Anything wrong with 100% US Stocks?
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Anything wrong with 100% US Stocks?
I hold VT (Vanguard World Stock Fund) which is basically 55% US/45% International. It just makes sense to me for many reasons; Broad diversification, 7,800 stocks, exposure to all parts of the world, no home country bias, etc.
However, I do get nervous sometimes when I hear Bogle and Buffett discussing US only investing. Plus, Bogle wrote about it in his Common Sense book.
Also when I hear Taylor Larimore and others saying they keep their international stocks capped at no more than 20% of the portfolio; I think that mine is currently over double that.
Should I be more modest with my international exposure? Are there good arguments of why one should invest US only?
However, I do get nervous sometimes when I hear Bogle and Buffett discussing US only investing. Plus, Bogle wrote about it in his Common Sense book.
Also when I hear Taylor Larimore and others saying they keep their international stocks capped at no more than 20% of the portfolio; I think that mine is currently over double that.
Should I be more modest with my international exposure? Are there good arguments of why one should invest US only?
Re: Anything wrong with 100% US Stocks?
You should try searching and see if maybe the subject has come up before.
- spdoublebass
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Re: Anything wrong with 100% US Stocks?
I think VT is great. I own it, but I was worried because you relinquish control of the US/INT ratio. Most people on here go with VTI/VXUS for that reason. I liked the idea of 50% VT and 50% VTI which would put you around 25% Int. All I mean is you could add VTI to VT and get the international percentage you are looking for. Plus, there are differences between VTI and VT. Take a look at their BRK.B and BRK.A holdings.simplesauce wrote:I hold VT (Vanguard World Stock Fund) which is basically 55% US/45% International. It just makes sense to me for many reasons; Broad diversification, 7,800 stocks, exposure to all parts of the world, no home country bias, etc.
However, I do get nervous sometimes when I hear Bogle and Buffett discussing US only investing. Plus, Bogle wrote about it in his Common Sense book.
Also when I hear Taylor Larimore and others saying they keep their international stocks capped at no more than 20% of the portfolio; I think that mine is currently over double that.
Should I be more modest with my international exposure? Are there good arguments of why one should invest US only?
Last edited by spdoublebass on Sat Jun 24, 2017 2:51 am, edited 2 times in total.
I'm trying to think, but nothing happens
Re: Anything wrong with 100% US Stocks?
What's the benefit of doing that?
Re: Anything wrong with 100% US Stocks?
No. Nothing at all.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Re: Anything wrong with 100% US Stocks?
It's probably fine, and possibly terrible. Putting all your stocks in a single country is concentrating your risks unnecessarily. The US is also a teach-heavy stock market so it's a sector bet as well. That's probably fine. But if the US and/or the tech industry goes into a long slump while other countries and sectors do better, chances are you'll regret it.
All in, all the time.
Re: Anything wrong with 100% US Stocks?
If Bogle told you to jump off a cliff, would you do it?
Re: Anything wrong with 100% US Stocks?
Yes. 100% U.S. stocks is a terrible idea.
Stick to your plan.
Stick to your plan.
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Re: Anything wrong with 100% US Stocks?
I agree with this sentiment. Some thoughtful people on this board own a lot of international, other thoughtful people own none. You really have to do your research and come up with what you think is reasonable for you. The key points are whether your money is invested and whether it's diversified and you have both of those covered.lazyday wrote:If Bogle told you to jump off a cliff, would you do it?
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Re: Anything wrong with 100% US Stocks?
lazyday wrote:If Bogle told you to jump off a cliff, would you do it?
Blasphemy!
Re: Anything wrong with 100% US Stocks?
+1GoldenFinch wrote:I agree with this sentiment. Some thoughtful people on this board own a lot of international, other thoughtful people own none. You really have to do your research and come up with what you think is reasonable for you. The key points are whether your money is invested and whether it's diversified and you have both of those covered.lazyday wrote:If Bogle told you to jump off a cliff, would you do it?
