International Funds Worth it?

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yzw731
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International Funds Worth it?

Post by yzw731 » Sun Oct 04, 2015 12:02 pm

[Thread updated, see below. --admin LadyGeek]

Hello,

I opened a Vanguard Brokerage account and have chosen the Total International Stock Index Fund for the international portion of my portfolio. I did this because everywhere I read they stress diversification of the entire world. However, when I look at the annual returns of the fund, I become less than thrilled... 1 Year mark is -10.77%, 3 year is 3.05% and 5 year is 2.09%. Am I missing something? Because I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.

Thank you for reading my question!

Best regards,
Yizhou

mhalley
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Re: International Funds Worth it?

Post by mhalley » Sun Oct 04, 2015 12:38 pm

International is supposed to provide more diversification in the long run, ie, if us stocks go down, hopefully intl will go up. That has not panned out recently. Bogle doesn't think that intl is necc, but Vanguard does, and in fact recently increased their allocation to their TR and LS funds. So you have 2 options: Either do intl or not. Not doing it is fine. If you decide to do it, how much to do becomes the question. On the one hand, since intl has underperformed for so long, they are "due" to outperform, so maybe you should go on the high side. But they might continue to underperform, so maybe you should go on the low side. You can find experts on either side of the spectrum. When you first figured out your investment plan, you decided on an asset allocation. You are using recency bias to make you rethink your original asset allocation. Most would say that instead of trying to refigure your aa, you should stay the course, and rebalance into intl to maintain your original aa.
You can read a Vanguard white paper on intl here: https://personal.vanguard.com/pdf/icriecr.pdf
Here is their conclusion:
"In light of quantitative analysis and qualitative considerations, we have demonstrated that
domestic investors should consider allocating part of their portfolios to international securities,
and that a 20% allocation may be a reasonable starting point. Although finance theory dictates
that an upper asset allocation limit should be based on the global market capitalization for international
equities (currently approximately 58%), we have demonstrated that international allocations exceeding
40% have not historically added significant additional diversification benefits, particularly accounting for
costs. For many investors, an allocation between 20% and 40% should be considered reasonable,
given the historical benefits of diversification. Allocations closer to 40% may be suitable for
those investors seeking to be closer to a marketproportional weighting or for those who are hoping
to obtain potentially greater diversification benefits and are less concerned with the potential risks and
higher costs. On the other hand, allocations closer to 20% may be viewed as offering a greater balance
among the benefits of diversification, the risks of currency volatility and higher U.S. to non-U.S. stock
correlations, investor preferences, and costs."
Mike

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Re: International Funds Worth it?

Post by Twins Fan » Sun Oct 04, 2015 12:46 pm

You shouldn't just look at the last 5 years to compare. Yes, US outperformed during that time. But, check out 2000 to 2010 and compare the two... see what results you get there.

Full disclosure, I don't have international in my portfolio because I don't feel it's necessary and over the long run I don't think there will be much of a difference. My own decision that way though. To each their own.

Do a search for international here on Bogleheads... it will give you more reading than you know what to do with. :happy

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patrick013
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Re: International Funds Worth it?

Post by patrick013 » Sun Oct 04, 2015 12:49 pm

I think currency price fluctuations are expected to benefit
int'l investments next year, so returns should improve.

But that's another wait and see we all must do.
age in bonds, buy-and-hold, 10 year business cycle

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Re: International Funds Worth it?

Post by ruralavalon » Sun Oct 04, 2015 3:27 pm

yzw731 wrote:Hello,

I opened a Vanguard Brokerage account and have chosen the Total International Stock Index Fund for the international portion of my portfolio. I did this because everywhere I read they stress diversification of the entire world. However, when I look at the annual returns of the fund, I become less than thrilled... 1 Year mark is -10.77%, 3 year is 3.05% and 5 year is 2.09%. Am I missing something? Because I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.

Thank you for reading my question!

Best regards,
Yizhou
This is what you are missing.

One year, three years and five years are not a test, long-term performance is what counts. And past performance does not necessarily predict future performance.

There is a lot of debate over weather international stock funds are necessary.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

yzw731
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Re: International Funds Worth it?

Post by yzw731 » Sun Oct 04, 2015 7:25 pm

Thank you for your responses! It has been very insightful. Yes I do realize past performance does not necessarily predict the future performance. Stock Market is inherently unpredictable.

