Globally Diversified or Worsified?

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NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

vineviz wrote: Sun May 16, 2021 12:36 pm
NiceUnparticularMan wrote: Sun May 16, 2021 12:14 pm
anon_investor wrote: Sun May 16, 2021 12:09 pm Was this right in the middle of when int'l was out performing?
I believe for most of the 1970s, including the late 1970s, ex-US did in fact outperform US.
And for the decade AFTER this ad ran as well.
As I recall, there was period from around 79 to 84 or so when US averaged better, but then ex-US did WAAAAY better in the second half of the 80s.
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Re: Globally Diversified or Worsified?

Post by BabaWawa »

I get my investment contrarian clues from this forum, and it's working out pretty well.

When so many folks here argued inflation was no longer an issue, I made sure I was appropriately rebalanced into my TIPS allocation. When SCV bashing reached a feverish pitch here last year, I knew it was time to make sure I was up to date with my SCV allocation. Now I'm seeing the same passionate argument that international is dead. Guess it's time to back up the truck.

I have never seem a more fickle group of people constantly using short term performance data to make portfolio changes. Didn't Bogleheads use to stand for something like pick an allocation, ignore the noise, stay the course, rebalance and don't use past performance as an indicator?
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

BabaWawa wrote: Sun May 16, 2021 1:18 pm I get my investment contrarian clues from this forum, and it's working out pretty well.

When so many folks here argued inflation was no longer an issue, I made sure I was appropriately rebalanced into my TIPS allocation. When SCV bashing reached a feverish pitch here last year, I knew it was time to make sure I was up to date with my SCV allocation. Now I'm seeing the same passionate argument that international is dead. Guess it's time to back up the truck.

I have never seem a more fickle group of people constantly using short term performance data to make portfolio changes. Didn't Bogleheads use to stand for something like pick an allocation, ignore the noise, stay the course, rebalance and don't use past performance as an indicator?
I've been here off and on a long time now, and I think that message has always been around, and always has run into other people arguing for an exception.
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Re: Globally Diversified or Worsified?

Post by abuss368 »

I recall reading BusinessWeek religiously. The actual physical magazine!

Tony
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Nathan Drake
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Re: Globally Diversified or Worsified?

Post by Nathan Drake »

midareff wrote: Sat May 15, 2021 5:38 pm You seem to have an interest in trying to determine what I can or can't do. My view of the future is as accurate as yours. In case you don't already know it, trying to determine what I know about the future is a waste of your time. You could be watching a movie, listening to an album or reading a book on investing... or out exercising.
You can do whatever you want. This topic isn't trying to convince the staunch 100% US only investors to change course. You have your mind made up. It's to enlighten those that are considering allocation changes to reduce idiosyncratic risk so that they can have a more optimal investment career.

Your view of the future is as accurate as anyone else's - that's a great argument to hold some international equities. That's precisely why we do it. Thanks for bringing it up.
midareff wrote: Sun May 16, 2021 8:21 am Methinks you would be better off out practicing for double digits amigo. I will admit it does take a real ......... (you fill in the blank) to hang in there getting sub-optimal results year after year because you just know one year you will be right.
Having a sizable portion in international equities this past decade and my returns are 10% annualized. This is a heavily tilted international portfolio at roughly market cap weight. I am very happy with those returns. I do not consider them sub optimal just because they returned less than a 100% US TSM portfolio because I still may have 6 decades of investment (or longer, should the money be passed down). I am quite happy to continue investing internationally because they are much cheaper compared to US stocks. The only scenario that makes sense to brag about your US TSM returns the past decade is if you are fully cashing out of them 100% to actually realize those gains, because the next decade could be abysmal.
midareff wrote: Sat May 15, 2021 1:39 pm So, you recommend owning under-performing equity asset classes to decrease volatility, which is the purpose of bonds in an intelligent AA. Perhaps you could explain why in the portfolio accumulation part of life I would be concerned enough about about volatility to own under-performing equity asset classes.
The long-term expected return of US and exUS is roughly the same. This is pretty well evidenced in the data back to the 1950s. Some very long periods of both exUS or US performance. So I am concerned about valuations being wildly different between exUS and US despite having the same expected return. I do not buy the argument that low interest rates justify P/E's rapidly approaching the early 2000s in US stocks, while International is trading at nearly half that value since international countries have lower interest rates than the US.
midareff wrote: Sat May 15, 2021 2:40 pm Once again you miss the points to press on with your own logic. Let me enlighten you... an investment house has legal liabilities as to their portfolio construction. Individual investors do not. I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
Yes, many investment firms have a fiduciary responsibility to act in their client's best interest. The collective data suggests investing a portion internationally is in their client's best interest since it historically has the same expected return, but periods where large over/underperformance helps smooth our or reduce the dispersion of bad tail events. If you disagree with the collective wisdom and want to make a concentrated bet, feel free, but understand that this decision is likely not in your best interest and you are falling victim to all the traditional financial novice mistakes of performance chasing and home country bias.
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Re: Globally Diversified or Worsified?