I own Total World Index also. Jack and Warren are old school and their advice is out dated. Times are changing as the world becomes smaller. If you keep reading posts about Jack and Warren's home bias advice, you're going to eventually give in, change course and then regret it. Total World Index is the most bogleheadish fund there is. If Vanguard offers admiral shares it will be just as popular as Total Stock Market Index in due time. Stay the course and avoid the "how much international" threads.
I went with simplicity and diversification.
Stocks-80% || Bonds-20% || VTI/VXUS/AOR
Re: Anything wrong with 100% US Stocks?
You've already analyzed and thought this through for yourself. Stick to your plan. Chasing returns by shifting asset allocation is a recipe for below market returns. Bogle and Buffet are 80+ years old and already a multi millionaire/billionaire. Their timeline and margin of error is very different than many young investors, and the chances that there is paradigm shift in world economic power in the lifetime of a 30 y.o. is a lot greater than that it happens in their lifetime.simplesauce wrote:I hold VT (Vanguard World Stock Fund) which is basically 55% US/45% International. It just makes sense to me for many reasons; Broad diversification, 7,800 stocks, exposure to all parts of the world, no home country bias, etc.
Re: Anything wrong with 100% US Stocks?
It's a good idea. It's a terrible idea. Lots of people do that. Nobody does that.
You can read on the topic "Asset Allocation" in the Wiki: https://www.bogleheads.org/wiki/Asset_allocation Larry Swedroe addresses this issue in depth in some of his investing books.
You can read on the topic "Asset Allocation" in the Wiki: https://www.bogleheads.org/wiki/Asset_allocation Larry Swedroe addresses this issue in depth in some of his investing books.
Re: Anything wrong with 100% US Stocks?
You may want to reread what Mr Bogle said. At the two BH Conferences I've attended this question was asked of Mr Bogle each time. His response was that international investing is PROBABLY unnecessary if you own the Total Stock Market Index Fund or S&P500 Index Fund, because most of the large companies in the USA are multinational with some even making most of their income from international trade.simplesauce wrote:However, I do get nervous sometimes when I hear Bogle and Buffett discussing US only investing. Plus, Bogle wrote about it in his Common Sense book.
Nowhere did Mr Bogle say not to invest internationally. So the choice is yours.
One think you absolutely don't want to do is to bet AGAINST the USA.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Re: Anything wrong with 100% US Stocks?
I'd think about it.lazyday wrote:If Bogle told you to jump off a cliff, would you do it?
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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Re: Anything wrong with 100% US Stocks?
I keep thinking simple investing is the best. Why don't you check how the fund did over the years compared to the other balance funds and lifestyle, target funds. Maybe they are all close so it will not matter depending on your age.
Stay simple.
Stay simple.
Last edited by indexonlyplease on Sat Jun 24, 2017 1:07 pm, edited 1 time in total.
Re: Anything wrong with 100% US Stocks?
With a few clicks you can essentially own parts of ~10,000 companies world wide (total us / total int'l)
No idea why you wouldn't want to hedge your bets rather than bank on the US entirely ... although, if the total us is worthless it means the world is likely ending, so whatever your "asset allocation" won't matter (I'm 100% equity, but approximately 70/30 US/Int'l)
No idea why you wouldn't want to hedge your bets rather than bank on the US entirely ... although, if the total us is worthless it means the world is likely ending, so whatever your "asset allocation" won't matter (I'm 100% equity, but approximately 70/30 US/Int'l)
Re: Anything wrong with 100% US Stocks?
Past performance does not predict future conformance.indexonlyplease wrote:I keep thinking simple investing is the best. Why don't you check how the fund did over the years compared to the other balance funds and lifestyle, target funds. Maybe they are all close so it will not matter depending on your age.
Stay simple.
Theory says that holding the whole market, foreign and domestic, is best. This can be done very simply. Target date funds or Vanguard Total World Stock.
To the OP, 100% US stocks is not bad - just sub-optimal. If I were to grade this strategy I would give it a "B". Not bad but one could easily do better.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: Anything wrong with 100% US Stocks?
