Are any US-only investors having 2nd thoughts?

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InvestorNewb
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Are any US-only investors having 2nd thoughts?

Post by InvestorNewb »

Even though we are only 27 days into the year, the international stock index is finally showing some benefit in the portfolio.

Vanguard Total Stock Market ETF (VTI) is down -0.6 YTD
Vanguard Total International Stock ETF (VXUS) is up +2.3% YTD

It may be a silly question, but are any of the die-hard, US-only investors having second thoughts about their portfolio allocation?

2015 may finally be the year that international outperforms US.

This thread will be revisited at the end of the year.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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stemikger
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Re: Are any US-only investors having 2nd thoughts?

Post by stemikger »

20 years now and still U.S. only. No second thoughts whatsoever. Last year and this year I have had second thoughts about changing my asset allocation as far as bonds go, but thanks to the good people here I decided to stay the course.

John Bogle still feels a U.S. investor gets plenty of international diversification by holding the S&P or the Total Market Index.

Sailing Away just posted this today. It is Jack on CNBC today.
http://www.cnbc.com/id/102369672
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TFinator
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Re: Are any US-only investors having 2nd thoughts?

Post by TFinator »

I am not so sure that it's a silly question as much as it's a waste of time. I wish there was a way for me to know that you're posting a new thread based off of 27 days of data before I actually open it and read.
Sorry to be harsh - but I don't know what kind of answer you're looking for posting a question like that on a forum like this.
John3754
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Re: Are any US-only investors having 2nd thoughts?

Post by John3754 »

The magnitude of the market movements that you're talking about are background noise, and if you find them disturbing then you're most likely in the wrong game. Anyone who would seriously have second thoughts about their portfolio because of these movements over the past 27 days probably shouldn't be investing, at least not in stocks.
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Re: Are any US-only investors having 2nd thoughts?

Post by JohnFiscal »

Ironically, I saw this headline at M* today "Are you sticking with International Stocks, or Bailing?" (http://socialize.morningstar.com/NewSoc ... px#3612551)

It's a matter of thought to me as I just did an in-service rollover of my 401K to Vanguard IRA and split 50-50 to VTSAX and VTIAX (total US index and total international index).

The International is sort of, kind of, on a whim. I did already have some VTIAX in other accounts (Roths, taxable).

But I remember that Bogle's first book, written back in the 1990's indicated that his view was that the large US companies provided enough international exposure and that they mitigated currency risk. I guess my eyeballing of the markets with my thumb held out at arm's length and squinting one eye showed the US to be at an all time high (though sputtering) and the international to be a bit woeful. So I figured best not to buy all US at its high.


ETA: my split of US and international is more like 80-20 or 70-30
Last edited by JohnFiscal on Tue Jan 27, 2015 3:05 pm, edited 1 time in total.
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JoMoney
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Re: Are any US-only investors having 2nd thoughts?

Post by JoMoney »

International has had better performance over various periods in the past, I expect it will again in the future. I really don't think I could time it right to switch back and forth and get anything extra out of playing that game long-term.
I don't think much has changed that would make me suddenly less willing to bear the risks of the U.S. market index, and if/when I start to feel that way, provided it looks like an opportunity to do some selling, I would probably lean heavier to cash/bonds than to international stocks.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Toons
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Re: Are any US-only investors having 2nd thoughts?

Post by Toons »

None whatsoever :happy
Chasing performance??Hardly a thought.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Taylor Larimore
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Re: Are any US-only investors having 2nd thoughts?

Post by Taylor Larimore »

InvestorNewb:

Jack Bogle speaks about International Investing in this recent video posted by SailingAway:

viewtopic.php?f=10&t=156734&newpost=2351679

I intend to stay-the-course with about 30% of equity in my international stock fund.

Best wishes.
Taylor
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Re: Are any US-only investors having 2nd thoughts?

Post by itstoomuch »

Lost a bit today 01/27/2015. Own a block of MSFT. Reports say that strong US Dollar affecting foreign sales. CAT has same but bigger problem-Strong US$ and slow global construction and mining. Not a bad day today because I knew that weather related stuff will do well and planned accordingly.
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Re: Are any US-only investors having 2nd thoughts?

Post by randomguy »

John3754 wrote:The magnitude of the market movements that you're talking about are background noise, and if you find them disturbing then you're most likely in the wrong game. Anyone who would seriously have second thoughts about their portfolio because of these movements over the past 27 days probably shouldn't be investing, at least not in stocks.
I sort of assumed it was a bit of a joke post making fun of the people who are ditching international because of the underperformance since 2009. Changing allocations based on 6 years of performance is as bad as doing it off 27 days. At least with the 27 days you have a chance to catch the up wave rather than buying at the top.
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Re: Are any US-only investors having 2nd thoughts?