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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

I might not know enough about this, but is it the case that buying International is simply buying a "bigger haystack?" I find it hard to rationalize this and don't want to hurt any feelings on the matter. Aren't US stocks and International stocks quite different animals? What about US and International Bonds? Just a bigger haystack or are they different enough to be called a different asset class entirely?
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Re: Globally Diversified or Worsified?

Post by Da5id »

VtsaxParade wrote: Sun May 16, 2021 6:45 pm I might not know enough about this, but is it the case that buying International is simply buying a "bigger haystack?" I find it hard to rationalize this and don't want to hurt any feelings on the matter. Aren't US stocks and International stocks quite different animals? What about US and International Bonds? Just a bigger haystack or are they different enough to be called a different asset class entirely?
I think of the asset classes as "equities" and "bonds". US and International stocks have lots in common. But they do have different sector profiles (US is currently much tech heavier for example, while Int'l is heavier in financials).

I don't own world bonds personally. Haven't seen a very good case for adding currency hedged int'l bonds, though I'm not philosophically averse and might do it sometime.
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Re: Globally Diversified or Worsified?

Post by bertilak »

Da5id wrote: Sun May 16, 2021 6:52 pm
VtsaxParade wrote: Sun May 16, 2021 6:45 pm I might not know enough about this, but is it the case that buying International is simply buying a "bigger haystack?" I find it hard to rationalize this and don't want to hurt any feelings on the matter. Aren't US stocks and International stocks quite different animals? What about US and International Bonds? Just a bigger haystack or are they different enough to be called a different asset class entirely?
I think of the asset classes as "equities" and "bonds". US and International stocks have lots in common. But they do have different sector profiles (US is currently much tech heavier for example, while Int'l is heavier in financials).

I don't own world bonds personally. Haven't seen a very good case for adding currency hedged int'l bonds, though I'm not philosophically averse and might do it sometime.
I see these as two different haystacks that one should consciously allocate between. I am two to one US to international. I think it is reasonable to overweight or even go 100% US if one's expenses will be denominated in US dollars. As you can see, I also think it is reasonable to allocate some international in any case.
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Re: Globally Diversified or Worsified?

Post by Da5id »

bertilak wrote: Sun May 16, 2021 7:07 pm
Da5id wrote: Sun May 16, 2021 6:52 pm
VtsaxParade wrote: Sun May 16, 2021 6:45 pm I might not know enough about this, but is it the case that buying International is simply buying a "bigger haystack?" I find it hard to rationalize this and don't want to hurt any feelings on the matter. Aren't US stocks and International stocks quite different animals? What about US and International Bonds? Just a bigger haystack or are they different enough to be called a different asset class entirely?
I think of the asset classes as "equities" and "bonds". US and International stocks have lots in common. But they do have different sector profiles (US is currently much tech heavier for example, while Int'l is heavier in financials).

I don't own world bonds personally. Haven't seen a very good case for adding currency hedged int'l bonds, though I'm not philosophically averse and might do it sometime.
I see these as two different haystacks that one should consciously allocate between. I am two to one US to international. I think it is reasonable to overweight or even go 100% US if one's expenses will be denominated in US dollars. As you can see, I also think it is reasonable to allocate some international in any case.
I'm 60 US:40 international for stocks. So I'm not market either. But I still think as publicly traded equities US and International stocks are not "quite different animals", though I suppose that depends on how one defines "quite different animals". They generally behave fairly similarly in the long run.

To put it differently, what would you say has more in common: US financial stocks and International financial stocks, or US financial stocks and US Tech stocks? Again, what is mean by the "quite different animals"?
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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

Different laws, regulations, politics, cultures, etc. Chinese equities are quite different than even Japanese when you think about it.
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Re: Globally Diversified or Worsified?

Post by Da5id »

VtsaxParade wrote: Sun May 16, 2021 9:33 pm Different laws, regulations, politics, cultures, etc. Chinese equities are quite different than even Japanese when you think about it.
Sure. I guess it is all a question of how you define things. Do foreign and domestic equities behave more similarly than say US Tech Sector vs US Energy sector funds? If so, are different US stocks different "asset classes"? Could be if that is how you choose to define them.
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

Da5id wrote: Mon May 17, 2021 12:17 pm
VtsaxParade wrote: Sun May 16, 2021 9:33 pm Different laws, regulations, politics, cultures, etc. Chinese equities are quite different than even Japanese when you think about it.
Sure. I guess it is all a question of how you define things. Do foreign and domestic equities behave more similarly than say US Tech Sector vs US Energy sector funds? If so, are different US stocks different "asset classes"? Could be if that is how you choose to define them.
My two cents is there is not necessarily a consensus and decisive definition of "asset class" that will answer these questions.

For example, one common definition is "a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations." The immediate problem is that is two different criteria. What if two identifiable grouping of investments are subject to the same laws and regulations, but don't exhibit similar characteristics? What if two groupings of investments are not subject to the same laws and regulations, but do exhibit similar characteristics?

And what are similar enough characteristics to count? Which characteristics? All the same laws and regulations, or only some of them? And so on.

In this case, there are some broad similarities in how company stocks are governed by laws and regulations in different jurisdictions, but it certainly isn't identical. There are at least some correlations in how they tend to behave in response to different circumstances, but not perfectly, and it can vary over time. And so on.