Like maybe a million times?AlohaJoe wrote:You should try searching and see if maybe the subject has come up before.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Re: Anything wrong with 100% US Stocks?
Pretty close to it here:BolderBoy wrote:
Nowhere did Mr Bogle say not to invest internationally. So the choice is yours.
http://beta.morningstar.com/videos/7186 ... sting.html
I don't do international. And emerging markets is a little separate part of so-called "international." We're wonderful in America--we call non-U.S. funds international. Where's the U.S.? (Laughs.) They are really non-U.S. funds--non-U.S. portfolios. I probably talked about this a year ago. I say, "What are you buying?" There is such a thing as oversimplifying--this coming, of course, from the great simplifier. People say, "Buy the EAFE Index or the FTSE International Index." So, . What are you buying? Look behind the curtain. Your largest investment is Britain. Your second-largest investment is Japan. Your third-largest investment is France.
What, Christine, I ask you, is the possibility that those three nations are going to outpace the U.S. in terms of investment return in the next 10 years? I just don't think it's possible. And those countries may be the better ones. Each one has its own set of troubles. We've got plenty of troubles over here in the U.S. But at least we know that we have the most innovative economy, the most productive economy, the most technologically advanced economy, the most diverse economy in the world. And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that.
and here:
http://money.cnn.com/2017/03/08/investi ... index.html
On how to invest: "Own American business and hold them forever at the lowest cost you can possibly hold at. It's an extraordinarily simple strategy and the mathematics are enduring."
and here:
http://www.businessinsider.com/jack-bog ... lly-2016-3
The creator of indexed mutual funds thinks that investing outside of the US is too risky and American investors should keep their money at home.
and here:
https://www.bloomberg.com/news/2014-12- ... -u-s-.html
I like the U.S. The U.S. is the most productive country in the world. It is the most rapidly growing of the industrialized nations, other than Switzerland. We still have plenty of problems, but we’re much better than France, Britain and Germany. And we don’t even want to talk about Italy and Greece. And importantly -- people forget this too quickly -- we have the most established government and legal institutions.
Re: Anything wrong with 100% US Stocks?
Perhaps you are rather new at this and don't know yet, but as soon as you sell your international, it will it will outperform U.S.simplesauce wrote:I hold VT (Vanguard World Stock Fund) which is basically 55% US/45% International. It just makes sense to me for many reasons; Broad diversification, 7,800 stocks, exposure to all parts of the world, no home country bias, etc.
However, I do get nervous sometimes when I hear Bogle and Buffett discussing US only investing. Plus, Bogle wrote about it in his Common Sense book.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Anything wrong with 100% US Stocks?
This is the Bogle quote that makes me hesitant:
"And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
"And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
Re: Anything wrong with 100% US Stocks?
Looking backward, it seems like the risk of international index fund is higher than US (as defined by standard deviation), the returns for most periods are lower, and the cost of owning them is higher. That, along with Bogle, Buffet and Munger makes me pause.
Re: Anything wrong with 100% US Stocks?
This deals primarily with emerging markets, which are a small part of the international markets that you hold. Your rights in Japan or France are presumably just as strong as in the US, and your shares there are exposed to risks specific to those countries rather than the US.simplesauce wrote:This is the Bogle quote that makes me hesitant:
"And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
Emerging markets are riskier, for a variety of reasons, which is why they are a small fraction of most investors' portfolios. Investors who hold them expect the potential for higher returns to outweigh the risk. In addition, diversifying across multiple emerging markets reduces the risk; when Malaysia imposed currency controls, this did not affect your holdings n Brazil or India, which boomed.
The risk is higher, because of currency risk. US stocks are not inherently any riskier in dollars than European stocks are in euros, but the ratio of the euro to the dollar may change, creating an additional risk. Therefore, it is common not to have the full US/foreign ratio in VT; most recommendations are 20-40% international.munemaker wrote:Looking backward, it seems like the risk of international index fund is higher than US (as defined by standard deviation), the returns for most periods are lower, and the cost of owning them is higher. That, along with Bogle, Buffet and Munger makes me pause.
