Mr. Bogle and Global Corruption Crackdown

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Visitor
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Mr. Bogle and Global Corruption Crackdown

Post by Visitor »

Mr. Bogle recommends not investing in foreign markets because:

(1) He doesn't envision the world economies outpacing the U.S. in terms of investment return in the future. Mr. Bogle stated the U.S. is the most innovative and entrepreneurial country in the world.

(2) If you own the S&P 500 (SPY), you already own an international portfolio because nearly 50% of your revenue comes from outside the U.S.

(3) The correlation between U.S. and international company performance has been converging, so there is less of a diversification benefit than there used to be.

(4) Investing in the U.S. is cheaper and lets investors avoid currency risk and other risks in international countries.

(5) The U.S. has the strongest financial institutions and shareholder protections in the world.

Please let me know if I missed anything.

Today CNBC aired a segment "Global Corruption Crackdown" informing viewers there are currently three emerging countries in economic paralysis because of vast multi-billion dollar corruption scandals--Brazil, Nigeria, and Ukraine. http://video.cnbc.com/gallery/?video=3000506030

I'm starting to re-think my exposure to international markets. Vanguard recommends 20-40 percent investment overseas while our mentor Jack, says invest nada, zilch, ZERO outside the U.S.

I must admit reason number 5 along with the corruption segment on CNBC I saw today is the biggest reason I'm struggling whether or not to continue investing in foreign markets.

I know this has been an ongoing debate for years but I'm starting to wonder if the additional risk is worth the hopeful reward or benefit of diversification?

Does any of this give Bogleheads pause (especially the corruption video) to reconsider investing internationally?
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Re: Mr. Bogle and Global Corruption Crackdown

Post by 691175002 »

From a theoretical standpoint its hypocritical to say "You should own the entire market, except for parts not in the US".

I personally think global investing is overrated because living standards are relative. The most salient "risk" when investing is to run out of money faster than the people around you. If everyone is getting poor at the same time, deflation sets in, prices go down, and its not as horrible as it could otherwise be.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Solo Prosperity »

I do agree with your five points and think they hold merit. I do however ignore pretty much anything on CNBC.

1. Mostly agree (Could make an EM argument) but this is just a forecast form Mr. Bogle and I have read too much stuff to put much stock into anyone's forecasts, even from one as smart as Mr. Bogle.

2. I think it's closer to 40%, but yes. You gain international revenue exposure...I wouldn't go so far as you to say you are investing in international market's though.

3. Correlation between Large U.S. Companies and Large International companies have been converging...which makes sense since most large corporations based in the U.S. or abroad are multinational these days (Globalization). International SC's and EM still exhibit solid diversification benefits imo since they are more closely tied to the local economies.

4. Cheaper, yes. Currency risk can go both ways. International countries typically exhibit more market risk so agreed...but that doesn't mean there are no risks here...we just tend to understand them better as citizens (and sometimes understate them while overstating those abroad...home country bias...we do it here just like everyone around the globe does). Education can help in this regard.

5. For now, agreed.

My equities are 60 US / 40 Intl. (tilted towards U.S. despite it only being something like 48% of Global Equity markets currently) because of some of those things you outlined and I don't plan on changing that because of Mr. Bogle, those points, or especially a CNBC segment.

Just make sure you have a sound decision making process for yourself before you pull the trigger.

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Re: Mr. Bogle and Global Corruption Crackdown

Post by abuss368 »

I have family in the Jack Bogle Vanguard Two Fund Investment Portfolio of Total Stock and Total Bond. They love the simplicity and results. No desire for complexity and international funds.

Makes me wonder at times!
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Re: Mr. Bogle and Global Corruption Crackdown

Post by in_reality »

Visitor wrote: (1) He doesn't envision the world economies outpacing the U.S. in terms of investment return in the future. Mr. Bogle stated the U.S. is the most innovative and entrepreneurial country in the world.
Isn't this point rather irrelevant though.

Returns are not be based companies' investment returns (sorry), but rather on the price you must pay to get those expected returns.

As such, the market can price the exception of continued US outperformance in the price of securities. Thus, foreign holding with a lower expected return should have a lower price.