In the end, one thing is fundamental: when you buy ex-U.S. company stocks, you are not buying ownership shares in the same productive assets as you are when you buy U.S. company stocks. But whether or not that makes them a different asset class is largely semantics.
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Re: Globally Diversified or Worsified?

Post by jginseattle »

It's really quite simple: Diversified if you can stick with it. "Worsified" if you attempt it and then abandon it in times of trouble.
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Re: Globally Diversified or Worsified?

Post by UpperNwGuy »

BabaWawa wrote: Sun May 16, 2021 1:18 pm I get my investment contrarian clues from this forum, and it's working out pretty well.

When so many folks here argued inflation was no longer an issue, I made sure I was appropriately rebalanced into my TIPS allocation. When SCV bashing reached a feverish pitch here last year, I knew it was time to make sure I was up to date with my SCV allocation. Now I'm seeing the same passionate argument that international is dead. Guess it's time to back up the truck.

I have never seem a more fickle group of people constantly using short term performance data to make portfolio changes. Didn't Bogleheads use to stand for something like pick an allocation, ignore the noise, stay the course, rebalance and don't use past performance as an indicator?
Actually, you are the ideal boglehead: you own TIPS, tilt toward SCV, and hold lots of international. I am not the ideal boglehead because I don't do any of those things.
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Re: Globally Diversified or Worsified?

Post by vineviz »

Nathan Drake wrote: Sun May 16, 2021 2:03 pm Yes, many investment firms have a fiduciary responsibility to act in their client's best interest. The collective data suggests investing a portion internationally is in their client's best interest since it historically has the same expected return, but periods where large over/underperformance helps smooth our or reduce the dispersion of bad tail events. If you disagree with the collective wisdom and want to make a concentrated bet, feel free, but understand that this decision is likely not in your best interest and you are falling victim to all the traditional financial novice mistakes of performance chasing and home country bias.
I'm amazed at the fervor with which the anti-diversification crowd seems to be able to muster in an attempt to defend the indefensible. Some of these comments in support of the USA portfolio would be financial malpractice if uttered by anyone obligated to make prudent recommendations.
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Re: Globally Diversified or Worsified?

Post by lostdog »

I'm guessing Vanguard is patiently waiting for the day they can switch to Total World Stock and Total World Bond in their target date and life strategy funds.

I'll guess in a decade.
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Re: Globally Diversified or Worsified?

Post by Da5id »

vineviz wrote: Mon May 17, 2021 7:26 pm
Nathan Drake wrote: Sun May 16, 2021 2:03 pm Yes, many investment firms have a fiduciary responsibility to act in their client's best interest. The collective data suggests investing a portion internationally is in their client's best interest since it historically has the same expected return, but periods where large over/underperformance helps smooth our or reduce the dispersion of bad tail events. If you disagree with the collective wisdom and want to make a concentrated bet, feel free, but understand that this decision is likely not in your best interest and you are falling victim to all the traditional financial novice mistakes of performance chasing and home country bias.
I'm amazed at the fervor with which the anti-diversification crowd seems to be able to muster in an attempt to defend the indefensible. Some of these comments in support of the USA portfolio would be financial malpractice if uttered by anyone obligated to make prudent recommendations.
Confirmation bias is strong on all sides. I try and think of that when I evaluate their silly reasons for deciding to behave/believe differently than I do :)
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Re: Globally Diversified or Worsified?

Post by Nathan Drake »

vineviz wrote: Mon May 17, 2021 7:26 pm
Nathan Drake wrote: Sun May 16, 2021 2:03 pm Yes, many investment firms have a fiduciary responsibility to act in their client's best interest. The collective data suggests investing a portion internationally is in their client's best interest since it historically has the same expected return, but periods where large over/underperformance helps smooth our or reduce the dispersion of bad tail events. If you disagree with the collective wisdom and want to make a concentrated bet, feel free, but understand that this decision is likely not in your best interest and you are falling victim to all the traditional financial novice mistakes of performance chasing and home country bias.
I'm amazed at the fervor with which the anti-diversification crowd seems to be able to muster in an attempt to defend the indefensible. Some of these comments in support of the USA portfolio would be financial malpractice if uttered by anyone obligated to make prudent recommendations.
It does seem to be intellectually dishonest. If you want to make a concentrated bet on the US, just openly admit that there are risks to that approach and that it shouldn't be the default position to take.

Instead, you just hear nothing but gloating about how their US TSM fund has done for the past ten years, continually trashing international as being a poor investment (and always will be), and hoping to convince others to jump on board with their strategy just because they conjured up some isolated quotes from prominent authority figures.

I think it does a disservice (especially to those seeking advice on this board) to suggest that having some international diversification is a bad position to take.
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Re: Globally Diversified or Worsified?

Post by LunarOpal »

lostdog wrote: Sat May 15, 2021 5:09 pm
abuss368 wrote: Sat May 15, 2021 4:31 pm
vineviz wrote: Sat May 15, 2021 4:18 pm
abuss368 wrote: Sat May 15, 2021 3:46 pm The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
Avoiding unnecessary risk is one of the “big things”. This anti-diversification misinformation campaign runs the risk of doing real financial harm to investors who buy into it.
Vince -

Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.

