John Bogle Has Been Right About Investing In International Stocks

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Re: How much international stock? A suggestion.

Post by triceratop » Fri Jul 28, 2017 12:12 pm

The previous plot shows a Japanese investor going bankrupt with a 4% withdrawal and a 60/40 portfolio.
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Re: How much international stock? A suggestion.

Post by chevca » Fri Jul 28, 2017 12:30 pm

Yes, I see that. I thought I'd read about bonds being helpful to the Japan investor. I may be remembering incorrectly, or thinking of something else.

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Re: How much international stock? A suggestion.

Post by tadamsmar » Fri Jul 28, 2017 12:31 pm

Whakamole wrote:
willthrill81 wrote:
tadamsmar wrote:In his book, Taylor pointed to Japan as cautionary tale for anyone contemplating a bet on a single national economy.

If you use any kind of proper diversification analysis then you are going to be investing in at least some international.
I've heard this sort of thing many times on this forum, and for those who really think that there is a significant likelihood of it happening to the U.S. market, I don't think that a global cap-weighted portfolio would adequately reduce country-specific risk. The reason is simple: 50% of the world's equities are in the U.S. If the U.S. market tanks and doesn't recover for a couple of decades, is that other 50% likely to 'save' the portfolio, especially when we saw international equities tank in 2008-2009 along with those in the U.S.? Perhaps, but I'm not sure and don't really think anyone could anticipate what would happen in such an instance.
The Japanese market held, at it's peak, 44% of the world equity value. So we can rephrase the question for the Japanese investor who was looking at the dominance of their own equities market in the late 80s and wondering if placing 50% of their money in other countries (like the US) would save their portfolio. I think the answer to that question has been yes.
Reading the Late 80s Japanese investors mind: “I believe the Japan is the best place to invest, we probably have the most technology oriented economy in the world. I would bet that the Japan will do better than the rest of the world. It is a simple bet on which economy is going to be the strongest in the long run.”

I am assuming he thinks like Jack Bogle. That is recent Bogle quote, I just replaced "U.S" with "Japan".

Note that the US has looked stronger only since 2008. The US and non-US were about even from 1993 till 2009. It's a rear view mirror thing.
Last edited by tadamsmar on Fri Jul 28, 2017 6:43 pm, edited 1 time in total.

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Re: How much international stock? A suggestion.

Post by chw » Fri Jul 28, 2017 12:35 pm

triceratop wrote:The previous plot shows a Japanese investor going bankrupt with a 4% withdrawal and a 60/40 portfolio.
I truly think this thread has gone off topic from its original discussion. Taylor had not advocated a sole allocation to the Japanese stock market (though it is part of Total International). Also, it should be clarified that the 20% International allocation is for the equity allocation of a portfolio- thus International would only comprise 12% of the stock portion of 60/40 portfolio.

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Re: How much international stock? A suggestion.

Post by triceratop » Fri Jul 28, 2017 12:36 pm

chevca wrote:Yes, I see that. I thought I'd read about bonds being helpful to the Japan investor. I may be remembering incorrectly, or thinking of something else.
Yes. However, what would have saved the Japanese investor was diversification on the equity side. Yes, even with "okay" world stock returns.
chw wrote:
triceratop wrote:The previous plot shows a Japanese investor going bankrupt with a 4% withdrawal and a 60/40 portfolio.
I truly think this thread has gone off topic from its original discussion. Taylor had not advocated a sole allocation to the Japanese stock market (though it is part of Total International). Also, it should be clarified that the 20% International allocation is for the equity allocation of a portfolio- thus International would only comprise 12% of the stock portion of 60/40 portfolio.
That is not the point. The point is much of Taylor's argument would have also applied to a Japanese investor before their crisis, with disastrous consequences. Will that happen here? Perhaps not. It is a risk.

Anyway, you'll have to go to the previous page to see that I brought up the Japanese case because someone claimed that a Japanese decline in global equity market share would correspond to disastrous results for a global stock investor in local currency terms, just the same as if they had a home bias. That claim was not true.
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Re: How much international stock? A suggestion.

Post by chevca » Fri Jul 28, 2017 12:39 pm

Except that it's not a rear view mirror thing. Jack said something in 1993 and continues to say the same or similar things. Much more predictions than statements based on the past. Which was the point of the thread... Jack is right more than he's wrong. :happy

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Re: How much international stock? A suggestion.