Post by leonard »

InvestorNewb - Why would any investor in a Total US Index be surprised that Total Int'l would perform differently?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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LAlearning
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Re: Are any US-only investors having 2nd thoughts?

Post by LAlearning »

Only Newb would base his decisions over 27 days of data. :oops: .
I know nothing!
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zaboomafoozarg
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Re: Are any US-only investors having 2nd thoughts?

Post by zaboomafoozarg »

LAlearning wrote:Only Newb would base his decisions over 27 days of data. :oops:
Once a newb, always a newb.

That's exactly what I was thinking - if a 3% difference in performance in less than 1 month makes you have 2nd thoughts, you have a LOT to learn.
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Phineas J. Whoopee
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Re: Are any US-only investors having 2nd thoughts?

Post by Phineas J. Whoopee »

If the underlying holdings didn't perform differently from time to time, it wouldn't be diversification.

If investors didn't think about whether a stock market decision over four weeks less one day was wrong based on 27-day performance, it wouldn't be the stock market.

PJW
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ray.james
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Re: Are any US-only investors having 2nd thoughts?

Post by ray.james »

Emerging markets have been doing far better :happy
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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Re: Are any US-only investors having 2nd thoughts?

Post by lack_ey »

Stock performance on a year-to-year basis (never mind by month) is mostly noise.

I had no idea international has been doing better than domestic equity since the start of the year, and I check my portfolio too much, much more than needed.
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Re: Are any US-only investors having 2nd thoughts?

Post by john94549 »

International and emerging lagged last year, of that there was little doubt. Domestic did quite well, of that there was little doubt. Did committed Bogleheads do anything but "stay the course", again, of that there was little doubt.

Set your sails, have an anchor-to-windward*, and "don't peek".

*I prefer an IRA CD ladder to get us through when others are "in irons" (old Navy expression, when nothing you can do with the rudder can steer the ship).
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Re: Are any US-only investors having 2nd thoughts?

Post by cb474 »

stemikger wrote:John Bogle still feels a U.S. investor gets plenty of international diversification by holding the S&P or the Total Market Index.
With all due respect to Bogle, the idea that multinational U.S. companies provide international diversification has been pretty well debunked by Larry Swedroe. But given how often this idea rears its head in this forum, I suspect it's a truism that may never die.

If it were correct that you get international diversification from the multinational U.S. companies that can be found in the S&P and U.S. Total Market, then there would be a perfect or near perfect correlation between U.S. equity markets and international equity markets. But there isn't. Equity returns are affected by a lot more things than where a company does business.

For Swedroe's remarks on this see:

http://www.cbsnews.com/news/why-us-mult ... -benefits/
http://buckinghamadvisor.com/avoid-this ... ification/

*
Phineas J. Whoopee wrote:If the underlying holdings didn't perform differently from time to time, it wouldn't be diversification.
Yes, I find it reassuring when my holdings don't all do the same thing at the same time.
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Re: Are any US-only investors having 2nd thoughts?

Post by EarlyStart »

I have 25% international per my IP. I agree that international looks good now, but for different reasons than you, OP. Valuation-wise, it's BEEN a good value relative to the US in my opinion over the last year or so. I think relative performance over less than 1 month is basically irrelevant. I'm still only allocating as my IP calls for.
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Re: Are any US-only investors having 2nd thoughts?

Post by cb474 »

EarlyStart wrote:I have 25% international per my IP. I agree that international looks good now, but for different reasons than you, OP. Valuation-wise, it's BEEN a good value relative to the US in my opinion over the last year or so. I think relative performance over less than 1 month is basically irrelevant. I'm still only allocating as my IP calls for.
Yes, I agree, it's nice to be able to put money in something at the moment that doesn't have the astronomical P/E of U.S. equities. What's the line from Buffett about blood in the streets?

Actually, I see that it was Baron Rothschild who first said this in the 18th century, "Buy when there's blood in the streets, even if the blood is your own." I like that version. And I hadn't seen this other quote from Buffett about only buying winners, which I also like: "You pay a very high price in the stock market for a cheery consensus." See: http://www.investopedia.com/articles/fi ... esting.asp
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Re: Are any US-only investors having 2nd thoughts?