Tony
Tony,

Will you admit that you're promoting performance chasing? Answer with a yes or no.
Will you admit that look at past returns is not "performance chasing?"

"Performance chasing" refers to constantly selling your current fund to buy last year's best performing fund. It doesn't refer to considering long term return in making an investment decision. If it did, indexing would "also" be performance chasing...since the long term out-performance of indexed funds vs. actively managed funds is well known. Do you think that people should invest in managed funds? Is that the argument?

In reality, of course, the "performance chasing" name-calling by ex-US proponents is simply rhetoric to hide the massive underperformance of ex-US.

Ex-US has underperformed over the past 10, 20, 30, 40, and 50 years. It's not "performance chasing" to think that's relevant. Just like it's not performance chasing to consider that indexes outperform 85% of active managers.

Some people will always feel more comfortable with an international component, and they should invest in a way that makes them feel comfortable.

But international proponents need should be honest about what the data says about international investing. And it's not good, based on either long term returns or based on purported diversification benefits.
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Re: Globally Diversified or Worsified?

Post by Nathan Drake »

LunarOpal wrote: Mon May 17, 2021 10:33 pm
lostdog wrote: Sat May 15, 2021 5:09 pm
abuss368 wrote: Sat May 15, 2021 4:31 pm
vineviz wrote: Sat May 15, 2021 4:18 pm
abuss368 wrote: Sat May 15, 2021 3:46 pm The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
Avoiding unnecessary risk is one of the “big things”. This anti-diversification misinformation campaign runs the risk of doing real financial harm to investors who buy into it.
Vince -

Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.

Tony
Tony,

Will you admit that you're promoting performance chasing? Answer with a yes or no.
Will you admit that look at past returns is not "performance chasing?"

"Performance chasing" refers to constantly selling your current fund to buy last year's best performing fund. It doesn't refer to considering long term return in making an investment decision. If it did, indexing would "also" be performance chasing...since the long term out-performance of indexed funds vs. actively managed funds is well known. Do you think that people should invest in managed funds? Is that the argument?

In reality, of course, the "performance chasing" name-calling by ex-US proponents is simply rhetoric to hide the massive underperformance of ex-US.

Ex-US has underperformed over the past 10, 20, 30, 40, and 50 years. It's not "performance chasing" to think that's relevant. Just like it's not performance chasing to consider that indexes outperform 85% of active managers.

Some people will always feel more comfortable with an international component, and they should invest in a way that makes them feel comfortable.

But international proponents need should be honest about what the data says about international investing. And it's not good, based on either long term returns or based on purported diversification benefits.
The long term data suggests roughly similar returns, with certain periods of under or outperformance depending on the start/end points.

A significant amount of outperformance has been this past decade when speculative valuations have risen.

So yes, investing 100% in US is performance chasing. International advocates are mostly not 100% exUS because the future is unknowable and it’s wise to diversify risk.
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

LunarOpal wrote: Mon May 17, 2021 10:33 pmEx-US has underperformed over the past 10, 20, 30, 40, and 50 years. It's not "performance chasing" to think that's relevant.
You are looking at different start points, but only one end point. If you want to avoid "performance chasing" logic, you need to look at periods with different end points too.

So, for example, 20 to 10 years ago, ex-U.S. outperformed U.S. If you consider only 10 years ago to now, and not the prior 10 year period, that is a form of recency bias/performance chasing.
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Re: Globally Diversified or Worsified?

Post by Thesaints »

nisiprius wrote: Fri May 14, 2021 8:32 pm To within roundoff error, there was no difference at all in either the return or the standard deviation of the two portfolios.

When an advocate for international diversification, in a presentation calling it "the most important diversification on the equity side," choosing his own data sources and time period, publishes an illustration showing no benefit whatsoever (and fails to comment on it in the book!)--I don't know what to say except that the benefit can be subtle.
Assuming that, net of cost,
- Portfolio A has an expected return of X% and a volatilty of Y%
- Portfolio B has same expected return and volatility, but is composed of only every 5th stock included in Portfolio A

Would you invest only in Portfolio B, because return and volatility are the same and so why bother buying 5x as many stocks ?
or
Would you invest only in Portfolio A, because return and volatility are the same and so why run the risk of temporarily underperforming ?
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Re: Globally Diversified or Worsified?

Post by esteen »

I think most would benefit quite a bit from taking the time they spend himming and hawing over % of international equities, and instead allocating it toward things that matter much more. For example increasing their income (getting raises, doing side hustles), reducing their expenses, or working on bettering their skillset.

That said, I'm spending some of my time right now reading posts from other people on international equity %s... :mrgreen: but hey it's entertaining!
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Re: Globally Diversified or Worsified?

Post by RJC »

I think it would help if we all turned down the rhetoric. It’s not “dangerous” or “performance chasing” if you decide to lean one way or the other. This thread shows that there will be periods of outperformance on either side but overall the results are similar.

"When experts disagree, often it is because it doesn't matter much."
--Taylor Larimore
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Re: Globally Diversified or Worsified?