Post by Thesaints » Fri Jul 28, 2017 12:41 pm

tadamsmar wrote: Reading the Late 80s Japanese investors mind: “I believe the Japan is the best place to invest, we probably have the most technology oriented economy in the world. I would bet that the Japan will do better than the rest of the world. It is a simple bet on which economy is going to be the strongest in the long run.”

I am assuming he thinks like Jack Bogle. That is recent Bogle quote, I just replaced "U.S" with "Japan".
And things get only worse when one replaces "US" with "Enron", "dot.com", or any other fashionable investment.
Certainly people were not investing in railways because they thought it was not the sector best to invest into, with the highest competitive advantage, which would have done better than the rest.

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Re: How much international stock? A suggestion.

Post by raven15 » Fri Jul 28, 2017 12:41 pm

chevca wrote:From what I've seen and recall, a Japanese investor still did okay if they held a good portion of bonds. IMO, the stock/bond percentage one holds is more important than the US/INT percentages. If one holds 100% stocks or even 80/20, sure they may not want to put all their eggs in one basket. But, I don't do that. So, my view on this is from a pretty conservative investor. Maybe that is why I'm more, meh, either way?
Perhaps you didn't notice, but the graph Triceratops posted included 40% Japanese domestic bonds. It was international stocks which saved the hypothetical retirement.
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Re: How much international stock? A suggestion.

Post by chevca » Fri Jul 28, 2017 12:43 pm

raven15 wrote:
chevca wrote:From what I've seen and recall, a Japanese investor still did okay if they held a good portion of bonds. IMO, the stock/bond percentage one holds is more important than the US/INT percentages. If one holds 100% stocks or even 80/20, sure they may not want to put all their eggs in one basket. But, I don't do that. So, my view on this is from a pretty conservative investor. Maybe that is why I'm more, meh, either way?
Perhaps you didn't notice, but the graph Triceratops posted included 40% Japanese domestic bonds. It was international stocks which saved the hypothetical retirement.
I did notice and addressed the bond portion in my posts. :wink:

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Re: How much international stock? A suggestion.

Post by raven15 » Fri Jul 28, 2017 12:53 pm

chevca wrote:
raven15 wrote:
chevca wrote:From what I've seen and recall, a Japanese investor still did okay if they held a good portion of bonds. IMO, the stock/bond percentage one holds is more important than the US/INT percentages. If one holds 100% stocks or even 80/20, sure they may not want to put all their eggs in one basket. But, I don't do that. So, my view on this is from a pretty conservative investor. Maybe that is why I'm more, meh, either way?
Perhaps you didn't notice, but the graph Triceratops posted included 40% Japanese domestic bonds. It was international stocks which saved the hypothetical retirement.
I did notice and addressed the bond portion in my posts. :wink:
My bad. Since backtesting also shows a decline in longterm retirement succes rates with less than 60% stocks (and certainly with less than 50%) I assumed most people would not do that. But then, Vanguard showed (in a link which must surely be in this thread already) international stock diversification is even more beneficial with lower stock percentages, so I guess that refutes that point as well.
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Re: How much international stock? A suggestion.

Post by raven15 » Fri Jul 28, 2017 12:55 pm

Darn you Triceratop. This thread should die, but then you posted and made it seem all respectable, so I posted too.
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Re: How much international stock? A suggestion.

Post by tadamsmar » Fri Jul 28, 2017 12:55 pm

chevca wrote:Except that it's not a rear view mirror thing. Jack said something in 1993 and continues to say the same or similar things. Much more predictions than statements based on the past. Which was the point of the thread... Jack is right more than he's wrong. :happy
I meant that his reasoning about the US being the strongest economy was rear view mirror. Back closer to 2008, when it was harder to look in the rear view mirror and claim that the US was the strongest economy, he was just reasoning that his 100% US allocation would likely only knock no more that 1% off his growth rate. Same conclusion, different supporting argument.
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Re: How much international stock? A suggestion.

Post by triceratop » Fri Jul 28, 2017 12:57 pm

raven15 wrote:Darn you Triceratop. This thread should die, but then you posted and made it seem all respectable, so I posted too.
I was away this past week, and had to contribute my 2¢ (globally diversified 2¢ of course). Those plots I posted from siamond should really end the thread, but I have full confidence that they will not.
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Re: How much international stock? A suggestion.