I think I might just put enough to get it to Admiral Shares to lower expense ratios, and then allocate my resources elsewhere. I've been eyeing the Small Caps recently and they look pretty good! But we'll see :)

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timboktoo
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Re: International Funds Worth it?

Post by timboktoo » Sun Oct 04, 2015 10:48 pm

yzw731 wrote:Thank you for your responses! It has been very insightful. Yes I do realize past performance does not necessarily predict the future performance. Stock Market is inherently unpredictable.

I think I might just put enough to get it to Admiral Shares to lower expense ratios, and then allocate my resources elsewhere. I've been eyeing the Small Caps recently and they look pretty good! But we'll see :)
Before I buy a car, I do research. Then, I go on a test drive. If it feels like a good decision and it makes sense on paper and I'm comfortable with the purchase, then I buy.

When it comes to mutual funds, about the only thing we have to look at is the past performance. Unfortunately, why a fund did well in the past isn't reflected in those numbers and the future rarely plays out like the past. I know people who have bought funds just because they performed better than everything else. One guy I know owned only bond funds for a while because during the period that he "researched" them they had beaten stocks. This was during the recession. He didn't even realize they were bond funds, he just liked that the returns were better, so he thought it was a good decision.

Don't get caught up in past performance. Instead, figure out how much you need to save, then devise an asset allocation that'll help you meet your goals. Not every investor here owns international stocks. Just don't make that decision based on past performance. Every asset class and category has a decade of strength or weakness. If you find the story behind owning international compelling after reading some more on the subject, then give it a fixed percentage in your asset allocation. If you don't, then try not to change your allocation when international beats domestic once again, when you read about the decline of the dollar or the rise of china or whatever new thing happens 10 years from now that is happening there and not here.

- Tim

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grap0013
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Re: International Funds Worth it?

Post by grap0013 » Mon Oct 05, 2015 12:46 pm

yzw731 wrote: However, when I look at the annual returns of the fund, I become less than thrilled... 1 Year mark is -10.77%, 3 year is 3.05% and 5 year is 2.09%. Am I missing something? Because I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.
Yes, you are missing something. International stocks have provided very little return recently. You are using something that happened in the recent past to project future returns. This is a common error in behavioral finance known as "recency bias". Look at emerging markets 1994 to 2002. Not so good. Then 2003-2007 they go off like gang busters. These things have ways of mean reverting.

Under normal circumstances I think you have a 50:50 shot of either US or international outperforming during any let's say 10 year period. However, valuations matter. Currently, international stocks have a more favorable valuation outlook going forward than US stocks. I will go so far as to say there is a >50% chance of international stock returns outperforming US stocks in the intermediate to long term future.
There are no guarantees, only probabilities.

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Re: International Funds Worth it?

Post by hafius500 » Wed Oct 07, 2015 1:05 pm

Vanguard Blog - Anytime is the right time to have international exposure in your portfolio, Chuck Riley October 6, 2015

this new article advocates investing in international stocks and bonds:
The primary reason to invest internationally? Diversification.
...
Non-U.S. bonds can also diversify an all-U.S. portfolio. Many investors don’t realize that the non-U.S. bond market is currently the largest asset class in the world. Including foreign bonds in your mix places your financial eggs in thousands of baskets, spreading out and reducing a portfolio’s overall risk.
...
Not to say that the returns of international stocks and bonds are entirely uncorrelated with their U.S. counterparts. International and U.S. securities may both go up or down in value at the same time. However, they don’t go up or down to the same degree.
...
The main reason I’ve seen most investors shy away from international exposure, especially in the last several years, is headline risk
...
By owning the entire global market (just like owning the entire U.S. stock market), you participate in the growth of economies that are doing well, without having to guess correctly in advance which ones have the best potential.
...
However, revenue diversification and stock diversification aren’t the same.
...
The recommended exposure to international stocks is 30% to 50% and the recommended exposure to international bonds is 20% to 40%.
Some investors are shocked by the size of those percentages
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FelixTheCat
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Re: International Funds Worth it?

Post by FelixTheCat » Wed Oct 07, 2015 1:10 pm

I've never understood international either. I see the concept of owning foreign stocks but most of the companies in the S&P 500 have foreign investments.