You can take a bet on the US and buy at high valuations hoping to receive higher investment return, or you can trust market pricing and diversify with international.

If you think that the US is best, why not invest only in US growth companies? They are expected to have better "investment returns" after all. Of course, you have to pay the price for the companies expected to grow and in fact buying companies with attractive valuations very well may perform better in the long run.

Nobody would argue just buy growth.

I don't buy the argument to just buy US.

[OK OK growth / value differences are in the same legal environment whereas who knows, for example, what the legal system in China whose responsibility is to serve the Party will do. Still, don't we trust the market to price that in, or is it just not able?]
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Re: Mr. Bogle and Global Corruption Crackdown

Post by elgob.bogle »

"Mr. Bogle recommends not investing in foreign markets because:

(1) He doesn't envision the world economies outpacing the U.S. in terms of investment return in the future. Mr. Bogle stated the U.S. is the most innovative and entrepreneurial country in the world.

(2) If you own the S&P 500 (SPY), you already own an international portfolio because nearly 50% of your revenue comes from outside the U.S.

(3) The correlation between U.S. and international company performance has been converging, so there is less of a diversification benefit than there used to be.

(4) Investing in the U.S. is cheaper and lets investors avoid currency risk and other risks in international countries.

(5) The U.S. has the strongest financial institutions and shareholder protections in the world.

Please let me know if I missed anything. "

Citations Please!

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Re: Mr. Bogle and Global Corruption Crackdown

Post by arcticpineapplecorp. »

Visitor wrote:Today CNBC aired a segment "Global Corruption Crackdown" informing viewers there are currently three emerging countries in economic paralysis because of vast multi-billion dollar corruption scandals--Brazil, Nigeria, and Ukraine. http://video.cnbc.com/gallery/?video=3000506030

I'm starting to re-think my exposure to international markets. Vanguard recommends 20-40 percent investment overseas while our mentor Jack, says invest nada, zilch, ZERO outside the U.S.

I must admit reason number 5 along with the corruption segment on CNBC I saw today is the biggest reason I'm struggling whether or not to continue investing in foreign markets.

I know this has been an ongoing debate for years but I'm starting to wonder if the additional risk is worth the hopeful reward or benefit of diversification?

Does any of this give Bogleheads pause (especially the corruption video) to reconsider investing internationally?
According to the Vanguard total international stock market index fund the three countries named make up the following percentages of the fund:
Brazil -- 1.2%
Nigeria -- 0% (don't see it listed at link below unless it's "other" which is also 0%)
Ukraine -- 0% (unless you want to say it's Russia because of their hostile takeover attempts, in which case it makes up 0.7%)

Now, knowing those three countries only make up 1.2% - 1.9% of your international holdings...and if those holdings are only 20%-40% of your equity holdings, do you really think this will have a significant impact on your overall portfolio?

I've heard Jack say more recently his concern is over the more major holdings in the international fund, specifically Europe (45.9%) and Japan (17.7%) which he sees as having real limits or difficulties to growth in the years ahead due do debt, immigration, demographics, etc. But I haven't heard him concerned about the smallest components of the total international stock market index fund.

https://personal.vanguard.com/us/funds/ ... =INT#tab=2
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Re: Mr. Bogle and Global Corruption Crackdown

Post by oldzey »

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Re: Mr. Bogle and Global Corruption Crackdown

Post by Ari »

Brazil, Ukraine and Nigeria are very much emerging or even frontier markets. Corruption risk in these countries should not come as a surprise to you. Most international funds do not hold a majority in emerging markets. Compare the US to western and northern Europe and you'll find that the US does not come out ahead.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by normaldude »

A single country portfolio is dangerous. Any one country can experience crazy volatility, and extended crashes. For example, Japan's stock market has fallen for the last 26 years or so.

Don't put all your eggs in one basket.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by AlohaJoe »

Visitor wrote:Today CNBC aired a segment "Global Corruption Crackdown" informing viewers there are currently three emerging countries in economic paralysis because of vast multi-billion dollar corruption scandals--Brazil, Nigeria, and Ukraine. http://video.cnbc.com/gallery/?video=3000506030

I'm starting to re-think my exposure to international markets.