Post by raven15 » Fri Jul 28, 2017 1:01 pm

triceratop wrote:
raven15 wrote:Darn you Triceratop. This thread should die, but then you posted and made it seem all respectable, so I posted too.
I was away this past week, and had to contribute my 2¢ (globally diversified 2¢ of course). Those plots I posted from siamond should really end the thread, but I have full confidence that they will not.
Agree on all counts.
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Re: How much international stock? A suggestion.

Post by chevca » Fri Jul 28, 2017 1:02 pm

triceratop wrote:I was away this past week, and had to contribute my 2¢ (globally diversified 2¢ of course).
Touche :D

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Re: How much international stock? A suggestion.

Post by willthrill81 » Fri Jul 28, 2017 2:04 pm

chevca wrote:From what I've seen and recall, a Japanese investor still did okay if they held a good portion of bonds. IMO, the stock/bond percentage one holds is more important than the US/INT percentages. If one holds 100% stocks or even 80/20, sure they may not want to put all their eggs in one basket. But, I don't do that. So, my view on this is from a pretty conservative investor. Maybe that is why I'm more, meh, either way?
It's interesting that the Japanese stock crash didn't cause a 'retirement crisis' since most workers, at least at the time, had solid pensions that fared just fine. I've heard that Americans have been more concerned about their stock crash than they were.
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Re: How much international stock? A suggestion.

Post by willthrill81 » Fri Jul 28, 2017 2:08 pm

triceratop wrote:
chevca wrote:With just a basic rate of return calculator and not getting too deep into the numbers/dividends/and all, that's less than a 2% average return over the nearly 30 years in the above example. Yes, I would call that just "okay". :happy

Was that portfolio saved? I guess we can all decide what saved means to us individually.
(I'm not addressing the correctness of your first paragraph; I think the previous figures speak for themselves and I don't care to compute the returns directly. Also, they're inflation-adjusted and weighted with bonds so you may want to evaluate what your expectations are for such a portfolio.)

Yes, I suppose we must all decide for us. But we should be informed by what home bias resulted in a 4% retirement withdrawal scenario, as in the following plot with AA#1 as 60/40 with 100% domestic stocks and AA#2 corresponding to AA#1 in the previous plot (note there is a typo in the legend; AA#2 is a 60/40 with a 33% home bias). Some might consider this to be "saving":

Image

You might notice one of the lines crossing the ¥0 axis.
That specific graph offers the strongest evidence in favor of a global cap-weighted equity portfolio that I've yet seen, particularly during retirement, and that's coming from a guy who's currently 95% U.S. :beer

That being said, I should hope that the unfortunate hypothetical Japanese retiree in this situation would cut back their spending when their portfolio was down 40% only three years into retirement.

I've long known that before/during retirement that I'll move a lot closer to a global cap-weighted portfolio. I just find it difficult to do so right now.
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Re: How much international stock? A suggestion.

Post by chevca » Fri Jul 28, 2017 3:01 pm

willthrill81 wrote:
chevca wrote:From what I've seen and recall, a Japanese investor still did okay if they held a good portion of bonds. IMO, the stock/bond percentage one holds is more important than the US/INT percentages. If one holds 100% stocks or even 80/20, sure they may not want to put all their eggs in one basket. But, I don't do that. So, my view on this is from a pretty conservative investor. Maybe that is why I'm more, meh, either way?
It's interesting that the Japanese stock crash didn't cause a 'retirement crisis' since most workers, at least at the time, had solid pensions that fared just fine. I've heard that Americans have been more concerned about their stock crash than they were.
Maybe part of my view on this comes from me and the wife looking forward to a couple pensions in retirement?

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Re: How much international stock? A suggestion.

Post by watchnerd » Fri Jul 28, 2017 6:40 pm

willthrill81 wrote: That being said, I should hope that the unfortunate hypothetical Japanese retiree in this situation would cut back their spending when their portfolio was down 40% only three years into retirement.
Which is indeed what happened, and easy to do in a deflationary economy such as Japan.