Post by Twins Fan »

InvestorNewb wrote:It may be a silly question, but are any of the die-hard, US-only investors having second thoughts about their portfolio allocation?
Yes, it is a silly question. An actual "die-hard US-only investor" probably wouldn't even know what total international was doing this year. Let alone think of making changes based on 27 days of market movements.

Newb, Newb, Newb... Newb... some of the threads you start (bored when market is closed).... and, now this... :oops:
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Short-term volatility vs. long-term return?

Post by Taylor Larimore »

With all due respect to Bogle, the idea that multinational U.S. companies provide international diversification has been pretty well debunked by Larry Swedroe. But given how often this idea rears its head in this forum, I suspect it's a truism that may never die.
"Debunked" or not, investors who listened to Mr. Bogle have been rewarded. For the past 15 years ending 1/27/2014, Vanguard's Total Stock Market Index Fund (VTSMX) had an average annualized return of 4.89%. Meanwhile, Vanguard Total International Stock Market Index Fund (VGTSX) averaged 3.36%.
Short-term volatility is not to be prized at the expense of long-term return. -- Jack Bogle
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Re: Are any US-only investors having 2nd thoughts?

Post by davidsorensen32 »

Gritting my teeth and hoping Harvey got it right:

Harvey Dent: The night is darkest just before the dawn. And I promise you, the dawn is coming.

Real test of mettle with emerging and international this year.
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Re: Are any US-only investors having 2nd thoughts?

Post by kolea »

US is down and International is up? Hmm. I didn't know that. :)
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Re: Are any US-only investors having 2nd thoughts?

Post by galeno »

We let the FTSE all-world equity index make the USA/non-USA/EM allocations for us. Our only equity holding is VT.
KISS & STC.
cb474
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Re: Short-term volatility vs. long-term return?

Post by cb474 »

Taylor Larimore wrote:
With all due respect to Bogle, the idea that multinational U.S. companies provide international diversification has been pretty well debunked by Larry Swedroe. But given how often this idea rears its head in this forum, I suspect it's a truism that may never die.
"Debunked" or not, investors who listened to Mr. Bogle have been rewarded. For the past 15 years ending 1/27/2014, Vanguard's Total Stock Market Index Fund (VTSMX) had an average annualized return of 4.89%. Meanwhile, Vanguard Total International Stock Market Index Fund (VGTSX) averaged 3.36%.
Taylor, I know that you know that past performance does not guarantee future performance, since I have seen you say that many times. We can all pick 15 year periods in which one fund or market did better than another. It does not prove anything.

In the first of the Swedroe articles, to which I link (http://www.cbsnews.com/news/why-us-mult ... -benefits/), Swedroe shows that over a much longer period, the 40 years from 1970 to 2010, international developed markets (as measured by the MSCI EAFE index) had essentially the same returns as the S&P, in fact slightly outperforming the S&P, 9.99% vs 10.13%. What's more, a 50/50 portfolio of those two indices outpeformed both separately, as well as having less risk (a higher Sharpe ratio), because of the diversification benefits. And therein lies the debunking. This diversification benefit you simply do not get from U.S. multinationals that happen to do business globaly. That is not how equity markets work. If it were, there would be no diversification benefit for actually investing in international equity markets, as Swedore shows (for anyone who wants to read the article).

So over the more meaningful longer haul, I'd say that those who took Bogle's advice have been punished. Bogle is great and admirable and a very important person in the history of investing. But his word is not gospel and he sometimes get things wrong (often by oversimplifying--it's good to keep things simple, but not everything is as simple as we want it to be).

Further, if you consider the second Swedroe article, to which I link (http://buckinghamadvisor.com/avoid-this ... ification/) he discusses home country bias, which is common amongst investors in all countries, and those of us in the U.S. are not immune. Should the U.S ever become the veritable "next Japan" (as Swedroe notes is as possible in the U.S. as anywhere), woe to those who take Bogle's advice. Indeed, over the ten year period after the bursting of the Dot Com bubble, in which the U.S. market had it's own "lost decade," Vanguard's Total International fund handily out performed Vanguard's Total U.S. fund. Even af the bottom after the financial crisis, in early 2009, Total International remained well ahead of Total U.S. Therein again lies a material substantial diversification benefit that you did not get from U.S. multinationals that happen to comprise some of the companies in the U.S. equity market.

Investing only in one's country, even the U.S., is taking on non-systemic risk, for which there is never a justification. It truly is shooting yourself in the foot. Diversifying away non-systemic risks, as far as I'm concerned, is the most basic boglehead value.
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Re: Are any US-only investors having 2nd thoughts?