Post by whereskyle »

Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm
NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
I think keeping all your ex-us equities and buying VT (Vanguard Total World Stock ETF, ER .08) where you would have purchased an ex-us only fund may be an acceptable compromise if you really can no longer bring yourself to buy an ex-us only fund. That way, you still get at least some of the diversification benefit if we learn in hindsight that the present was actually a great time to be buying ex-us equities.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Globally Diversified or Worsified?

Post by nisiprius »

Nathan Drake wrote: Sun May 16, 2021 2:03 pm...The long-term expected return of US and exUS is roughly the same. This is pretty well evidenced in the data back to the 1950s. Some very long periods of both exUS or US performance...
Ah, but that really illustrate the whole problem, not just with US versus exUS. You say "the long-term expected return of US and ex US is roughly the same."

The accurate statement is that it has been exactly the same since the 1950s..

And why, oh why, oh why did you use "the 1950s" as your starting point? You don't say.

Because if you use 1900 as your starting point, and the data have been easy to find ever since the publication of Triumph of the Optimists: 101 Years of Global Investment Returns by Dimson & al., then the return of US and ex US has been very different.

"The 1950s" is, let me be blunt, an odd starting point. One natural starting point is the start of the oldest index, the MSCI EAFE index, only goes back to 1970. So if someone says they are using data back to "the 1950s," it's a good chance that they have been dipping into the Dimson & al data but only using part of it.

Nobody is willing to believe that the actual returns from 1900-2021 are a good predictor of future returns because that whole 121-year period is so obviously dominated by the effects of World War II and World War I. But there is no particular reason why "the 1950s-2021" should be a better representation reality than what came before.

Whether explicit or not, "expected" return for US versus ex-US involve expectations of what kinds of wars are "expected" and who you think the winners and losers are likely to be.

I'm not using 1900-present to "prove" that the US will have higher returns. I'm using it to prove that forecasts of US and ex-US are mostly subjective.

And that's why the debate is so sterile.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Topic Author
Johnathon Livingston
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Re: Globally Diversified or Worsified?

Post by Johnathon Livingston »

whereskyle wrote: Tue May 18, 2021 6:55 am
Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm
NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
I think keeping all your ex-us equities and buying VT (Vanguard Total World Stock ETF, ER .08) where you would have purchased an ex-us only fund may be an acceptable compromise if you really can no longer bring yourself to buy an ex-us only fund. That way, you still get at least some of the diversification benefit if we learn in hindsight that the present was actually a great time to be buying ex-us equities.
I think that’s a great idea. I’m actually doing something like that with a non-retirement account that I use for miscellaneous mid-term savings. I Invest half of the equities at around 70/30 US/Ex-US (Ie globally diversified with a home bias) and the other half is VT. That way I can have a home bias but also hedge against it with a market cap weighted fund. I don’t get the tax advantage with VT, but it’s not a lot of money, so I don’t sweat it.
Da5id
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Re: Globally Diversified or Worsified?

Post by Da5id »

nisiprius wrote: Tue May 18, 2021 7:28 am Whether explicit or not, "expected" return for US versus ex-US involve expectations of what kinds of wars are "expected" and who you think the winners and losers are likely to be.

I'm not using 1900-present to "prove" that the US will have higher returns. I'm using it to prove that forecasts of US and ex-US are mostly subjective.

And that's why the debate is so sterile.
Your post is quite fair. And it is not just wars. Are the data from 1900, when the US and world for that matter had much more agriculturally focused economies predictive today? Dunno.

That said, I feel the most reasonable response to the murky historical data and the uncertain future prospects for US vs Int'l is to diversify across geographic regions. I understand that others feel otherwise.
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

nisiprius wrote: Tue May 18, 2021 7:28 am
Nathan Drake wrote: Sun May 16, 2021 2:03 pm...The long-term expected return of US and exUS is roughly the same. This is pretty well evidenced in the data back to the 1950s. Some very long periods of both exUS or US performance...
Ah, but that really illustrate the whole problem, not just with US versus exUS. You say "the long-term expected return of US and ex US is roughly the same."

The accurate statement is that it has been exactly the same since the 1950s..

And why, oh why, oh why did you use "the 1950s" as your starting point? You don't say.

Because if you use 1900 as your starting point, and the data have been easy to find ever since the publication of Triumph of the Optimists: 101 Years of Global Investment Returns by Dimson & al., then the return of US and ex US has been very different.

"The 1950s" is, let me be blunt, an odd starting point. One natural starting point is the start of the oldest index, the MSCI EAFE index, only goes back to 1970. So if someone says they are using data back to "the 1950s," it's a good chance that they have been dipping into the Dimson & al data but only using part of it.

Nobody is willing to believe that the actual returns from 1900-2021 are a good predictor of future returns because that whole 121-year period is so obviously dominated by the effects of World War II and World War I. But there is no particular reason why "the 1950s-2021" should be any better.

Whether explicit or not, "expected" return for US versus ex-US involved expectations of what kinds of wars are "expected" and who you think the winners and losers are likely to be.
Yeah, part of my frustration with these conversations is this is really no way to think about predictive models at all.

Just to begin with, predictive modeling of asset returns is very, very hard even under "normal" circumstances. The world is a large, complicated place, lots of different things can affect asset returns, and trying to model all that inevitably leaves you with a very large component of irreducible uncertainty.