I must admit reason number 5 along with the corruption segment on CNBC I saw today is the biggest reason I'm struggling whether or not to continue investing in foreign markets.
Do stories about multi-billion dollar corruption scandals in the US make you want to cut back on your US investments?

I mean Libor corruption was substantially larger than any of those scandals in Brazil, Nigeria, or the Ukraine.

Yes, US markets are more transparent than most (though not all) but I wouldn't let sensationalist news articles drive my investment decisions.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by stemikger »

Visitor wrote:Does any of this give Bogleheads pause (especially the corruption video) to reconsider investing internationally?
I never invested in international and at 52 don't see a reason to start now.

Not only does John Bogle advise against it, Warren Buffett does not think it is necessary for the average man or woman on the street either. If you want to follow Jack's timeless invest, two funds are all you need. The Total Stock Market Index or S&P Index and a Total Bond Index or a the Intermediate Term Bond Index.

He has also said numerous times that the average middle aged investor could simply put all their money in the Vanguard Balanced Index Fund and that will do perfectly fine.

Of course, like all the advice Jack gives, there are many nuances as far as AA for younger investors and your personal situation and need and ability to take risk.

Good Luck.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Quark »

Issues such as corruption, currency risk, shareholder protections, economic growth, etc. are widely known. I would think market prices would take these into account. If so, unless you are better at judging the effects of these than the market, avoiding non-US stocks leaves you less diversified than if you included them without any corresponding benefit. Hard to say how large this effect would be.

Why would you believe someone is capable of doing a better job than the market at judging US compared to non-US stocks, while not believing that some is capable of doing a better job than the market at judging (for example) the auto industry compared to the healthcare industry?
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Re: Mr. Bogle and Global Corruption Crackdown

Post by digarei »

stemikger wrote:Not only does John Bogle advise against it, Warren Buffett does not think it is necessary for the average man or woman on the street either. If you want to follow Jack's timeless invest, two funds are all you need. The Total Stock Market Index or S&P Index and a Total Bond Index or a the Intermediate Term Bond Index.

He has also said numerous times that the average middle aged investor could simply put all their money in the Vanguard Balanced Index Fund and that will do perfectly fine.
Jack Bogle's assertion that the average US investor doesn't need to invest in International equities is not the same as "advising against it." Ditto to Mr. Buffett's general advice.

The average middle aged investor with a few million in assets and low anticipated expenses could simply put all their money in bonds or CDs and do perfectly fine. No need for Vanguard's Balanced Index Fund. (All of you who are average, please raise your hand...)
stemikger wrote: I never invested in international and at 52 don't see a reason to start now.
Good to hear of your resolve.

I invested in international at age 52 and don't see a reason to stop now. :wink:

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Re: Mr. Bogle and Global Corruption Crackdown

Post by Visitor »

Thanks everyone for your replies.

It seems that most experts recommend a minimum of 20 percent invested overseas (I have 22 percent).

Can anyone tell me how the experts came up with that number and how does it make a real difference if someone like myself still has 78-80 percent of my money invested domestically?

Appreciate your feedback.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by rob »

Visitor wrote:(5) The U.S. has the strongest financial institutions and shareholder protections in the world.
This one must be a late April fools joke..... It's an arrogant and incorrect assumption. There are a string of countries with strong financial regulations, no doubt with each country having lower or higher "protections" in various areas. The world outside the US is not all stone age and in my view it's a disservice to think that way.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by AlohaJoe »

Visitor wrote:Can anyone tell me how the experts came up with that number and how does it make a real difference if someone like myself still has 78-80 percent of my money invested domestically?
Vanguard makes their research public, so you can read their paper on it: https://www.vanguard.com/pdf/ISGGEB.pdf
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Visitor »

Thanks Aloha Joe, I'll check out the article!
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Re: Mr. Bogle and Global Corruption Crackdown

Post by wesgreen »

I share your concern. I probably should have listened to Mr.Bogle and ignored Vanguard and others. He's usually right.
I'm hoping to get my 25% international down to 20% with new money, without selling any of it. It's in my Roth, so I plan on just ignoring it for as long as possible, without adding anymore. If it turns out to be a slight drag over the long term, compared to TSM, I could live with that. For me, a US/Japan comparison does not seem very practical, because of the great cultural differences.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by normaldude »

wesgreen wrote:For me, a US/Japan comparison does not seem very practical, because of the great cultural differences.
Around 2004-2006, I warned people of a potential US housing bubble. People responded by claiming a national housing decline was impossible. I pointed out that Japan home prices had declined since 1990. People responded by saying "USA is not Japan". Then USA had a national housing decline.