Of course this leads to the trap of aging society-deflation becoming self-reinforcing.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Fri Jul 28, 2017 6:47 pm

"The American stockmarket’s index weight is also more than double the country’s share of global GDP. The gap has widened since the start of the millennium, because America’s share of world GDP has been on a downward trend. "

https://www.economist.com/news/finance- ... l-americas
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Thesaints » Fri Jul 28, 2017 6:49 pm

watchnerd wrote:"The American stockmarket’s index weight is also more than double the country’s share of global GDP. The gap has widened since the start of the millennium, because America’s share of world GDP has been on a downward trend. "

https://www.economist.com/news/finance- ... l-americas
"market participation" - "DBP pensions" + "home country bias" = "higher stock prices"

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Leif » Fri Jul 28, 2017 7:25 pm

The thread title changed again???

Perhaps not enough controversy/posts.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by oldzey » Fri Jul 28, 2017 9:17 pm

Let's see if International stocks (VGTSX) have ever caught back up with U.S. stocks (VTSMX) since 1996 (the inception year of VGTSX):

Image

Nope - not yet!

Of course, past performance doesn't indicate future performance.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by FIREchief » Fri Jul 28, 2017 11:10 pm

Leif wrote:The thread title changed again???

Perhaps not enough controversy/posts.
:sharebeer Down with PC!!!!! :annoyed
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Re: How much international stock? A suggestion.

Post by staythecourse » Sat Jul 29, 2017 8:05 am

triceratop wrote: That is not the point. The point is much of Taylor's argument would have also applied to a Japanese investor before their crisis, with disastrous consequences. Will that happen here? Perhaps not. It is a risk.
Everyone should do what they feel is right for themselves, but can not ignore some common sense. I have said this NUMEROUS times on this forum that literally the only question I have for Mr. Bogle if I could ask any question would be, "If you were born Mr. Yasuhara of Tokyo would you still have advocated 100% home equities?" The answer to that question will ultimately indicate what Mr. Bogle's thinking was when he suggested just doing U.S. equities. Is his answer, "No I didn't advice only U.S. equities because I was born here and saw something different about it so even if I was Mr. Yasuhara I would have adviced the same thing" OR "Well I guess I would have adviced the same thing" which would indicate he is just one of MILLION folks whose advice is influenced by home country bias.

Then again I am not sure if either answer would really matter to me. In the former it shows a guess and nothing more. He, like anyone else, has no inside information or clairvoyance to know U.S. would have outperformed on an ex ante basis. Just because it did on a ex post basis does not validate the prediction as any more then a right guess. If it is the latter then it means even less as it is just home country bias.

Good luck.
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Re: How much international stock? A suggestion.

Post by chw » Sat Jul 29, 2017 9:03 am

staythecourse wrote:
triceratop wrote: That is not the point. The point is much of Taylor's argument would have also applied to a Japanese investor before their crisis, with disastrous consequences. Will that happen here? Perhaps not. It is a risk.
Everyone should do what they feel is right for themselves, but can not ignore some common sense. I have said this NUMEROUS times on this forum that literally the only question I have for Mr. Bogle if I could ask any question would be, "If you were born Mr. Yasuhara of Tokyo would you still have advocated 100% home equities?" The answer to that question will ultimately indicate what Mr. Bogle's thinking was when he suggested just doing U.S. equities. Is his answer, "No I didn't advice only U.S. equities because I was born here and saw something different about it so even if I was Mr. Yasuhara I would have adviced the same thing" OR "Well I guess I would have adviced the same thing" which would indicate he is just one of MILLION folks whose advice is influenced by home country bias.

Then again I am not sure if either answer would really matter to me. In the former it shows a guess and nothing more. He, like anyone else, has no inside information or clairvoyance to know U.S. would have outperformed on an ex ante basis. Just because it did on a ex post basis does not validate the prediction as any more then a right guess. If it is the latter then it means even less as it is just home country bias.

Good luck.
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Re: How much international stock? A suggestion.

Post by carofe » Sat Jul 29, 2017 11:08 am

staythecourse wrote:
triceratop wrote: That is not the point. The point is much of Taylor's argument would have also applied to a Japanese investor before their crisis, with disastrous consequences. Will that happen here? Perhaps not. It is a risk.
Everyone should do what they feel is right for themselves, but can not ignore some common sense. I have said this NUMEROUS times on this forum that literally the only question I have for Mr. Bogle if I could ask any question would be, "If you were born Mr. Yasuhara of Tokyo would you still have advocated 100% home equities?" The answer to that question will ultimately indicate what Mr. Bogle's thinking was when he suggested just doing U.S. equities. Is his answer, "No I didn't advice only U.S. equities because I was born here and saw something different about it so even if I was Mr. Yasuhara I would have adviced the same thing" OR "Well I guess I would have adviced the same thing" which would indicate he is just one of MILLION folks whose advice is influenced by home country bias.