And just backtesting portfolios over some few recent periods is not a valid way to build such a predictive model. That doesn't mean the results of such analysis will definitely be wrong, it just means they are really not more likely to be right than just guessing.

That is an unwelcome message when backtesting is such a popular exercise, but the cold reality is as soon as you go from the descriptive (this is what has happened in the periods I studied given this portfolio) to the predictive (and therefore this is what is likely to happen in the future given this portfolio), you are implicitly relying on a method of deriving predictive models that we know is invalid.

Nor, of course, is it valid model-building process to start with a prediction one wants to believe, say because it supports what one is already doing or wants to start doing, and then intuitively come up with justifications for that desired prediction.

There are, of course, people who try to build predictive models using valid model-building processes. I think Vanguard, for example, does this as well as anyone with their predictive forecasts. But as we discussed recently in a thread on their latest forecasts, they still can't actually eliminate all that irreducible uncertainty, and so the real uncertainty around their predictions is so large as to make them unactionable.

And even those models are really bounded by certain assumptions about the range of things that are being considered as possible by the model. Once you start contemplating the possible effects of things like wars, pandemics, and so on, really all bets are off, because these models can't quantify the risks and possible effects of such unique events in any meaningful way.

So, we spend a lot of time here arguing over different ways of describing the recorded history of assets, when none of that is actually relevant to answering the predictive question, since we are not using valid processes to build predictive models. And when it comes to answering the predictive question, it turns out there is so much irreducible uncertainty due to the baseline complexity of the world and the known possibility of unique events that there is no possibility of a reliable prediction at all.

The next step in this reasoning is to go on to what makes sense in portfolio design given such a high level of irreducible uncertainty about what is going to happen. But I am going to stop here, because that next step will mean nothing to people who simply will not accept that what they want to do cannot be justified with backtesting, intuitive rationalizations, and so on. And my experience is many people very much do not want to accept that.
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

Da5id wrote: Tue May 18, 2021 7:47 am
nisiprius wrote: Tue May 18, 2021 7:28 am Whether explicit or not, "expected" return for US versus ex-US involve expectations of what kinds of wars are "expected" and who you think the winners and losers are likely to be.

I'm not using 1900-present to "prove" that the US will have higher returns. I'm using it to prove that forecasts of US and ex-US are mostly subjective.

And that's why the debate is so sterile.
Your post is quite fair. And it is not just wars. Are the data from 1900, when the US and world for that matter had much more agriculturally focused economies predictive today? Dunno.

That said, I feel the most reasonable response to the murky historical data and the uncertain future prospects for US vs Int'l is to diversify across geographic regions. I understand that others feel otherwise.
Not to keep ranting, but of course you are right. In many ways, betting on specific legal jurisdictions is similar to betting on specific sectors, and it can sometimes be equally hard to convince some people here they should not be making bets on specific sectors based on recent performance. But how a certain sector has performed comparatively historically is simply not predictive of how it will perform in the future in any reliable sense, for the reasons we have discussed many times before.

I note that sometimes people who do not like this message of irreducible uncertainty take it to next level and ask why then we should still think that stocks, say, have a higher expected return than bonds.

And part of my answer is we should be careful about that assumption!

But at least then, you are doing more than talking about different jurisdictions or sectors. Now you are talking about fundamentally different financial arrangements--stocks are a form of ownership, bonds are a form of lending, and the difference between owning and lending at least plausibly can be used to justify different strategies for how much of each you want to do, without having to derive an actionable predictive model first.

Or you might reject that logic. And I can respect that attitude too, even if I don't personally share it.

But again, betting on certain legal jurisdictions, sectors, or so on? That is way less fundamental than preferring ownership over lending, and not something I think can really be justified with the sorts of arguments typically presented in their favor here.
Nathan Drake
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Re: Globally Diversified or Worsified?

Post by Nathan Drake »

nisiprius wrote: Tue May 18, 2021 7:28 am
Nathan Drake wrote: Sun May 16, 2021 2:03 pm...The long-term expected return of US and exUS is roughly the same. This is pretty well evidenced in the data back to the 1950s. Some very long periods of both exUS or US performance...
Ah, but that really illustrate the whole problem, not just with US versus exUS. You say "the long-term expected return of US and ex US is roughly the same."

The accurate statement is that it has been exactly the same since the 1950s..

And why, oh why, oh why did you use "the 1950s" as your starting point? You don't say.

Because if you use 1900 as your starting point, and the data have been easy to find ever since the publication of Triumph of the Optimists: 101 Years of Global Investment Returns by Dimson & al., then the return of US and ex US has been very different.

"The 1950s" is, let me be blunt, an odd starting point. One natural starting point is the start of the oldest index, the MSCI EAFE index, only goes back to 1970. So if someone says they are using data back to "the 1950s," it's a good chance that they have been dipping into the Dimson & al data but only using part of it.

Nobody is willing to believe that the actual returns from 1900-2021 are a good predictor of future returns because that whole 121-year period is so obviously dominated by the effects of World War II and World War I. But there is no particular reason why "the 1950s-2021" should be a better representation reality than what came before.

Whether explicit or not, "expected" return for US versus ex-US involve expectations of what kinds of wars are "expected" and who you think the winners and losers are likely to be.