The main reason that returns are lower is also the currency risk, but there is no reason to expect that in the future; the dollar is just as likely to rise or fall against the euro.
The cost difference is actually something you don't see, although it still isn't very large. Vanguard Total Stock Market Index Admiral shares cost 0.04%, while Vanguard Developed Markets Index costs 0.07%, and Vanguard Total International Index costs 0.11%. But in an IRA, you lose about another 0.20% to withheld foreign taxes on the dividends of the international funds. In a taxable account, you get that 0.20% back, but you pay about the same amount in tax because the international funds have more non-qualified dividends and higher yields.
- arcticpineapplecorp.
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Re: Anything wrong with 100% US Stocks?
depends on if you'll feel like you're "missing out" when international does better like it has recently...if you look at YTD returns for U.S. (total market) are 9.53% vs 14.58% for total international. If you're fine with the U.S. return, fine. But if you owned both some of your assets (55% to be exact) are earning 9.53% and the other part (45%) of your assets are earning 14.58%.
For example look at the difference in the graph below between total U.S. (in blue), total international (in orange) and VT (in green) YTD 1/1/17- 6/23/17. You didn't get the highest return (total international), you didn't get the lowest return (total U.S.) but you got the return in between the two (how is that not a "win/win"? (source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D):
Yes, this is recency bias but there have been times like 2003-2007 when international beat U.S. Looking at the following graph the total U.S. during that time earned 91.64% from 1/1/03-12/31/07 while the total international earned 186.71% (source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D):
Yes, it's data mining. But the point is there will be times when U.S. outperforms international and other times when the opposite is true. Why not hold both?
For example look at the difference in the graph below between total U.S. (in blue), total international (in orange) and VT (in green) YTD 1/1/17- 6/23/17. You didn't get the highest return (total international), you didn't get the lowest return (total U.S.) but you got the return in between the two (how is that not a "win/win"? (source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D):
Yes, this is recency bias but there have been times like 2003-2007 when international beat U.S. Looking at the following graph the total U.S. during that time earned 91.64% from 1/1/03-12/31/07 while the total international earned 186.71% (source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D):
Yes, it's data mining. But the point is there will be times when U.S. outperforms international and other times when the opposite is true. Why not hold both?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
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Re: Anything wrong with 100% US Stocks?
I'm not a fan of investing in China, I've been avoiding VWO because of China's A share inclusion into the index. Sounds like MSCI is going to be doing the same thing and that may push me to lower my EM allocations. I think China is a bit of a black box for "shareholders" if we can even call them that.simplesauce wrote:Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
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Re: Anything wrong with 100% US Stocks?
I didn't know anything about losing another 0.20% to withheld foreign taxes in international funds. I've never seen this discussed on Bogleheads. Should this be a factor? I think that's a huge percentage that can add up over time.grabiner wrote:This deals primarily with emerging markets, which are a small part of the international markets that you hold. Your rights in Japan or France are presumably just as strong as in the US, and your shares there are exposed to risks specific to those countries rather than the US.simplesauce wrote:This is the Bogle quote that makes me hesitant:
"And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
Emerging markets are riskier, for a variety of reasons, which is why they are a small fraction of most investors' portfolios. Investors who hold them expect the potential for higher returns to outweigh the risk. In addition, diversifying across multiple emerging markets reduces the risk; when Malaysia imposed currency controls, this did not affect your holdings n Brazil or India, which boomed.
The risk is higher, because of currency risk. US stocks are not inherently any riskier in dollars than European stocks are in euros, but the ratio of the euro to the dollar may change, creating an additional risk. Therefore, it is common not to have the full US/foreign ratio in VT; most recommendations are 20-40% international.munemaker wrote:Looking backward, it seems like the risk of international index fund is higher than US (as defined by standard deviation), the returns for most periods are lower, and the cost of owning them is higher. That, along with Bogle, Buffet and Munger makes me pause.
The main reason that returns are lower is also the currency risk, but there is no reason to expect that in the future; the dollar is just as likely to rise or fall against the euro.