This board is based on Jack Bogle which he recommends to only invest in US stocks. He says if you must invest internationally then use a 20% maximum. Warren Buffett is a domestic only guy as well.
Felix is a wonderful, wonderful cat.

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Re: International Funds Worth it?

Post by Christine_NM » Wed Oct 07, 2015 1:32 pm

International is worth some value to everyone. You have to find your number -- I learned that this year.

For some the number is zero. For me, I was happy at 15% in spite of lower returns. This year I increased it to 25% and could not take the short term lower return. The tax loss harvest looked more attractive than the investment. I could ignore international at 15%. Now I am at 12% and plan to stay there.

Don't anchor your investment number at 10K just because of Admiral shares. If you can stick to a smaller number but are likely to sell your 10k when it becomes 8k, then just start with 3k and creep upward.

ETA - I am using Developed Markets (VEA) instead of VTIAX and I have added 12% in small cap value. So I switched out of emerging markets and replaced that risk with small value VBR and its fund VSIAX.
17% cash 47% stock 36% bond. Retired, w/d rate 2.85%

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Nahum
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Re: International Funds Worth it?

Post by Nahum » Wed Oct 07, 2015 5:48 pm

I recently swapped my Total International holding for a US Fund. I found it to be too risky, currency fluctuations and government risks are high. The United States is not heaven on earth but there is stability and I do earn my money in dollars. Setting aside 20% for an international fund doesn't hurt it is based on your preference.

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blueblock
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Re: International Funds Worth it?

Post by blueblock » Wed Oct 07, 2015 7:12 pm

Recency bias maybe, but when I rolled over my 401K to a 3-fund IRA in May, I wasn't comfortable with more than a 10% allocation to Total International (VGTSX), given the slowdown in China growth and the global ripple effects. I don't think that will turn around any time soon, but if it does, I will consider inching up to 15%, but probably no more.

This presents and remains a challenge for me: avoiding market timing while settling on an allocation that I'm comfortable with, when it's largely current events that influence my comfort level. I have yet to capture this dilemma in my IPS.

lack_ey
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Re: International Funds Worth it?

Post by lack_ey » Wed Oct 07, 2015 7:22 pm

Wow, three posts in a row about trimming international exposure in response to recent events (taking the uncharitable but perhaps realistic interpretation).

IPer
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Re: International Funds Worth it?

Post by IPer » Wed Oct 07, 2015 7:27 pm

Today mine is 14.3%, I am good with 15%, 20% seems a bit too much for me. I don't care much for TLH gyrations, these guys
seem to love it a lot, but it doesn't seem worth it to the style I want to use. The robo investments use significantly more, Vanguard
is up around 30-40% of stocks which comes out to be more than 20% of total AA in most cases. But I don't think anything about the
current market conditions should strongly influence ones decision to hold more or less International. It should be based on more common
factors, added as a statement in ones IPS, and used as the course guide.

PS If there is one thing I have noticed after following stocks, bonds, and markets that the talking heads are out there to clobber
readers with the fear factor. The fear factor they peddle seems to be useless and causes losses in the market, perhaps they are
still getting short term gains on the RETAIL INVESTORS gyrations which are based on the FUD (fear, uncertainty and doubt) they push.

I find it unreasonable for me to actually act in my investments based on what China is perceived to be doing, Russia, the UK and even
the good old USA. I have no control over these factors and based on reading have really no real knowledge...everything is so contrived
anyways. Better to just chart a course and stay it.
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grap0013
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Re: International Funds Worth it?

Post by grap0013 » Thu Oct 08, 2015 7:22 am

lack_ey wrote:Wow, three posts in a row about trimming international exposure in response to recent events (taking the uncharitable but perhaps realistic interpretation).
+1

It's buy low sell high folks. Not buy high sell low. It's simple but not always easy. If buying international or EM makes you a little nauseous right now that means it is probably the right move. All according to predefined targets of course. No market timing here!
There are no guarantees, only probabilities.

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Re: International Funds Worth it?

Post by small_index » Thu Oct 08, 2015 5:20 pm

I think feeling "less than thrilled" is a sign you need to see if you can read yourself into having more resolve. You might read one of Larry Swedroe's books, where I learned about correlation and how international stocks could benefit a portfolio. Many other books use international stock, but I feel Larry Swedroe provides more detailed historical data and reasons. Then, after reading, if you still aren't comfortable with international funds it might be time to lower your allocation.