I'm not using 1900-present to "prove" that the US will have higher returns. I'm using it to prove that forecasts of US and ex-US are mostly subjective.

And that's why the debate is so sterile.
End/Start date sensitivity and the impact of geographic black swan events only further bolsters the position that having diversification is a prudent choice; not that investing only in US is fine just because it’s worked out well in recent history.

What seems sterile to me are the arguments of proponents of 100% US equities. If you decide on that allocation for personal betting reasons, go ahead. But don’t suggest that it’s not without its own set of risks that are easily mitigated by adding more diversification
VtsaxParade
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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

Why does it always feel like 1 camp in these threads is hyper aggressive to the point of using ad homs and bullying tactics? I don't get it.
Da5id
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Re: Globally Diversified or Worsified?

Post by Da5id »

VtsaxParade wrote: Tue May 18, 2021 8:55 am Why does it always feel like 1 camp in these threads is hyper aggressive to the point of using ad homs and bullying tactics? I don't get it.
Just curious, is it the camp that disagrees with your POV? Because ones side often appears much more reasonable than ones opponents side. Not sure you are wrong as a quantitative matter, just saying the qualitative feeling often depends on how invested one is in ones position.

Also worth noting that if you feel someone is actually uncivil report the post. The mods are quite responsive.
VtsaxParade
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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

See what I mean?

Are there even any us only defenders in this thread?
Da5id
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Re: Globally Diversified or Worsified?

Post by Da5id »

VtsaxParade wrote: Tue May 18, 2021 9:15 am See what I mean?

Are there even any us only defenders in this thread?
Was that to me? Was my post actually hyper aggressive or bullying? Really? (if so, feel free to report it?!?). I wasn't even very much disagreeing with your point. I didn't even know which your side was. Despite your screen name (which I just noticed), I don't generally bother associating people's forum identities with their positions other than a select few who post very heavily.
VtsaxParade
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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

Confusing right?

Now imagine joining a thread to learn about international stocks only to get told to buy tech stocks. Super confusing.
Da5id
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Re: Globally Diversified or Worsified?

Post by Da5id »

VtsaxParade wrote: Tue May 18, 2021 9:38 am Confusing right?

Now imagine joining a thread to learn about international stocks only to get told to buy tech stocks. Super confusing.
Well, someone is confused here, that seems clear. Rather than meta discussions about others posting style, why not simply advocate rationally and clearly for positions you believe in? Seems more in keeping with the forum ethos.

Again, if you feel there are personal attacks or bullying, report the post(s) in question to the moderators. They are quite keen on keeping the forums civil and do a good job at it generally IMO.

edit: I had to read back to what you were talking about wrt Tech Stocks. Huh. Did you think I was telling you to buy tech stocks?!? :shock: :?
VtsaxParade
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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

Haha, dude relax. I'm just trying to get people to chill. And yes, I keep opening these threads to learn about the advantages of buying vtiax and end up buying vgt. It is very confusing!
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anon_investor
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Re: Globally Diversified or Worsified?

Post by anon_investor »

VtsaxParade wrote: Tue May 18, 2021 9:51 am Haha, dude relax. I'm just trying to get people to chill. And yes, I keep opening these threads to learn about the advantages of buying vtiax and end up buying vgt. It is very confusing!
So the lesson you have learned is VGT and chill is the new VTSAX and chill?
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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

:shock:
Da5id
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Re: Globally Diversified or Worsified?

Post by Da5id »

anon_investor wrote: Tue May 18, 2021 10:05 am
VtsaxParade wrote: Tue May 18, 2021 9:51 am Haha, dude relax. I'm just trying to get people to chill. And yes, I keep opening these threads to learn about the advantages of buying vtiax and end up buying vgt. It is very confusing!
So the lesson you have learned is VGT and chill is the new VTSAX and chill?
That isn't edgy enough. FAANG, Bitcoin, and chill surely :)
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Re: Globally Diversified or Worsified?

Post by Robot Monster »

Da5id wrote: Tue May 18, 2021 10:34 am
anon_investor wrote: Tue May 18, 2021 10:05 am
VtsaxParade wrote: Tue May 18, 2021 9:51 am Haha, dude relax. I'm just trying to get people to chill. And yes, I keep opening these threads to learn about the advantages of buying vtiax and end up buying vgt. It is very confusing!
So the lesson you have learned is VGT and chill is the new VTSAX and chill?
That isn't edgy enough. FAANG, Bitcoin, and chill surely :)
The thread has run its course and chill, IMO.
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
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anon_investor
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Re: Globally Diversified or Worsified?

Post by anon_investor »

Da5id wrote: Tue May 18, 2021 10:34 am
anon_investor wrote: Tue May 18, 2021 10:05 am
VtsaxParade wrote: Tue May 18, 2021 9:51 am Haha, dude relax. I'm just trying to get people to chill. And yes, I keep opening these threads to learn about the advantages of buying vtiax and end up buying vgt. It is very confusing!
So the lesson you have learned is VGT and chill is the new VTSAX and chill?
That isn't edgy enough. FAANG, Bitcoin, and chill surely :)
100% Dogecoin and chill?
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Chief_Engineer
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Re: Globally Diversified or Worsified?