The cost difference is actually something you don't see, although it still isn't very large. Vanguard Total Stock Market Index Admiral shares cost 0.04%, while Vanguard Developed Markets Index costs 0.07%, and Vanguard Total International Index costs 0.11%. But in an IRA, you lose about another 0.20% to withheld foreign taxes on the dividends of the international funds. In a taxable account, you get that 0.20% back, but you pay about the same amount in tax because the international funds have more non-qualified dividends and higher yields.
- arcticpineapplecorp.
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Re: Anything wrong with 100% US Stocks?
what he's saying is that if you invest internationally AND in a taxable account, the taxes you pay on dividends/cap gains (for international investments) you can claim on your tax return as a foreign tax credit. But this is ONLY true for your international invesments in a taxable account. Not for a tax deferred account (401k, trad. IRA). So you lose that benefit holding international in an IRA or 401k.simplesauce wrote:I didn't know anything about losing another 0.20% to withheld foreign taxes in international funds. I've never seen this discussed on Bogleheads. Should this be a factor? I think that's a huge percentage that can add up over time.grabiner wrote:This deals primarily with emerging markets, which are a small part of the international markets that you hold. Your rights in Japan or France are presumably just as strong as in the US, and your shares there are exposed to risks specific to those countries rather than the US.simplesauce wrote:This is the Bogle quote that makes me hesitant:
"And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
Emerging markets are riskier, for a variety of reasons, which is why they are a small fraction of most investors' portfolios. Investors who hold them expect the potential for higher returns to outweigh the risk. In addition, diversifying across multiple emerging markets reduces the risk; when Malaysia imposed currency controls, this did not affect your holdings n Brazil or India, which boomed.
The risk is higher, because of currency risk. US stocks are not inherently any riskier in dollars than European stocks are in euros, but the ratio of the euro to the dollar may change, creating an additional risk. Therefore, it is common not to have the full US/foreign ratio in VT; most recommendations are 20-40% international.munemaker wrote:Looking backward, it seems like the risk of international index fund is higher than US (as defined by standard deviation), the returns for most periods are lower, and the cost of owning them is higher. That, along with Bogle, Buffet and Munger makes me pause.
The main reason that returns are lower is also the currency risk, but there is no reason to expect that in the future; the dollar is just as likely to rise or fall against the euro.
The cost difference is actually something you don't see, although it still isn't very large. Vanguard Total Stock Market Index Admiral shares cost 0.04%, while Vanguard Developed Markets Index costs 0.07%, and Vanguard Total International Index costs 0.11%. But in an IRA, you lose about another 0.20% to withheld foreign taxes on the dividends of the international funds. In a taxable account, you get that 0.20% back, but you pay about the same amount in tax because the international funds have more non-qualified dividends and higher yields.
read more here:
https://www.bogleheads.org/wiki/Foreign_tax_credit
https://www.google.com/search?sitesearc ... tax+credit
https://www.google.com/search?q=foreign ... 8&oe=utf-8
or go to the source:
https://www.irs.gov/individuals/interna ... tax-credit
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Anything wrong with 100% US Stocks?
However, if you hold the international stocks in a taxable account, you get back the foreign tax credit, but still have an extra cost. If you are in the 25% tax bracket, then you have a 0.30% tax cost on a US stock fund with a 2% dividend yield, all qualified. You have a 0.54% tax cost on a foreign stock fund with a 3% dividend yield, 70% qualified, and you then get 0.21% back if 7% of the dividend was withheld as a foreign tax credit (and thus the quoted yield was 2.79%). Thus the foreign fund loses 0.33% for being held in a taxable account rather than an IRA, about the same as the US fund. But it also loses 0.21% regardless of which account you hold it in.arcticpineapplecorp. wrote:what he's saying is that if you invest internationally AND in a taxable account, the taxes you pay on dividends/cap gains (for international investments) you can claim on your tax return as a foreign tax credit. But this is ONLY true for your international invesments in a taxable account. Not for a tax deferred account (401k, trad. IRA). So you lose that benefit holding international in an IRA or 401k.simplesauce wrote:I didn't know anything about losing another 0.20% to withheld foreign taxes in international funds. I've never seen this discussed on Bogleheads. Should this be a factor? I think that's a huge percentage that can add up over time.grabiner wrote:The cost difference is actually something you don't see, although it still isn't very large. Vanguard Total Stock Market Index Admiral shares cost 0.04%, while Vanguard Developed Markets Index costs 0.07%, and Vanguard Total International Index costs 0.11%. But in an IRA, you lose about another 0.20% to withheld foreign taxes on the dividends of the international funds. In a taxable account, you get that 0.20% back, but you pay about the same amount in tax because the international funds have more non-qualified dividends and higher yields.