Then again I am not sure if either answer would really matter to me. In the former it shows a guess and nothing more. He, like anyone else, has no inside information or clairvoyance to know U.S. would have outperformed on an ex ante basis. Just because it did on a ex post basis does not validate the prediction as any more then a right guess. If it is the latter then it means even less as it is just home country bias.

Good luck.
If you read in his book Common Sense on Mutual Funds you will see his reasoning about international. It is not exactly the way you think.
He makes no prediction regarding "US will outperform International". I have never heard him saying that. His argument is that historically the return tends to be the same but with more volatility (long periods of underperform and long periods of outperform) because of currency risk. He says, for the stock part of the portfolio, US total stock market is enough good return for individual investors.
In his book he also explains more arguments.
Regarding Japan, you cannot take the crisis they had out of cultural and social context back then. Probably if Bogle were born in Japan, he wouldn't even have chosen the Financial career to begin with.
Also take into account that the US market and the International market as a whole are very interrelated. I think it is a little bit too much to think the US market can crash and your money in the international markets will be all safe and increasing in value as of today and probably for the next decades.
US Total Stock Market + Intermediate Term Bond. That's it.

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Re: How much international stock? A suggestion.

Post by Tycoon » Sat Jul 29, 2017 11:18 am

carofe wrote: If you read in his book Common Sense on Mutual Funds you will see his reasoning about international. It is not exactly the way you think.
He makes no prediction regarding "US will outperform International". I have never heard him saying that. His argument is that historically the return tends to be the same but with more volatility (long periods of underperform and long periods of outperform) because of currency risk. He says, for the stock part of the portfolio, US total stock market is enough good return for individual investors.
In his book he also explains more arguments.
A well thought out and factual argument. Thanks :D
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Re: How much international stock? A suggestion.

Post by ruralavalon » Sat Jul 29, 2017 11:33 am

triceratop wrote:
chevca wrote:With just a basic rate of return calculator and not getting too deep into the numbers/dividends/and all, that's less than a 2% average return over the nearly 30 years in the above example. Yes, I would call that just "okay". :happy

Was that portfolio saved? I guess we can all decide what saved means to us individually.
(I'm not addressing the correctness of your first paragraph; I think the previous figures speak for themselves and I don't care to compute the returns directly. Also, they're inflation-adjusted and weighted with bonds so you may want to evaluate what your expectations are for such a portfolio.)

Yes, I suppose we must all decide for us. But we should be informed by what home bias resulted in a 4% retirement withdrawal scenario, as in the following plot with AA#1 as 60/40 with 100% domestic stocks and AA#2 corresponding to AA#1 in the previous plot (note there is a typo in the legend; AA#2 is a 60/40 with a 33% home bias). Some might consider this to be "saving":

Image

You might notice one of the lines crossing the ¥0 axis.
Sorry. I am confused. You said "AA#2 corresponding to AA#1 in the previous plot (note there is a typo in the legend; AA#2 is a 60/40 with a 33% home bias)".

What does Asset allocation # 2 consist of in terms of -- international stocks/domestic stocks/bonds?
raven15 wrote:
triceratop wrote:
raven15 wrote:Darn you Triceratop. This thread should die, but then you posted and made it seem all respectable, so I posted too.
I was away this past week, and had to contribute my 2¢ (globally diversified 2¢ of course). Those plots I posted from siamond should really end the thread, but I have full confidence that they will not.
Agree on all counts.
Double darn you triceratop. Made me post again :( :( .
Last edited by ruralavalon on Sat Jul 29, 2017 11:43 am, edited 2 times in total.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by lazyday » Sat Jul 29, 2017 11:35 am

Simplegift wrote:
Here's a version using 5 year rolling returns instead of 3 year, on page 2. Looks slightly different, though much the same story: https://ip.amgfunds.com/download/perspe ... per047.pdf

Found this while looking for a good source on EAFE or international CAPE. If anyone knows of one other than Research Affiliates, Barclays, or StarCapital, please let me know by reply, posting here, or PM.

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Re: How much international stock? A suggestion.