If total international bothers you, I can't really suggest Vanguard emerging markets until you're using something besides recent performance. For me personally, I like that fund owing to it's tendency to move differently than U.S. stock market but still provide a positive expected return.

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Re: The Three-Fund Portfolio

Post by Norske77 » Thu Apr 28, 2016 12:59 pm

[Thread merged into here, see below. --admin LadyGeek]

Would retired people still need International stock exposure? Risk/reward?

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Re: The Three-Fund Portfolio

Post by longinvest » Thu Apr 28, 2016 1:51 pm

Norske77 wrote:Would retired people still need International stock exposure? Risk/reward?
Norske,

You're asking a very good question. Here's a question I propose to ask yourself, instead: If you were a Japanese investor, would you be asking this question?

Here's some material to reflect about it.

Extracted from viewtopic.php?f=10&t=23036&p=2666819#p2379273:
bpp wrote:Update through the end of 2014. We now have 25 years of data.

Yearly portfolio values for 1 million yen invested at the end of 1989, in inflation-adjusted (using Japanese CPI) yen terms. No withdrawals, yearly re-balancing.

Image

Sources:
[...]
Last edited by longinvest on Thu Apr 12, 2018 7:04 am, edited 1 time in total.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

Norske77
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Re: The Three-Fund Portfolio

Post by Norske77 » Thu Apr 28, 2016 8:12 pm

Thank you for the post. You are obviously way ahead of me in financial analysis! You're going to have to dumb this down for me. What is the chart telling me as regards whether to hold Int. funds in retirement? One viewpoint I heard is that if you have the Total Stock fund, you already have exposure to international due to multinational large cap companies.

longinvest
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Re: The Three-Fund Portfolio

Post by longinvest » Thu Apr 28, 2016 9:05 pm

Norske77 wrote:Thank you for the post. You are obviously way ahead of me in financial analysis! You're going to have to dumb this down for me. What is the chart telling me as regards whether to hold Int. funds in retirement? One viewpoint I heard is that if you have the Total Stock fund, you already have exposure to international due to multinational large cap companies.
Norske,

The chart shows that a 60%/40% stock/bond portfolio (red line) without international diversification (e.g. Japanese stock, Japanese bonds), where many of these Japanese companies are multinational and sell everywhere on the planet (think of Honda, Toyota, etc.) has not yet recovered from the 1989 market crash in inflation-adjusted terms, 25 years later! Had the Japanese investor put half of his stock allocation (yellow line) into ex-Japan stocks (international), he would have more than doubled his money in inflation-adjusted terms over the same period (a tad above 2.8% average compound return).

The whole idea of Three-Fund Portfolio investing is about broad diversification at low cost. The first level of diversification is the inclusion of bonds. Bonds are the only true diversifier of stock risk. When stocks do something, bonds are less likely to do the same thing than other stocks; that's the idea. Diversification is not about winning the stock market lottery; it's about getting higher returns when things go badly than those who have not diversified their portfolio.

The second level of diversification is within stocks. The US market is well diversified, but it is a single country's market. It only represents about half of the stock securities of the planet. International stocks bring additional diversification, and also some currency diversification. For a Japanese investor, in the last 25 years, diversifying a portfolio with an allocation to international stocks saved the day.

We just don't know what the future will bring us. For the low cost (expense ratio of 0.12%), it would seem a good idea to diversify one's stock allocation with some portion in international.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

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Re: The Three-Fund Portfolio

Post by boglephreak » Fri Apr 29, 2016 3:11 am

just got through the 29 pages, whew, that was a ride. very informative and helpful.

one question that has been nagging throughout was the inclusion of int'l stock. correct me if i am wrong, but it appears that the inclusion of int'l stock is mostly to control risk through further diversification (i.e., US makes up less than 50% of the world economy, so some int'l stock is important to get a better "index" of the total world economy), and not to increase returns (historic int'l returns seem to pale in comparison to US). however, as i see it, the purpose of stock is for larger returns through higher risk, and the purpose of bonds is to control risk. doesnt int'l index and bond index's purposes overlap? if so, why wouldnt it be better to just increase the % of bonds rather than invest internationally?

i read the multiple posts on 2fund vs. 3fund, and the vanguard paper taylor cites to on this point. however, it was never clear to me why the two functions dont overlap.

thanks.