Many of the positive sentiments about an all-US portfolio are based on the past 100-150 years or so. But that time period is also associated with the rise of USA to lone superpower status. "Past Performance is Not Necessarily Indicative of Future Results". You can look at 5,000 years of human history, and you'll see that no empire lasts forever, and nobody stays on top forever.

Maybe you feel certain that USA will not fall anytime soon, but that's just a form of market timing. In the roaring 1920s, very few could have predicted that just around the corner would be a -90% crash in the US stock market (1929-1932), the Great Depression, and WWII.

Personally, I assume any one country can fall, and I assume that I can't predict the future with certainty. And that's why I prefer a globally diversified portfolio, rather than putting all my eggs in one basket.
Last edited by normaldude on Wed Apr 06, 2016 12:20 am, edited 1 time in total.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Theoretical »

Selling international now just seems like performance chasing. The US is high-fair to painfully overvalued in comparison to developed and emerging markets depending on your perspective, AND the dollar is really strong right now. All that it will take for International to pop back up is either strong returns or middling returns and strengthening currencies.

Keep in mind that US tax laws are unusually harsh relative to the rest of the world, so there are a lot of opportunities for foreign companies to develop and thrive just like US advantages help us be at the top right now.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Call_Me_Op »

Visitor wrote:Mr. Bogle recommends not investing in foreign markets because:

(1) He doesn't envision the world economies outpacing the U.S. in terms of investment return in the future. Mr. Bogle stated the U.S. is the most innovative and entrepreneurial country in the world.

(5) The U.S. has the strongest financial institutions and shareholder protections in the world.
Why would these (widely known) facts not already be factored into today's stock prices? I think we are forgetting about market efficiency. A company that is already great is likely to be a not-so-great stock in the future.
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Re: Mr. Bogle and Global Corruption Crackdown

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Visitor wrote:Mr. Bogle recommends not investing in foreign markets because:

(1) He doesn't envision the world economies outpacing the U.S. in terms of investment return in the future. Mr. Bogle stated the U.S. is the most innovative and entrepreneurial country in the world.

(2) If you own the S&P 500 (SPY), you already own an international portfolio because nearly 50% of your revenue comes from outside the U.S.

(3) The correlation between U.S. and international company performance has been converging, so there is less of a diversification benefit than there used to be.

(4) Investing in the U.S. is cheaper and lets investors avoid currency risk and other risks in international countries.

(5) The U.S. has the strongest financial institutions and shareholder protections in the world.

Please let me know if I missed anything.
. . . . .
What you missed was Mr. Bogle's actual view --"Let me be clear, I have never argued against owning international stocks. I just don't think one should have more than 20% of their equity portfolio in international stocks."

This is an interesting topic which generates endless debate.

Here is a fairly comprehensive discussion in a thread from 2012 "Jack Bogle on International Investing at Bogleheads 11", and a poll showing the diversity of views from 2013 "What is your equity allocation to international?", which is not much different from a poll and discussion in 2007 "What percentage of your equity is international?".
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Heir-A-Parent »

I own no equities outside the US.

Corruption is a very real monster in many countries. Just this weekend, the International Consortium of Investigative Journalists released the Panama Papers which shows a web of offshore tax avoidance vehicles used by heads of state and other connected individuals in many countries, some of which may surprise you.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by ruralavalon »

AlohaJoe wrote:
Visitor wrote:Can anyone tell me how the experts came up with that number and how does it make a real difference if someone like myself still has 78-80 percent of my money invested domestically?
Vanguard makes their research public, so you can read their paper on it: https://www.vanguard.com/pdf/ISGGEB.pdf
Figure 3 on page 5, a graph of historical diversification benefit, shows a very flat curve in the range 20% - 50%, so the historical diversification benefit is about the same in that range. This is also discussed on page 6.