Re: Anything wrong with 100% US Stocks?
Since this topic has come up so many times, let me just tell you were the chips fall on the philosophical debate.
We'll examine this quote by Bogle that simplesauce was so kind to share:
Argument #1
"And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
The debate concerns whether the market will protect you from that.
You might say, but John, the investors know that. Heck the market knows that, and has already lowered the price of all international securities by their proper amount to account for the likelihood of those failures. The market knows best, not you John.
I side with Bogle. But I can certainly see the position of those who do not.
Argument #2
Outside of that argument, there is also the position that any one nation may underperform--that by diversifying among the nations, you increase your likelihood for success in the long run. As a general matter I agree with this. I may yet decide to allocate a good arbitrary percentage to international because of it.
Argument #3
The market has declared approximately 50% US and 50% international to be efficient. The allocation of capital in equities globally is approximately half US, half the rest of the world, give or take 5%. Just like investing in index funds will give you a large allocation of FANG stocks, same as investing globally. What the market has allocated, it is has allocated for a reason. To not allocate as such is to choose an allocation contrary to the market, which is what we generally avoid doing.
My counter: It's a matter of how far you want to take it of course--the "noboby knows nothing" mentality. I take it far, but not so far. Empirically, global capital is allocated across all asset classes, not just stocks. I see no reason to cherry pick the global allocation of capital towards equities when the vast majority of global capital is allocated in bonds and sovereign bonds at that. In fact about 600 trillion is placed in derivatives notionally. Lord knows where those resolve. In other words, even taking into account that the 50/50 allocation is "efficient", a good question might be efficient for what kind of goals? Your retirement goals aren't the same as the global allocation--whatever it is.
I did an analysis last year where it really looked to me the global allocation of capital generally was basically for someone who might need money immediately, i.e. a nation-state needing cash to emergencies at any given time. Only a very small portion of global capital is actually allocated in stocks.
Argument #4:
A judgment call. While I do think trading against market allocations for stocks is typically a losing deal, I don't necessarily impute that to countries.
Countries are slow moving market entities. They don't change by the quarter, they change by the year, or decade.
Ask yourself, how long would it take for Venezuela to turn itself around? How long would it take for the EU's membership issues to resolve? How long would it take for China's asset bubble and shadow banking to repair itself, or for Japan to escape its Keynesian liquidity trap?
These are extremely slow moving events protracted over generations frankly.
The empirical evidence has shown that most active managers do not outperform the market in the long run. I have yet to see the same evidence when active manager select which "countries" to invest in as opposed to stocks.
Thus when it comes to market entities the size of countries, I don't think markets are as efficient. Of course this really a philosophical position than anything else, and I acknowledge that. But I think there's some merit to declaring China or Greece or Venezuela aren't going to fix themselves any time soon and using a little perspicacity and insight is worth some "alpha". I don't think the market is going to front-run you on investing in an entire country.
Even looking at Japan in the 80s, it was obvious property values were ridiculous. It's not like it was invisible to us here. Countries are slow moving.
No the imperial palace wasn't worth California. I would have declined investing in Japan back then, just as I decline to invest in Australia's property market or Vancouver's today.
We'll examine this quote by Bogle that simplesauce was so kind to share:
Argument #1
"And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that."
The debate concerns whether the market will protect you from that.