Post by heartandsoul »

I wonder how many people would have predicted these returns for Global stock markets back in 1900....

http://monevator.com/world-stock-markets-data/

By investing all your (equity) wealth in one countries stock market you are basically relying on that market being one of the good performers over the next period.

Interesting also that a similar skew is observed across countries markets as it is for stock performance within a market, i.e. there are relatively few big winners. If this pattern holds then it makes single country exposure even more risky.
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Re: Are any US-only investors having 2nd thoughts?

Post by just frank »

Nope.
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stemikger
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Re: Are any US-only investors having 2nd thoughts?

Post by stemikger »

cb474 wrote:
stemikger wrote:John Bogle still feels a U.S. investor gets plenty of international diversification by holding the S&P or the Total Market Index.
With all due respect to Bogle, the idea that multinational U.S. companies provide international diversification has been pretty well debunked by Larry Swedroe. But given how often this idea rears its head in this forum, I suspect it's a truism that may never die.

If it were correct that you get international diversification from the multinational U.S. companies that can be found in the S&P and U.S. Total Market, then there would be a perfect or near perfect correlation between U.S. equity markets and international equity markets. But there isn't. Equity returns are affected by a lot more things than where a company does business.

For Swedroe's remarks on this see:

http://www.cbsnews.com/news/why-us-mult ... -benefits/
http://buckinghamadvisor.com/avoid-this ... ification/

*
Phineas J. Whoopee wrote:If the underlying holdings didn't perform differently from time to time, it wouldn't be diversification.
Yes, I find it reassuring when my holdings don't all do the same thing at the same time.
This is not the only reason. In John Bogle's book Common Sense on Mutual funds he goes into detail on Currency Risk and Sovereign risk. If you have not read that section in Jack's book, read The Global Portfolio Extreme, Currency Risk and Returns, The Global Efficient Frontier and International Economies and Financial Markets. Also, on Vanguard's Website investing in an international index is riskier than investing in the S&P or Total Stock Market Index (according to their risk chart). I rather not take the extra risk and concentrate on keeping my cost low instead.
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Re: Are any US-only investors having 2nd thoughts?

Post by Trevor »

stemikger wrote:
cb474 wrote:
stemikger wrote:John Bogle still feels a U.S. investor gets plenty of international diversification by holding the S&P or the Total Market Index.
With all due respect to Bogle, the idea that multinational U.S. companies provide international diversification has been pretty well debunked by Larry Swedroe. But given how often this idea rears its head in this forum, I suspect it's a truism that may never die.

If it were correct that you get international diversification from the multinational U.S. companies that can be found in the S&P and U.S. Total Market, then there would be a perfect or near perfect correlation between U.S. equity markets and international equity markets. But there isn't. Equity returns are affected by a lot more things than where a company does business.

For Swedroe's remarks on this see:

http://www.cbsnews.com/news/why-us-mult ... -benefits/
http://buckinghamadvisor.com/avoid-this ... ification/

*
Phineas J. Whoopee wrote:If the underlying holdings didn't perform differently from time to time, it wouldn't be diversification.
Yes, I find it reassuring when my holdings don't all do the same thing at the same time.
This is not the only reason. In John Bogle's book Common Sense on Mutual funds he goes into detail on Currency Risk and Sovereign risk. If you have not read that section in Jack's book, read The Global Portfolio Extreme, Currency Risk and Returns, The Global Efficient Frontier and International Economies and Financial Markets. Also, on Vanguard's Website investing in an international index is riskier than investing in the S&P or Total Stock Market Index (according to their risk chart). I rather not take the extra risk and concentrate on keeping my cost low instead.

Doesn't diversifying to international reduce your risk, though? Regardless of the rating Vanguard gives to the fund. I'd rather not take the extra risk of only investing into the U.S.
WWJD - What Would Jack Do?
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Taylor Larimore
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Vanguard international stock recommendation

Post by Taylor Larimore »

Bogleheads:

Vanguard has done an excellent study on the subject of international investing and how much to allocate in our portfolio. This is their conclusion:
• International stocks should be included in a domestic portfolio.
• 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.
International Equity: Considerations and Recommendations

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Are any US-only investors having 2nd thoughts?

Post by lack_ey »

Trevor wrote:Doesn't diversifying to international reduce your risk, though? Regardless of the rating Vanguard gives to the fund. I'd rather not take the extra risk of only investing into the U.S.
In terms of transient losses, market declines (be they a week, a month, years), volatility, etc. expressed by standard deviation and so on, certainly international has more risks if we're looking at those things. Mixing in international into a portfolio in the past has reduced the overall portfolio risk, but with correlations as high as they are these days, it may actually not.