Therefor historically you get most of the diversification benefit at 20% of equities in international equities, in spite of the fact that international equities are about 50% of total global equities. So Visitor, you are right on target :) .
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Visitor »

Thank you Ruralavalon!
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Visitor »

Thanks to EVERYONE who provided feedback to this thread.

Most appreciated.

I'm in the process of looking over all of the info provided. :wink:
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Noobvestor »

Quark wrote:Issues such as corruption, currency risk, shareholder protections, economic growth, etc. are widely known. I would think market prices would take these into account. If so, unless you are better at judging the effects of these than the market, avoiding non-US stocks leaves you less diversified than if you included them without any corresponding benefit. Hard to say how large this effect would be.

Why would you believe someone is capable of doing a better job than the market at judging US compared to non-US stocks, while not believing that some is capable of doing a better job than the market at judging (for example) the auto industry compared to the healthcare industry?
Yup. It's completely baffling to me that Bogleheads claim to be market-agnostic, then at the same time the US-only ones suggest they know better than the market the geographical, political and economic risks of other countries (or that the market just isn't aware of these at all). Start with buying the market, tilt toward your home country if you have good reason, and good luck!
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Re: Mr. Bogle and Global Corruption Crackdown

Post by maj »

If you want to invest internationally with a bit more security, you might look into the new Vanguard International Dividend Appreciation Fund/ETF.
It screens for highest quality companies with at least 7 consecutive years of dividend increases. Its current portfolio has only about 200 stocks which meet the screening criteria. A large percent, about 20% I think, is invested in such companies in emerging markets.

I invested in the new fund the day it opened, March 2, 2016.

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Re: Mr. Bogle and Global Corruption Crackdown

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Thread locked for moderator review.

Update: An off-topic comment and a reply have been removed.
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Re: Mr. Bogle and Global Corruption Crackdown

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Upon further review, this thread is unlocked to continue the discussion.

Pleased stay factual and focused on the investing aspects. Opinions of the political process or general rants related to corruption are off-topic.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by Johno »

rob wrote:
Visitor wrote:(5) The U.S. has the strongest financial institutions and shareholder protections in the world.
This one must be a late April fools joke..... It's an arrogant and incorrect assumption. There are a string of countries with strong financial regulations, no doubt with each country having lower or higher "protections" in various areas.
I agree, that statement is factually wrong, and it's not good to include wrong ideas in financial analysis as a general principle. It's only one point, it could be softened fairly moderately and be correct (eg. 'the US has generally had among the relatively stronger financial institutions and shareholder protections'), but still.

In general however I agree with the point several have made that's it hard to follow the logic of a lot of those points to choosing one national market over others if you wouldn't follow analogous general points to favor sectors of the US market, or growth or value, etc. There's a certain inconsistency. But by the same token some people do emphasize growth, or small co growth, and those people in turn couldn't say US-only investors were off base either. As long as one doesn't go too hardcore about 'broad indices only' and *then* say it should be limited to US indices.
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Re: Mr. Bogle and Global Corruption Crackdown

Post by amphora »

Visitor wrote:Mr. Bogle recommends not investing in foreign markets because:

(1) He doesn't envision the world economies outpacing the U.S. in terms of investment return in the future. Mr. Bogle stated the U.S. is the most innovative and entrepreneurial country in the world.
I take issue with #1. I'll go along with the idea that the U.S. is the most innovative and entrepreneurial country, but I expect emerging markets to outpace U.S. growth, though there will be more volatility.

Here are some nice graphs from The Economist, which shows EM outpacing developed countries. If you think of EM GDP per capita in terms of logarithmic growth, you would expect emerging economies to grow like crazy until they reach the echelons of developed nations.

http://www.economist.com/blogs/dailycha ... -economies

There's a strong argument to be made that you can capture EM growth through U.S. multinationals. That's true but it seems like you capture more of it through international funds.
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