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Endless topic.

Post by Taylor Larimore » Fri Apr 29, 2016 8:54 am

Boglebreak:

Your question about the value of adding international stocks to a U.S. stock/bond portfolio is never ending and deserves its own topic.

In order to keep this Three-Fund Portfolio thread manageable, please ask your question here: International Funds Worth It?

Thank you and best wishes.
Taylor
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Re: International Funds Worth it?

Post by LadyGeek » Fri Apr 29, 2016 9:12 am

I merged Norske77's question into here. The combined thread is now in the Investing - Theory, News & General forum (theory).

Norske77 - Why don't you start a thread in the Investing - Help with Personal Investments forum using the Asking Portfolio Questions format? It will let you think about the "big picture" while giving us the information we need to point you in the right direction.
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Re: The Three-Fund Portfolio

Post by Valuethinker » Fri Apr 29, 2016 10:18 am

boglephreak wrote:just got through the 29 pages, whew, that was a ride. very informative and helpful.

one question that has been nagging throughout was the inclusion of int'l stock. correct me if i am wrong, but it appears that the inclusion of int'l stock is mostly to control risk through further diversification (i.e., US makes up less than 50% of the world economy, so some int'l stock is important to get a better "index" of the total world economy), and not to increase returns (historic int'l returns seem to pale in comparison to US). however, as i see it, the purpose of stock is for larger returns through higher risk, and the purpose of bonds is to control risk. doesnt int'l index and bond index's purposes overlap? if so, why wouldnt it be better to just increase the % of bonds rather than invest internationally?

i read the multiple posts on 2fund vs. 3fund, and the vanguard paper taylor cites to on this point. however, it was never clear to me why the two functions dont overlap.

thanks.
There's no proof that future returns from international funds won't be higher than US. There's been lots of periods when that has been true. Historic returns don't predict future returns, generally.

International markets are generally on lower valuations than US ones. I think that a lot of that is to do with sector valuation (tech stocks are a bigger chunk of the US market than any other). But say if raw materials again became a thing, the US market has almost no mining companies left-- it is underweight commodities compared to UK, Australia, Canada, South Africa say.

In other words it is impossible to know.

International markets generally have greater volatility than USA markets because of currency risk (for a USD investor). Setting aside Emerging Markets that is. That may or may not be rewarded in the future of course. But there will be times when the USD will fall, not rise.

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Re: The Three-Fund Portfolio

Post by Valuethinker » Fri Apr 29, 2016 10:23 am

Norske77 wrote:Thank you for the post. You are obviously way ahead of me in financial analysis! You're going to have to dumb this down for me. What is the chart telling me as regards whether to hold Int. funds in retirement? One viewpoint I heard is that if you have the Total Stock fund, you already have exposure to international due to multinational large cap companies.
It is a very imperfect way of getting international exposure.

Samsung? Hyundai? Nestle? BP? Shell? HSBC? Glaxo Smithkline? Astra Zeneca? Carrefour (world's biggest food retailer)? RTZ, BHP, Glencore and Vale (world's biggest mining companies)? Toyota? Diageo (world's biggest drinks company)? Do you really want to be unexposed to all of those companies?

Empirically holding 20-30% of your equity portfolio in non US stocks has maximized returns and minimized volatility. Below 20% it's unlikely to have much effect, above 30% you are adding volatility without much gain.

By contrast the recommended strategy is to hold your fixed income assets in USD investments. Guaranteeing USD cash flows. Given that on the order of 35-40% of non US developed world government bonds are trading at negative Yields to Maturity, (and bond funds tend to hedge currency), that's also likely to give you better returns.

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Re: International Funds Worth it?

Post by LateStarter1975 » Fri Apr 29, 2016 10:33 am

Yes it is worth it. Diversification.
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Re: International Funds Worth it?

Post by SpringMan » Fri Apr 29, 2016 11:05 am

We are under weight in Foreign equities with 18% of equities being foreign. Keeping what we have but will not be adding. Recency bias maybe, but I don't like commodities either.
Best Wishes, SpringMan

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Re: International Funds Worth it?