I like Dr. Bernstein's categorization of shallow risk and deep risk. See here for an overview:
http://blogs.wsj.com/moneybeat/2013/07/ ... the-woods/

Diversifying into international probably should help with some of the latter, regardless of declining (declined? temporarily, or permanently?) utility for reducing the former. Most numerical and historical analysis focuses on shallow risk. Deep risk is relatively rare and so tends to be more qualitatively assessed because models are pretty bad for this kind of thing anyway.
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Re: Are any US-only investors having 2nd thoughts?

Post by feh »

Twins Fan wrote: Newb, Newb, Newb... Newb... some of the threads you start (bored when market is closed).... and, now this... :oops:
I'm starting to think he's trolling; way too many threads started like this that are obviously anti-Boglehead.
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Re: Are any US-only investors having 2nd thoughts?

Post by kolea »

You know what they say - don't invest in things you don't understand. And I don't understand international equities. At least not to my comfort level. Currency exchange rates mystify me, and that seem to play a big role in US vs. X-US performance. I feel like I know and understand the political and economic climate pretty well in the USA. I cannot say the same about many other countries, yet I am being told I need to invest in those things I don't grok. I am still trying to understand fixed income and bonds and eventually I will get around to elevating my comfort level with X-US equities, but meantime I am going to keep my piddling 5% of VXUS investment. Maybe I will go out on a limb this year and boost it to 7 or 8%. :)
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Re: Are any US-only investors having 2nd thoughts?

Post by gks »

No, I haven't thought about increasing my international portion beyond what Vanguard's Portfolio Watch says is ~5% and suggests 20%-40% international to further diversify my account. There is no “caution”, just a “suggestion”. Looking at the colors of the two, there seems to be a difference. LS Growth and LS Moderate Growth contribute to most of the international portion, with 3 or 4 stocks in Wellesley Income the remaining portion. This is my comfort level for international for the following reasons.

Don't invest in things you don't understand:

I have a rudimentary understanding of US stocks and bonds. Russia, China, Venezuela, Argentina, France, and the rest, totally puzzle me. What in the world is “currency hedging”? (Rhetorical, don't really care.) I do know that Russian bonds are yielding 17%, but is that before or after the 40% ruble decline. 2.35 years just to get back to even. And then there is the real possibility that Russia will default on its debt, since it already did before in the 90's.

From 4-29-99 to date, (V Total International Stock Index inception), Total International has underperformed the S&P 500, V Total Stock, Balanced Index, Wellesley, and Wellington. Looking at Morningstar's chart for the period, Total International had what appears to be a higher volatility compared to the US funds. I'm at the point where I am trying to reduce volatility, not increase it. I will readily admit that there are periods where Total International outperformed US stocks, but there still is that pesky volatility, and those periods seem to be measured in decades, a time period I am not willing to gamble with anymore.

From the CNBC video:

You earn your money in dollars.
You spend your money in dollars.
You save your money in dollars
You invest your money in dollars
You retire earning your money in dollars, with your Social Security check.
You take a currency risk when you go abroad in a different way.
...hard to time...

Jack Bogle

stemikger, thanks for the post.
TwoByFour, my sentiments mostly. Not planning to increase international.

Greg
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Re: Are any US-only investors having 2nd thoughts?

Post by Johno »

First to say, anybody who would make a major reallocation decision based on less than a month of market history is fickle indeed. :D
However, the standard 'US only' investing arguments are pretty uniformly weak, at least as stated. The fact the John Bogle also states some of them doesn't by itself turn them into strong arguments. I think rather it's a weak spot in his generally strong analysis of various things.

-'Don't invest in what you don't understand'. In a polite discussion one can nod politely to this but to be blunt, come on. The average investor has no particular background or understanding how US companies or their finances actually work, how the financial regulatory and legal systems actually work etc. And in fact companies and regulatory and legal systems in other developed countries work very similarly in general, which people who actually are familiar with the US system generally also know. It's not even reasonable to state the US system works the absolute best, though it's pretty good and there's no practical way to avoid investing in the US anyway. And developed countries with systems similar to the US comprise most of foreign market cap, and EM countries with pretty similar systems most of the rest. Russia isn't one, but Russia is also a fraction of 1% of world stock market cap. And the differences or flaws in other systems such as they are tend to be idiosyncratic, not concentrated in any one big stock market on a global cap basis. The issue is really belief, not 'understanding'.