Post by triceratop » Sat Jul 29, 2017 11:46 am

ruralavalon wrote:
triceratop wrote:
chevca wrote:With just a basic rate of return calculator and not getting too deep into the numbers/dividends/and all, that's less than a 2% average return over the nearly 30 years in the above example. Yes, I would call that just "okay". :happy

Was that portfolio saved? I guess we can all decide what saved means to us individually.
(I'm not addressing the correctness of your first paragraph; I think the previous figures speak for themselves and I don't care to compute the returns directly. Also, they're inflation-adjusted and weighted with bonds so you may want to evaluate what your expectations are for such a portfolio.)

Yes, I suppose we must all decide for us. But we should be informed by what home bias resulted in a 4% retirement withdrawal scenario, as in the following plot with AA#1 as 60/40 with 100% domestic stocks and AA#2 corresponding to AA#1 in the previous plot (note there is a typo in the legend; AA#2 is a 60/40 with a 33% home bias). Some might consider this to be "saving":

Image

You might notice one of the lines crossing the ¥0 axis.
Sorry. I am confused. You said "AA#2 corresponding to AA#1 in the previous plot (note there is a typo in the legend; AA#2 is a 60/40 with a 33% home bias)".

What does Asset allocation # 2 consist of in terms of -- international stocks/domestic stocks/bonds?.
AA#2 is 40% global stocks (that includes Japan at market weight), 20% Japanese stocks, and 40% domestic Japanese bonds. That amounts to a 33% tilt away from global stocks.
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Re: How much international stock? A suggestion.

Post by siamond » Sat Jul 29, 2017 12:07 pm

triceratop wrote:Yes, I suppose we must all decide for us. But we should be informed by what home bias resulted in a 4% retirement withdrawal scenario, as in the following plot with AA#1 as 60/40 with 100% domestic stocks and AA#2 corresponding to AA#1 in the previous plot (note there is a typo in the legend; AA#2 is a 60/40 with a 33% home bias). [...]

You might notice one of the lines crossing the ¥0 axis.
Thank you for quoting my Japanese study, triceratop. And for spotting some minor deficiencies in the chart. I fixed it, here it is with a proper legend, and the portfolio staying at zero once bankruptcy occurs. Click for a larger version.

Image

Interested readers should know that I kept going with this line of thinking, trying to put myself in the shoes of International investors, and published another study which spans a much larger number of countries.
triceratop wrote:
ruralavalon wrote:What does Asset allocation # 2 consist of in terms of -- international stocks/domestic stocks/bonds?.
AA#2 is 40% global stocks (that includes Japan at market weight), 20% Japanese stocks, and 40% domestic Japanese bonds. That amounts to a 33% tilt away from global stocks.
Yes, that is exactly correct. Ruralavalon, you may want to read the whole study for more context.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Munir » Sat Jul 29, 2017 12:46 pm

This thread has changed to a discussion of Japan. How about starting another thread on that subject? Maybe it's time to close this thread anyway because of the repetition of the same arguments over and over.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by triceratop » Sat Jul 29, 2017 12:56 pm

Munir wrote:This thread has changed to a discussion of Japan. How about starting another thread on that subject? Maybe it's time to close this thread anyway because of the repetition of the same arguments over and over.
Incorrect; the thread has not changed topics. Taylor's argument is that a large economy with the largest stock market by market cap is sufficiently diversified so as to make international investing unnecessary.

That advice applied to a Japanese investor prior to their crisis.

Either the advice is wrong or there's some caveat by which the 100% domestic advocates do not think it applies to Japan. Which is it? And what would the caveats be? American Exceptionalism?

I do agree with you that the events in Japan are inconvenient for one side in this discussion, but they should have to deal with the facts. I have seen no one even attempt to do so.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by ruralavalon » Sat Jul 29, 2017 1:04 pm

I see the 60 stock/40 bond Japanese investor with no international stocks, zeroing out at 23 years using a 4% withdrawal rate.

That's longer than my life expectancy now, or at retirement age.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Munir » Sat Jul 29, 2017 1:06 pm

triceratop wrote:
Munir wrote:This thread has changed to a discussion of Japan. How about starting another thread on that subject? Maybe it's time to close this thread anyway because of the repetition of the same arguments over and over.
Incorrect; the thread has not changed topics. Taylor's argument is that a large economy with the largest stock market by market cap is sufficiently diversified so as to make international investing unnecessary.

That advice applied to a Japanese investor prior to their crisis.