You might say, but John, the investors know that. Heck the market knows that, and has already lowered the price of all international securities by their proper amount to account for the likelihood of those failures. The market knows best, not you John.
I side with Bogle. But I can certainly see the position of those who do not.
Argument #2
Outside of that argument, there is also the position that any one nation may underperform--that by diversifying among the nations, you increase your likelihood for success in the long run. As a general matter I agree with this. I may yet decide to allocate a good arbitrary percentage to international because of it.
Argument #3
The market has declared approximately 50% US and 50% international to be efficient. The allocation of capital in equities globally is approximately half US, half the rest of the world, give or take 5%. Just like investing in index funds will give you a large allocation of FANG stocks, same as investing globally. What the market has allocated, it is has allocated for a reason. To not allocate as such is to choose an allocation contrary to the market, which is what we generally avoid doing.
My counter: It's a matter of how far you want to take it of course--the "noboby knows nothing" mentality. I take it far, but not so far. Empirically, global capital is allocated across all asset classes, not just stocks. I see no reason to cherry pick the global allocation of capital towards equities when the vast majority of global capital is allocated in bonds and sovereign bonds at that. In fact about 600 trillion is placed in derivatives notionally. Lord knows where those resolve. In other words, even taking into account that the 50/50 allocation is "efficient", a good question might be efficient for what kind of goals? Your retirement goals aren't the same as the global allocation--whatever it is.
I did an analysis last year where it really looked to me the global allocation of capital generally was basically for someone who might need money immediately, i.e. a nation-state needing cash to emergencies at any given time. Only a very small portion of global capital is actually allocated in stocks.
Argument #4:
A judgment call. While I do think trading against market allocations for stocks is typically a losing deal, I don't necessarily impute that to countries.
Countries are slow moving market entities. They don't change by the quarter, they change by the year, or decade.
Ask yourself, how long would it take for Venezuela to turn itself around? How long would it take for the EU's membership issues to resolve? How long would it take for China's asset bubble and shadow banking to repair itself, or for Japan to escape its Keynesian liquidity trap?
These are extremely slow moving events protracted over generations frankly.
The empirical evidence has shown that most active managers do not outperform the market in the long run. I have yet to see the same evidence when active manager select which "countries" to invest in as opposed to stocks.
Thus when it comes to market entities the size of countries, I don't think markets are as efficient. Of course this really a philosophical position than anything else, and I acknowledge that. But I think there's some merit to declaring China or Greece or Venezuela aren't going to fix themselves any time soon and using a little perspicacity and insight is worth some "alpha". I don't think the market is going to front-run you on investing in an entire country.
Even looking at Japan in the 80s, it was obvious property values were ridiculous. It's not like it was invisible to us here. Countries are slow moving.
No the imperial palace wasn't worth California. I would have declined investing in Japan back then, just as I decline to invest in Australia's property market or Vancouver's today.
- privatefarmer
- Posts: 779
- Joined: Mon Sep 08, 2014 2:45 pm
Re: Anything wrong with 100% US Stocks?
Anything wrong with 100% stocks? Yes : It's not 120%.
Figure out how much of a drop you are willing to ride down without selling. Stock indexes easily fall 60% in terrible markets, possibly more. I can stomach any loss as long as it doesn't go to zero, so I am 120% via low cost margin. You also need to figure out other debt you have (mortgage etc) as you effectively are leveraged even if you may not realize it.
Figure out how much of a drop you are willing to ride down without selling. Stock indexes easily fall 60% in terrible markets, possibly more. I can stomach any loss as long as it doesn't go to zero, so I am 120% via low cost margin. You also need to figure out other debt you have (mortgage etc) as you effectively are leveraged even if you may not realize it.
- triceratop
- Posts: 5838
- Joined: Tue Aug 04, 2015 8:20 pm
- Location: la la land
Re: Anything wrong with 100% US Stocks?
The question is about the domestic portion of an equity allocation versus international diversification, not about the role of bonds in a portfolio.privatefarmer wrote:Anything wrong with 100% stocks? Yes : It's not 120%.