-'I don't want to take currency risk'. This pretty directly contradicts the argument Bogle mainly makes to strictly limit investment in foreign stock markets: that big US companies get a lot of their revenue and/or profit from overseas. They do, but that means US companies earnings though reported in USD are significantly subject to exchange rates, something we see directly now in recent US corporate earnings disappointments in the face of a suddenly stronger USD. OTOH many foreign companies are significantly helped by a stronger USD whether in their operations in US or exports from home country. One thing you *can* see from only a short history recently (but also many periods in the past) is that foreign stocks don't have to do down in USD terms because the USD is appreciating against foreign currencies. There's some correlation in that direction, but it's not that strong. And anyway you can't have it both ways saying you get international diversification from US co's overseas operations but don't want currency risk.

-'Diversification' via internationalized US companies. Aside from the potential self contradiction on the currency risk issue, there's another big flaw in this argument. We're talking about investing in *stocks*. Revenues are only tangential to stock values (there's a *very* wide range of market cap to company *revenue* among companies in every country). Earnings are of course more central to stock values, but even there the relationship varies. And one of the big things one is diversifying now with a mix of US and foreign stocks is the ratio of price to earnings: quite high in US market compared to its history as compared to foreign markets v their own histories. This doesn't mean the discrepancy has no cause or has to go away any time soon (though of course the mirror image of better US stock performance in recent years is that the discrepancy has been growing, and can't grow forever). But the different way investors *value* stocks in different places is arguably the most important thing to diversify, and you don't diversify that at all by US stocks only.

US investors who strictly invest in US stocks are not necessarily reducing risk (on a portfolio basis) or even 'investing in what they understand'. They are taking a position, just like overweighting particular sectors of the US market itself. There's nothing necessary wrong with that. The problem only comes with the specious arguments needed to try to pretend that idea doesn't contradict a 'BH philosophy' dictum to 'buy the whole market'.
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InvestorNewb
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Re: Are any US-only investors having 2nd thoughts?

Post by InvestorNewb »

feh wrote:
Twins Fan wrote: Newb, Newb, Newb... Newb... some of the threads you start (bored when market is closed).... and, now this... :oops:
I'm starting to think he's trolling; way too many threads started like this that are obviously anti-Boglehead.
Care to explain how the thread is anti-Boglehead? If anything, it is pro-Boglehead because it shows the importance of diversification.

(Even though Bogle himself doesn't believe there is a need for international, the Boglehead principles state otherwise.)
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
Twins Fan
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Re: Are any US-only investors having 2nd thoughts?

Post by Twins Fan »

I'm not the one that made the anti-Boglehead comment, but....

Something about never trying to time the market is in the principles also, yes? Which asking a question if people were going to make any moves based on 27 days worth of data would suggest you're hinting at.

Neither total stock nor total international did so hot today, since this thread made me look for fun. Down 1.37% and 0.94% respectively... which based on one whole days worth of movement, could show in favor of the diversity isn't all it's cracked up to be and they all move together camp. Hopefully no one made any sudden moves. :wink:

However, looking around I did see my intermediate term bond index fund is up just over 2.80% YTD. Maybe I should go 100% in the intermediate tem bond fund based on January of 2015???
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Re: Are any US-only investors having 2nd thoughts?

Post by selftalk »

In the long run both have performed about the same. But with rebalancing you most probably will do fine as you sell some of the out performer and buy some of the under performer. Sell high and buy low.
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Re: Are any US-only investors having 2nd thoughts?

Post by cb474 »

stemikger wrote:This is not the only reason. In John Bogle's book Common Sense on Mutual funds he goes into detail on Currency Risk and Sovereign risk. If you have not read that section in Jack's book, read The Global Portfolio Extreme, Currency Risk and Returns, The Global Efficient Frontier and International Economies and Financial Markets. Also, on Vanguard's Website investing in an international index is riskier than investing in the S&P or Total Stock Market Index (according to their risk chart). I rather not take the extra risk and concentrate on keeping my cost low instead.
Currency risk and sovereign risk are part of the things that make investing in international equities beneficial. This is another common misunderstanding. People think they need to hedge against currency risk. But that's a mistake because it only makes international equity investments correlate more to the U.S. market. The whole point of diversification is to expose yourself to different risks and not to put all of your eggs in one risk basket. And when you combine different investements, with different risks, the overall effect on the portfolio can be (if done wisely--like investing in international equity markets) to make your portfolio more efficient (better risk adjusted returns). So it's not meaningful to talk about the risk of a particular investment in isolation, the question is how it effects the overall portfolio. In the end, the people who are taking on extra risk are those who only invest in the U.S. That's the riskier choice.