Post by fortyofforty » Sun May 01, 2016 8:49 pm

Unfortunately, we won't know whether a dollop of foreign exposure will increase, decrease, or have no effect on the volatility and size of our returns. I suspect it won't matter much, but as was mentioned above, I do want to have exposure to companies based around the world. I use many of their products every day, so why wouldn't I believe in them as investments?
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Re: International Funds Worth it?

Post by JonnyDVM » Sun May 01, 2016 9:20 pm

We need a long period of international outperformance so we can have a solid answer to this question once and for all. Of course then the new hot topic will be "why not 100% international?" :oops:

In my opinion yes, international will be worth it in the long run. I'm scooping up more with the current strength of the US dollar. I want to own everything and I like buying things when they are relatively cheap. I want the added diversification. I want a share of economies that are about to take off. It's hard to make a good argument against owning international IMO other than 1) currency risk and 2) The US is awesome.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Re: International Funds Worth it?

Post by Independent George » Mon May 02, 2016 2:07 pm

I'm over-allocated in international partly by design, and partly by accident.

The design part is that I figure that if the US economy outperforms the rest of the world, my US income will probably reflect that. If it under-performs, my international portfolio will reflect that. In the long term, it should balance out - it's like people who work in finance deliberately avoiding financials in their portfolios.

The accident part comes from my 401k originally not offering international exposure via an index fund, so I had 100% set to the Spartan Index fund while splitting my Roth IRA between the Vanguard 2040 Target Retirement, and Total International. Once the 2040 became available in my 401k, I switched from the Spartan, but decided I'd rather just hold on to the International rather than sell/exchange it. Since then I've been adding steadily to the 2040 without getting rid of the old position.

I guess I'm just averse to selling. I did too much of that when I was younger and stupider, so now I've probably gone too far in the opposite direction.

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Re: International Funds Worth it?

Post by Norske77 » Sun May 08, 2016 10:21 pm

Following the Pfau/Kitces plan of lower stock allocation early in retirement (I'm 66), I only have 36% of total funds (stocks, bonds, cash) in the Total Stock Index fund. Would it be suggested, then, that I move some of that to International or would the amount be too small to make much a difference?

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Re: International Funds Worth it?

Post by swellkarl » Sun May 08, 2016 10:46 pm

This may be a little off topic, but this is how I view international investing.

I am an American and am very pro-American. If I were to invest internationally, then I am wanting other countries to excel, sometimes at the expense of the United States. I just can't go there.

How do other people see this?

Karl
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Re: International Funds Worth it?

Post by Wayson » Sun May 08, 2016 10:56 pm

swellkarl wrote:This may be a little off topic, but this is how I view international investing.

I am an American and am very pro-American. If I were to invest internationally, then I am wanting other countries to excel, sometimes at the expense of the United States. I just can't go there.

How do other people see this?

Karl
I see it in the same context as socially responsible investing.

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reriodan
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Re: International Funds Worth it?

Post by reriodan » Sun May 08, 2016 10:58 pm

yzw731 wrote:However, when I look at the annual returns of the fund, I become less than thrilled... 1 Year mark is -10.77%, 3 year is 3.05% and 5 year is 2.09%. Am I missing something? Because I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.
Yep, who cares about 5 year returns? You should be thinking about long-term investing.

mongstradamus
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Re: International Funds Worth it?

Post by mongstradamus » Sun May 08, 2016 11:06 pm

swellkarl wrote:This may be a little off topic, but this is how I view international investing.

I am an American and am very pro-American. If I were to invest internationally, then I am wanting other countries to excel, sometimes at the expense of the United States. I just can't go there.

How do other people see this?

Karl
My take on it is I really can't control which markets do well and which ones do poorly, so it would be in my best interest to diversify as much as I can ?

I am well aware i could be wrong in that line of thinking.

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SimpleGift
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Re: International Funds Worth it?

Post by SimpleGift » Sun May 08, 2016 11:10 pm

yzw731 wrote:Am I missing something? Because I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.
Cordially, Todd

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triceratop
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Re: International Funds Worth it?

Post by triceratop » Sun May 08, 2016 11:16 pm

swellkarl wrote:This may be a little off topic, but this is how I view international investing.