Figure out how much of a drop you are willing to ride down without selling. Stock indexes easily fall 60% in terrible markets, possibly more. I can stomach any loss as long as it doesn't go to zero, so I am 120% via low cost margin. You also need to figure out other debt you have (mortgage etc) as you effectively are leveraged even if you may not realize it.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
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- Posts: 1059
- Joined: Mon Nov 14, 2016 9:10 pm
Re: Anything wrong with 100% US Stocks?
The question as to whether to invest (mostly) in businesses based in one's own Country of Citizenship is probably much different depending on where you are located or hold Citizenship.
Say if you are a citizen of Germany or Netherlands-should your biggest allocation be in one of those? Or should United States of America get an extra large allocation?
There might be some advantages to being a citizen here (U.S.A.)
Also do some nations apply punitive taxation to investors with outside of their nation investments?
Say if you are a citizen of Germany or Netherlands-should your biggest allocation be in one of those? Or should United States of America get an extra large allocation?
There might be some advantages to being a citizen here (U.S.A.)
Also do some nations apply punitive taxation to investors with outside of their nation investments?
Re: Anything wrong with 100% US Stocks?
1/2 this forum would. 1/4 would question it, and the last 1/4 would ask if their nearest bridge would be an OK substitute cuz it's a big cost savings over the cliff.lazyday wrote:If Bogle told you to jump off a cliff, would you do it?
I’d trade it all for a little more |
-C Montgomery Burns
Re: Anything wrong with 100% US Stocks?
HA!finite_difference wrote:I'd think about it.lazyday wrote:If Bogle told you to jump off a cliff, would you do it?
I like Bogle a lot, though my two favorite gurus are Bill Bernstein and David Swensen. As you suggest, I give anything they say serious consideration. Still reject much of it.
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- Posts: 48944
- Joined: Fri May 11, 2007 11:07 am
Re: Anything wrong with 100% US Stocks?
Finance theory provides a good answer to your question.Wakefield1 wrote:The question as to whether to invest (mostly) in businesses based in one's own Country of Citizenship is probably much different depending on where you are located or hold Citizenship.
Say if you are a citizen of Germany or Netherlands-should your biggest allocation be in one of those? Or should United States of America get an extra large allocation?
There might be some advantages to being a citizen here (U.S.A.)
Also do some nations apply punitive taxation to investors with outside of their nation investments?
In the absence of tax issues then:
- you want the most globally diversified portfolio you can get. Given that your equity in your home (if you own one) has strong domestic risk, and your labour income has strong domestic risk, you want global diversification
- there's no real reason to favour any one country etc. in that (other than that you could, pace first point, hold nothing in your home country) so market capitalization weighting is best
- currency risk is problematic. Currencies are likely a no return bet-- volatility without being rewarded for it. Conversely point 1. So you should hedge currencies, but on the equity side it probably does not hurt you too much if you don't, at least until say 10 years before you need the money to spend
Consider me, a UK based investor:
- UK GBP is down c. 14% against the USD and more against the EUR since 23rd June 2016 (UK voted in a referendum to "Brexit" the EU)
- UK is a big importer of consumer goods, such as the world's 2nd largest champagne consumer, largest prosecco importer, 3rd biggest buyer of German cars etc. etc.
- UK weather is unpredictable. Thus, and for other reasons, most UKians of middle class holiday abroad at least once per year
- due to the high overseas exposure of the FTSE100 companies (84% of the All-Share index, the top 10 are 46%, mainly large multinationals like Shell and Diageo (Guinness and Johnny Walker)) the FTSE 100 rose by roughly 0.6-0.7 as the GBP fell (10% fall compensated by a 6-7% rise)
Therefore, being globally diversified helped me a *lot* in terms of my portfolio, hedging the risk of my future consumption.
Since I am paid in GBP, my housing equity is in GBP, my future labour income is in GBP, my bank account is in GBP, my future state pension is in GBP etc. international investing, diversification, really paid off. The GBP devalued a lot, and I got richer in GBP (for that portion of my portfolio that was in GBP).
That's the position virtually everyone non USian is in in the investing world.