Further, as Johno points out, even if you only invest in U.S. equities, you are still subject to currency risk. A stonger dollar hurts exports and many U.S. companies (as is happening right now) and can slow down the entire U.S. economy. A weaker dollar hurts your purchasing power for any product dependent on imports. So all you're doing by not investing in international equities is failing to diversify your exposure to currency risk. You are not avoiding this risk. So again, another way that avoiding international equities increases risk, rather than decreasing it.

As far as Vanguard's risk chart goes, that is really just a poor way to evaluate risk and should be take with a big grain of salt. It also completely fails to address the question of how adding more risky assets affect the whole portfolio, potentially making it more efficient and less risky.
lack_ey wrote:Mixing in international into a portfolio in the past has reduced the overall portfolio risk, but with correlations as high as they are these days, it may actually not.
Another truism that won't die. Correlations between internatioanl equity markets and the U.S. in the last couple decades have gotten lower, not higher. There was higher correlation between the U.S. equity market and international equity markets in the 1970s and 1980s, than from the 1990s to the present. People hear that the economy is "gloablizing" and they make the superficially appealing conclusion that this means equity market returns must be correlating more, but like many superficially appealing conclusions it turns out to be wrong.
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Re: Are any US-only investors having 2nd thoughts?

Post by lack_ey »

cb474 wrote:
lack_ey wrote:Mixing in international into a portfolio in the past has reduced the overall portfolio risk, but with correlations as high as they are these days, it may actually not.
Another truism that won't die. Correlations between internatioanl equity markets and the U.S. in the last couple decades have gotten lower, not higher. There was higher correlation between the U.S. equity market and international equity markets in the 1970s and 1980s, than from the 1990s to the present. People hear that the economy is "gloablizing" and they make the superficially appealing conclusion that this means equity market returns must be correlating more, but like many superficially appealing conclusions it turns out to be wrong.
Am I just looking at the wrong data series?

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checked portfoliovisualizer for sanity check and different calculation, total US vs. EAFE, and get annual correlation of 0.91 since 2001 (earliest point it gives), monthly of 0.88.

post Y2K results biased by the bear markets, but still. Or what did I miss? Serious question.
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Re: Are any US-only investors having 2nd thoughts?

Post by feh »

InvestorNewb wrote:
feh wrote:
Twins Fan wrote: Newb, Newb, Newb... Newb... some of the threads you start (bored when market is closed).... and, now this... :oops:
I'm starting to think he's trolling; way too many threads started like this that are obviously anti-Boglehead.
Care to explain how the thread is anti-Boglehead?
One of the Bogle cornerstones is setting an AA and ignoring the noise; "stay the course". Why would Bogleheads care about how ex-US equities compare to US equities over the last month? Or the last year?
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International and U.S. stock correlations

Post by Taylor Larimore »

Another truism that won't die. Correlations between international equity markets and the U.S. in the last couple decades have gotten lower, not higher.
According to Vanguard Research, correlations have gotten higher:
Figure 5 (page 5) shows that the correlation of U.S.stocks and international stocks has increased overtime, and notably so since the mid-1990s
International Equity: Considerations and Recommendations]International Equity: Considerations and Recommendations

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
cb474
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Re: Are any US-only investors having 2nd thoughts?

Post by cb474 »

lack_ey wrote:checked portfoliovisualizer for sanity check and different calculation, total US vs. EAFE, and get annual correlation of 0.91 since 2001 (earliest point it gives), monthly of 0.88.

post Y2K results biased by the bear markets, but still. Or what did I miss? Serious question.
Yes, I think what you're seeing is a blip from the 2008 financial crisis. If you eliminate 2008 you get a very different picture. In major market crises the correlation between equity markets increase. But it doesn't persist. it also depends what asset class you're investing in, international small and small value equities have lower correlations to U.S. equities, as well as emerging markets.

Swedroe compares correlations from 1970 to 2007 (thereby eliminating the way 2008 throws things off) here: http://www.cbsnews.com/news/why-concern ... overblown/. Correlations from 1970 to 1988 correlations between the S&P and the MSCI EAFE are essentially the same (.623), but slightly higher, than correlations from 1989 to 2007 (.614).