I am an American and am very pro-American. If I were to invest internationally, then I am wanting other countries to excel, sometimes at the expense of the United States. I just can't go there.

How do other people see this?

Karl
My feeling is that one can be patriotic while not being nationalistic. To me, it is nationalistic to refuse to invest abroad for that reason.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

southbay
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Re: International Funds Worth it?

Post by southbay » Sun May 08, 2016 11:35 pm

Simplegift wrote:
yzw731 wrote:Am I missing something? Because I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.
Great chart. So many investors seem to only look at the past 3-5 years.

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unclescrooge
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Re: International Funds Worth it?

Post by unclescrooge » Mon May 09, 2016 12:16 am

Read Meb Faber's book on global asset allocation.

He shows that adding an international asset class improves returns slightly and reduces volatility.

Dirghatamas
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Re: International Funds Worth it?

Post by Dirghatamas » Mon May 09, 2016 1:51 am

swellkarl wrote:This may be a little off topic, but this is how I view international investing.

I am an American and am very pro-American. If I were to invest internationally, then I am wanting other countries to excel, sometimes at the expense of the United States. I just can't go there.

How do other people see this?

Karl
Umm..wow. I can understand people not investing internationally for many reasons like sector compositions, foreign taxes, expense ratios, currency fluctuations etc. but I had not heard this take on it.

Lets see, you are driving and need to pump gas: Shell station next..nope not going there because English/Dutch? Wait, there is an ARCO gas station next and you need a soda from its AM/PM mini mart anyway. How quintessentially American..oops British. Obviously you can't drive a Japanese car. That wouldn't be very pro-American so perhaps you drive the proverbial "American" Jeep or a Dodge Pickup. Guess what they are Italian now..

Do you use a cell-phone? I hope you don't use T-Mobile (German) or Sprint (Japanese). Watch Fox news or read the Wall Street Journal? Again look through the lineage of Murdoch.

Drink coffee but can't put creamer in it because Nestle (Swiss)? Obviously you can't drink the most common American beer: Budweiser because the company is based in Belgium but wait that company is actually owned by a Brazilian company based in New York . How about Burger King? Could eat its burgers till a couple of years ago but not anymore (Canadian now). Do you use 7-11 for quick stops and getting a slurpee? Shouldn't, it is Japanese after all. Drink Whiskey from the American south? Please check if the holding company is Japanese.. OK maybe a very healthy guy who like organic produce. Probably love Trader-Joe's out of California (shouldn't it is owned by a German company after all). Take a bath? Perhaps use the common Dove brand soap? Certainly not because it is British (Unilever)?

Wear the proverbial All-American, "Top-Gun" Ray-Ban sun glasses? Please check who owns them..you may be surprised (Italian). OK, maybe "Top-Gun" is too old-school. Perhaps you use more cutting edge Oakley Sunglasses out of California (oops same Italian holding as Ray-Ban). OK maybe you use contact lenses instead and use the most common brand, which was American..oops now it is Canadian.

The same is true in reverse of course. Entertainment companies like Disney expect China to be their biggest market in the next decade. Colgate is expected to sell more toothpaste in India in the coming decades than USA. China could be Apple's biggest future market..or not. Google has something like 90% market share in Europe..so Europeans should boycott Google?

My point simply is that the world is interconnected and becoming more so every day. Companies are increasingly multinational and are constantly being bought and sold so that their "country" demarcation can change within a day. "American" companies sell worldwide and "Foreign" companies sell products world wide including USA. Companies are companies, stocks are stocks. Assigning a "country" to a company is becoming positively quaint in the interconnected world that is developing around us.

PS: For completeness, I have always disagreed with these type of "home-bias" ideas when it comes to investing and have always invested global stocks, market cap weighted. YMMV.

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Re: International Funds Worth it?

Post by swellkarl » Mon May 09, 2016 6:17 am

There is a difference between buying products made by foreigners and investing in foreign companies.
Even though I try to buy products made by Americans, sometimes I do not have that option.
But I do have many options whether to invest in companies headquartered in other countries.

Karl
74% Inst Index, 20% Core Bond, and 6% Cash

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fortyofforty
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Re: International Funds Worth it?