Either the advice is wrong or there's some caveat by which the 100% domestic advocates do not think it applies to Japan. Which is it? And what would the caveats be? American Exceptionalism?

I do agree with you that the events in Japan are inconvenient for one side in this discussion, but they should have to deal with the facts. I have seen no one even attempt to do so.
But we are not Japan. The topic of whether what applies to Japan may or may not apply to us deserves another thread- in my humble opinion.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sat Jul 29, 2017 1:11 pm

Munir wrote: But we are not Japan. The topic of whether what applies to Japan may or may not apply to us deserves another thread- in my humble opinion.
We don't need to be "be Japan" for the object lesson to apply.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Munir » Sat Jul 29, 2017 1:15 pm

watchnerd wrote:
Munir wrote: But we are not Japan. The topic of whether what applies to Japan may or may not apply to us deserves another thread- in my humble opinion.
We don't need to be "be Japan" for the object lesson to apply.
One can agree or disagree with what you say- and that needs another thread :happy !

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by triceratop » Sat Jul 29, 2017 1:16 pm

Munir wrote:
watchnerd wrote:
Munir wrote: But we are not Japan. The topic of whether what applies to Japan may or may not apply to us deserves another thread- in my humble opinion.
We don't need to be "be Japan" for the object lesson to apply.
One can agree or disagree with what you say- and that needs another thread :happy !
You can start one if you like. I'll continue asking here this basic question of the 100% home bias investors :)

One should be responsible for explaining coonterfactuals to one's thesis.
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Re: How much international stock? A suggestion.

Post by ruralavalon » Sat Jul 29, 2017 1:17 pm

siamond wrote: . . . . .
triceratop wrote:
ruralavalon wrote:What does Asset allocation # 2 consist of in terms of -- international stocks/domestic stocks/bonds?.
AA#2 is 40% global stocks (that includes Japan at market weight), 20% Japanese stocks, and 40% domestic Japanese bonds. That amounts to a 33% tilt away from global stocks.
Yes, that is exactly correct. Ruralavalon, you may want to read the whole study for more context.
I just read your study, it is very interesting and informative, thank you for bringing this to my attention.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by retireearly » Sat Jul 29, 2017 3:36 pm

I'm just reading through this and like many other threads on international, I am continually surprised that many on this site, those I would think understand diversification, trying not to outsmart markets, etc, more than others, either shun or have hardly any Int exposure.

For a group of people that try not to over-analyze things, that's what the non-international group does. There have been many studies that show adding at least 20% Int holding actually improves returns and lowers risk. While past is not prologue, it is essentially how we got to where we are.
Past performance shoes passive low-cost index wins out. Will it in the future? Maybe not. But I think we would all bet 20 years from now, 80-90% of active funds would be lower than passive index. My point is we use history do shape how we invest but I digress on that tangent.

So, back to International:

1)If history shows us at least 20% increases returns and lowers risk (see Burton Malkiel's chart in Random Walk), then shouldn't that be a point to start at for everyone? Vanguard shows ideal diversification at 35 or 40%

2)Then, we add the collective wisdom of Vanguard Research that says no lower than 20! https://personal.vanguard.com/pdf/ISGGEB.pdf

This is not picking one person (buffet/bogle at 0) vs. others, say Paul Merriman or others at 50% Int.

So, at a bare minimum 20%, if we are true to why we are here, should be the floor. However, that is the floor and:

1)When you start to factor in that the collective wisdom of Vanguard research says 40% is probably the sweet spot, and intimates that 51% is probably not unusual - "Although finance theory dictates that an upper asset allocation limit should be based on the global market capitalization for international equities (currently approximately 51%), we have demonstrated that international allocations exceeding 40% have not historically added significant additional diversification benefits..." and

2)Metrics like US being less approx 1/4 of world GDP, US diminishing stock market cap as a % of global, rapid expansion of EM middle class, etc

3)Valuations of non-US. Sure, many can say this is market timing but past does show when PE/cape is high, future returns are lower than avg, and the inverse is true. So, this really is not a "gamble" or "timing", though many won't find that compelling since it can be argued things are different with low interest environment, how long a good run lasts, etc

4)Common sense - the US is one large part of the global equity (and bond) world. We are an interconnected world and globalization is real, so how would the stock market be any different? That alone tells you it is a gamble to be US only.