Swedroe, in a follow up to the previous article, points out that you can also have periods (such as 2000 to 2010) where correlations between two markets (he compares the S&P and emerging markets) are very high (.91), but returns are radically different (.4% for the S&P over that ten year period and 10.9% for emerging markets. So much for the lack of benefit of international diversification and the spectre of high correlations. See: http://www.cbsnews.com/news/what-rising ... t-returns/ Swedroe also points out that this is not the only time that correlations between the U.S. equity market and international equities have gone up, followed by people saying there were no more benefits ot international diversification, only to have correlations subsequently go back down (he refers to a period of high correlations in the mid 1970s).

Also, here's an article from Cliff Asness looking more generally at the question of international diversification: http://www.cfapubs.org/doi/pdf/10.2469/faj.v67.n3.1. The conclusion is basically that over long horizons it works and portfolios with international diversification don't have as bad worse case scenarios in the long term. It's just that in some relatively rare cases (like 2008) all markets crash together and in these instances portfolios with international diversification have worse short term worse case scenarios; this of course freaks people out, but that is not a good basis for making investing decisions. Normally, however, markets do not crash at the same time and so the long term benefits of international diversification significantly outweigh the short term painful moments that occasionally happen.

So the correlation picture is much more complicated and different than people make it out to be, when they wrongly claim they're going up because of economic globalization. And the focus on correlations is overdetermined, missing the fact that international diversification continues to have the benefits it's always had: making a portfolio more effecient and hence less risky.

*
Taylor Larimore wrote:According to Vanguard Research, correlations have gotten higher:
Figure 5 (page 5) shows that the correlation of U.S.stocks and international stocks has increased overtime, and notably so since the mid-1990s
International Equity: Considerations and Recommendations]International Equity: Considerations and Recommendations
I don't know what to say about Vanguard's analysis. There is something wrong or misleading about their analysis and/or methodology.

Perhaps the more salient point is that this does not lead Vanguard to suggest there is no benefit to international diversification. In fact, in that paper they say people should have at least 20% of their equity allocation in international equities (they call 20% a starting point) and it's okay to go all the way up to global market capitilzation, which would mean about 50% in international equties--although they find diminishing benefits past 40% international equities.
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Re: Are any US-only investors having 2nd thoughts?

Post by letsgobobby »

InvestorNewb wrote:Even though we are only 27 days into the year, the international stock index is finally showing some benefit in the portfolio.

Vanguard Total Stock Market ETF (VTI) is down -0.6 YTD
Vanguard Total International Stock ETF (VXUS) is up +2.3% YTD

It may be a silly question, but are any of the die-hard, US-only investors having second thoughts about their portfolio allocation?

2015 may finally be the year that international outperforms US.

This thread will be revisited at the end of the year.
it is true that for the first month of the year, the major European indexes are up 3-9%; while the US indexes are down about 3%.

I believe that isn't adjusted for currency fluctuations, so the delta is much smaller than that (given the Euro's recent declines).

Since I'm 60% international, I'm not unhappy about this development. That said, I also don't really care. Before today, I had no idea what the relative returns had been. In the long run I want and expect international to outperform US but not by a huge amount. I'm not changing my investments, barring some enormous developments.
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Re: Are any US-only investors having 2nd thoughts?

Post by Uncle Pennybags »

InvestorNewb wrote:This thread will be revisited at the end of the year.
Black Friday is just around the corner so let us make a midsummer visit.
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Re: Are any US-only investors having 2nd thoughts?

Post by toto238 »

YTD as of 7/13/2015:

VTI (Total US Stock): +3.55%

VXUS (Total International): +5.91%


So far international seems to be outperforming. Yet neither is doing poorly for halfway through the year. If they continue among their current trends, US stocks would end up about 6-7% for the year, International would end up about 9-10% for the year.

I guess only time will tell.
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Re: Are any US-only investors having 2nd thoughts?

Post by sharpjm »

toto238 wrote:If they continue among their current trends
lol... what trends? Is volatility considered a trend? 1 week ago both ETFs were negative or barely breaking even YTD.
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Re: Are any US-only investors having 2nd thoughts?

Post by toto238 »

sharpjm wrote:
toto238 wrote:If they continue among their current trends
lol... what trends? Is volatility considered a trend? 1 week ago both ETFs were negative or barely breaking even YTD.
Indeed, that is fair. My guess as to what year-end will look like is as good as throwing a dart at a dartboard.
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Re: Are any US-only investors having 2nd thoughts?

Post by Uncle Pennybags »

toto238 wrote:YTD as of 7/13/2015:

VTI (Total US Stock): +3.55%

VXUS (Total International): +5.91%
One year ending 7/14/2015:
VXUS (Total International): -6.6%

VTI (Total US Stock): +7.21

Remember VXUS is a five on the fun scale.
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