Total US Stock index, but an index like VIG which holds mainly large multinational companies based in the US. It is hard for me to see that a company like Pfizer, based in the US selling pharmaceutical products all over the world would not be influenced by global events in the same manner than Teva, one of the largest pharmaceutical companies, but based in Israel. If one could put aside the internal issues of each company, and focus exclusively on the global market issues, I am convinced that you will find Pfizer and Teva behaving alike. Now, since the US holds a significant proportion of the multinational companies, what is the point to go foreign. That obviously would not hold for smaller companies that depend entirely on local issues.
Erwin
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Re: US stocks only

Post by Noobvestor »

nisiprius wrote:Historically, if you happened to be a US citizen the thing that leaps out is that it actually hasn't made very much difference how much international stocks you held, which is probably one of the reasons it generates so much argument.
My red - FTFY :beer

We can argue around it all anyone wants, but Japan is the proof that single-country stock investing has serious long-term risks.
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Re: US stocks only

Post by YDNAL »

mpt follower wrote:
YDNAL wrote:
stemikger wrote:
mpt follower wrote:I own a total world stock ETF (ACWI) plus an emerging markets ETF (DEM). However in the long run I see that only owning a US index fund does a well or better, specially if the fund is an index holding multinational companies based in the US, such as VIG. Correlations seem to be too close, the world feels small! So, does anyone only own US based stocks?
I feel the same way. I only invest in the US and then after reading so many folks here saying that I should add international, I decided to make a move last year and I did it at the worst time and it kept going down. I know I should think long-term, but I felt like I went against my belief that there is no need to add it and in the long term it will not make much of a difference, so I changed it back.
Stemikger,

Feelings and investing don't usually work well together.
  • The fact is that investing in Foreign companies today is simple, cost effective, and provides MUCH added diversification.
  • If we learned anything from Japan's experiences, it should be that investing in a specific country can have a lasting negative impact on your financial health.
It seems that I should have explained myself better. When I said that my experience has been that the world is too small and that diversification is hard to get, I wasn't referring to using the standard Total US Stock index, but an index like VIG which holds mainly large multinational companies based in the US. It is hard for me to see that a company like Pfizer, based in the US selling pharmaceutical products all over the world would not be influenced by global events in the same manner than Teva, one of the largest pharmaceutical companies, but based in Israel. If one could put aside the internal issues of each company, and focus exclusively on the global market issues, I am convinced that you will find Pfizer and Teva behaving alike. Now, since the US holds a significant proportion of the multinational companies, what is the point to go foreign. That obviously would not hold for smaller companies that depend entirely on local issues.
Erwin
Erwin,

You have explained.

You also refuse to accept the fact of a diversifying benefit in owning both Pfizer and Teva (or Exxon/BP, or Coca Cola/Nestle as I commented on your previous posts). It seems sort-of naïve to casually dismiss facts.

Let me ask you, if simply owning multinationals in VIG is sufficient for you, then instead of a Mutual Fund with increased diversification, it should be sufficient for you to own 1 individual multinational in each Sector of the Economy.
Top 10 Holdings for VIG, Vanguard wrote: 1 McDonald's Corp
2 International Business Machines Corp
3 Chevron Corp
4 Coca-Cola Co/The
5 ConocoPhillips
6 Wal-Mart Stores Inc
7 Exxon Mobil Corp
8 Procter & Gamble Co/The
9 PepsiCo Inc/NC
10 United Technologies Corp
Ten largest holdings = 42.1% of total net assets
Why not own Exxon -or- Chevron -or- Conoco exclusively?
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