Post by fortyofforty » Mon May 09, 2016 6:22 am

By investing globally, I am rooting for the success of mankind. I believe in rewarding free markets, corporate success and personal achievement, wherever they occur. Capitalism is a system that encourages the spread of liberty, and I think it deserves to be supported; it allowed America to become the great nation it is today. I can be pro-America and still invest globally.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

CorradoJr
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Re: International Funds Worth it?

Post by CorradoJr » Mon May 09, 2016 6:56 am

Simplegift wrote:
yzw731 wrote:Am I missing something? Because I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.
I am trying to be open minded on International while seriously questioning my Target 2040's (to me) very high International allocation (It is my only holding.). Never mind the fact that Vanguard keeps fiddling with the AA over time as they see fit. I agree with some International (20% max), nowhere near the 40% or so where it is now.

Looking at this graph, I see only 1 period of significant outperformance since 1988ish and a lot of lost opportunity time in the past 27 years. Maybe I'm being too skeptical?

An even more simplistic view is 4/7 times in the past 40 years International underperformed. That does not sounds like good odds.

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Re: International Funds Worth it?

Post by abuss368 » Mon May 09, 2016 8:17 am

Hi Bogleheads,

This is a topic that has been endlessly debated and will continue to be based on the recent performance of the U.S. and International Stock and Bond Markets. In my opinion, it is more important to have more diversification than less.

I can not help but think of Japan for the last 20 years and Japanese investors who invested in domestic funds only.

As such, Vanguard has continued to recommend a global portfolio that includes both internationals stocks and bonds.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: International Funds Worth it?

Post by LadyGeek » Mon May 09, 2016 3:02 pm

With regards to the last few posts, please stay on-topic, which is helping the OP decide to invest in international funds. General discussions on product quality vs. country of origin, economic and political policy, etc. is off-topic.

yzw731 - Is your question answered? What else can we help you with?
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

LibertyLover
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Re: International Funds Worth it?

Post by LibertyLover » Mon May 09, 2016 9:24 pm

I don't see as much upside in developed markets as Emerging. It's dropped quite a bit over the last few years dispite the recent rebound. Which leads some to believe it is undervalued and due for some gains. Clearly, there is high risk and volatility associated with EM.

VEIEX (Vanguard Emerging Markets)
(History 4/30/2016)
2006 29.39
2007 38.90
2008. -52.81
2009 75.98
2010 18.86
2011 -18.78
2012 18.64
2013 -5.19
2014 0.42
2015 -15.51
YTD 6.15

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Re: International Funds Worth it?

Post by abuss368 » Mon May 09, 2016 10:23 pm

I have been learning and debating about adding International Bonds to our investment portfolio. Vanguard is heavily marketing them and providing a lot of additional education. I will continue to learn about this asset class. To me, it is getting hard to ignore the largest asset class in the markets, especially considering the cost continues to decline and the additional diversification it provides.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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VirtualCuriosity
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Re: International Funds Worth it?

Post by VirtualCuriosity » Tue May 10, 2016 1:22 am

yzw731 wrote:[Thread updated, see below. --admin LadyGeek]

I am not sure why international stocks are worth it as they seem to provide very little return. By contrast, the Vanguard 500 and Mid caps provide over 10% return on average 3 years and up.
I am not sure either. But, when my 18 yr old daughter started her first Roth IRA after her first year of college (2015), she agreed with the premise that it is best to keep it simple and stay a course. She has a portion of her three fund portfolio in an international index fund. I can't imagine that there won't be some excitement at some point in her life that she got in low and stayed a consistent course. And then again, maybe not. But, she is comfortable with it. I always recall Mr. Bogle's story of the old runner at a brokerage firm giving him advice with three words "nobody knows nothin'.

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fortyofforty
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Re: International Funds Worth it?

Post by fortyofforty » Tue May 10, 2016 1:47 am

International BOND funds are another story. If your goal for bonds is to provide a somewhat non-correlated asset class to balance stocks, then it might be prudent to include international bonds. They give you diversification plus bonds that are likely less correlated to any stocks you own. However, many investors view bonds as fairly stable, the "rock" on which to rely in uncertain times. I suppose international bonds are less stable than domestic bonds. However, adding diversification generally tends to reduce risk, to a point. So, what do people think about international bonds, as abuss368 mentioned above? What role would they/do they play in your portfolio, if any?
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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