Post by Chief_Engineer »

The first Boglehead Principle is "Develop a Workable Plan." Not invest is index funds. Not have a broadly diversified portfolio. But develop a workable plan, i.e., one you can stick to. I hold international stocks because it helps me sleep at night. For whatever reason, single country risk scares the crap out of me. I don't know if it's rational for an economy as large and diversified as the US, but it's something that concerns me. Other people have different things that they worry about.

The fact is US vs Intl is very far down the list of what is likely to impact your financial success. Your health, savings rate, and consumption choices are all much more influential.
Da5id
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Re: Globally Diversified or Worsified?

Post by Da5id »

Chief_Engineer wrote: Tue May 18, 2021 10:42 am
The fact is US vs Intl is very far down the list of what is likely to impact your financial success. Your health, savings rate, and consumption choices are all much more influential.
Totally agree. I'd also add that the US vs International choice is way below picking a workable balance between equities of whatever sort and fixed income.
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spdoublebass
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Re: Globally Diversified or Worsified?

Post by spdoublebass »

LunarOpal wrote: Mon May 17, 2021 10:33 pm
lostdog wrote: Sat May 15, 2021 5:09 pm
abuss368 wrote: Sat May 15, 2021 4:31 pm
vineviz wrote: Sat May 15, 2021 4:18 pm
abuss368 wrote: Sat May 15, 2021 3:46 pm The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
Avoiding unnecessary risk is one of the “big things”. This anti-diversification misinformation campaign runs the risk of doing real financial harm to investors who buy into it.
Vince -

Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.

Tony
Tony,

Will you admit that you're promoting performance chasing? Answer with a yes or no.
Will you admit that look at past returns is not "performance chasing?"

"Performance chasing" refers to constantly selling your current fund to buy last year's best performing fund. It doesn't refer to considering long term return in making an investment decision. If it did, indexing would "also" be performance chasing...since the long term out-performance of indexed funds vs. actively managed funds is well known. Do you think that people should invest in managed funds? Is that the argument?

In reality, of course, the "performance chasing" name-calling by ex-US proponents is simply rhetoric to hide the massive underperformance of ex-US.

Ex-US has underperformed over the past 10, 20, 30, 40, and 50 years. It's not "performance chasing" to think that's relevant. Just like it's not performance chasing to consider that indexes outperform 85% of active managers.

Some people will always feel more comfortable with an international component, and they should invest in a way that makes them feel comfortable.

But international proponents need should be honest about what the data says about international investing. And it's not good, based on either long term returns or based on purported diversification benefits.
I thought performance chasing is when you develop a plan and then change it because something isn’t performing well. That’s what is described in the first post of the two fund thread.

I don’t have a problem with someone being 100% US. To each their own. I have a problem with someone promoting something they capitulated into and then constantly seeking confirmation they made a good decision.

I really do not care what someone’s portfolio is, but I do think staying the course is key.
I'm trying to think, but nothing happens
AlwaysLearningMore
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Re: Globally Diversified or Worsified?

Post by AlwaysLearningMore »

VtsaxParade wrote: Sun May 16, 2021 6:45 pm I might not know enough about this, but is it the case that buying International is simply buying a "bigger haystack?" I find it hard to rationalize this and don't want to hurt any feelings on the matter. Aren't US stocks and International stocks quite different animals? What about US and International Bonds? Just a bigger haystack or are they different enough to be called a different asset class entirely?
I just posted this on another thread, but it seems apropos here https://tinyurl.com/4kcj8yjw
AlwaysLearningMore wrote: Tue May 18, 2021 10:56 am Out of curiosity I wanted to look at the point brought up about "all the great companies you're missing out on e.g. Nestle, Total SA, Novartis, AstraZeneca."
e.g., https://tinyurl.com/yzbdmw84

So I looked for a rough estimate as to how those companies have fared against US TSM.
The furthest back I could find on M* to compare all was January 6, 2003:
Image

(Personally, I have held a modest allocation to int'l equities, so the poor performance of int'l hampered my returns as well.)
Retirement is best when you have a lot to live on, and a lot to live for.
Carol88888
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Re: Globally Diversified or Worsified?

Post by Carol88888 »

I don't know if this reply adds to the discussion but it just occurred to me that Warren Buffett - considered by some to be the greatest allocator of capital of all time - has few international holdings. Yes, he holds a Chinese EV car company and I think he bought Precision Casparats from Israel but if he thought international stocks presented enormous opportunity, wouldn't we expect to see international picks showing up in his portfolio?
VtsaxParade
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Re: Globally Diversified or Worsified?

Post by VtsaxParade »

Da5id wrote: Tue May 18, 2021 10:34 am
anon_investor wrote: Tue May 18, 2021 10:05 am
VtsaxParade wrote: Tue May 18, 2021 9:51 am Haha, dude relax. I'm just trying to get people to chill. And yes, I keep opening these threads to learn about the advantages of buying vtiax and end up buying vgt. It is very confusing!
So the lesson you have learned is VGT and chill is the new VTSAX and chill?
That isn't edgy enough. FAANG, Bitcoin, and chill surely :)
+GameStop!!
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