Personally, I'm 50/50'ish with an EM tilt (and tilt toward small in general, both US/Int). This at the age of 44 as part of my overall 73/27 mix.
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by carofe » Sat Jul 29, 2017 4:05 pm

Not everybody sees Indexing as a dogma.
For instance, if I lived in Venezuela and you asked me if I would put all my stock part of my portfolio in the national market I would probably tell you "no way!

If I lived in Spain and you asked me the same question, I would think: well, how is the historical return over the long period of time of the Euro Zone? let's say XX%. Is XX% good for me? What is the risk? Is the risk acceptable? Then probably yes.

I think home bias is OK as long as there is a good long record for risk-reward that is acceptable to the investor that puts his money in, the currency risk would be out of the picture.

Investing is about the investor and his willingness to take risk. Home bias is as old as human history. It has been great for some, acceptable for some and a disaster for others. You just need to have a good eye to see if the political, cultural and social-economic condition is acceptable for investing. This is no about timing the market, but to being able to see extreme condition coming.

Political, cultural and social-economic condition matters, and the availability of long term records too. Again, indexing is not a dogma for everyone, but a principle.

I believe I heard Bogle answering the same question about home bias and he said, that he would tell non-US investor to invest on US market because it has one of the best condition out there for investing. He didn't recommend home bias for everyone out there but depending on the specific condition of their country.
US Total Stock Market + Intermediate Term Bond. That's it.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sat Jul 29, 2017 4:30 pm

retireearly wrote:There have been many studies that show adding at least 20% Int holding actually improves returns and lowers risk.
Do you have references for such studies?

Significant ex-US index holdings would have been a pretty big drag on my portfolio, and I've been investing in the stock market for over 20 years. Fortunately, I didn't hold any. I don't think anyone who has held the ex-US index over the last three decades is happy with that, and that's a really long time.

So far, I haven't seen any explanation of what is changing to make ex-US indexing a good investment prospect in the future when it hasn't been that in decades. This doesn't mean that there won't be growth and economic success outside the US. There has definitely been a lot of that already, but the reality is that this hasn't been captured by investing in the ex-US stock index (at least not in my generation), and I don't know why that would change. Tremendous growth in China or India or wherever doesn't mean that you benefit with this type of investment. You can't extrapolate from the way the US stock market reflects the economy, and assume that other stock markets and economies are the same. Some are close, some aren't.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sat Jul 29, 2017 4:59 pm

retireearly wrote:I'm just reading through this and like many other threads on international, I am continually surprised that many on this site, those I would think understand diversification, trying not to outsmart markets, etc, more than others, either shun or have hardly any Int exposure.
This is part of what confounds me -- picking something other than the global market weight is just another way of trying to guess / pick winners.

The fact that it happens to have worked out recently doesn't eliminate the philosophical inconsistency with what is generally held to be axiomatic, ie. that trying to predict future winner's is a fool's errand.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by patrick » Sat Jul 29, 2017 5:36 pm

visualguy wrote:Significant ex-US index holdings would have been a pretty big drag on my portfolio, and I've been investing in the stock market for over 20 years. Fortunately, I didn't hold any. I don't think anyone who has held the ex-US index over the last three decades is happy with that, and that's a really long time.

So far, I haven't seen any explanation of what is changing to make ex-US indexing a good investment prospect in the future when it hasn't been that in decades. This doesn't mean that there won't be growth and economic success outside the US. There has definitely been a lot of that already, but the reality is that this hasn't been captured by investing in the ex-US stock index (at least not in my generation), and I don't know why that would change. Tremendous growth in China or India or wherever doesn't mean that you benefit with this type of investment. You can't extrapolate from the way the US stock market reflects the economy, and assume that other stock markets and economies are the same. Some are close, some aren't.
Ex-US index funds are less than three decades old -- no one held them that long ago.

If are accept index returns that aren't live fund data, South African stocks both outperformed the US by large margins since 1900 -- well over three decades. Do you have any explanation of what is changing to make US indexing a good investment prospect when (compared to South African investing) it hasn't been that in more than a century?

If you only accept live asset data, you can't do the comparison with ex-US unless you either don't require indexes or accept shorter periods of time. The iShares South Africa ETF (EZA) has indeed beaten US stocks since it's inception, bringing up the same question about South Africa. Looking at non-index investments, an investment in Franklin Templeton (BEN) would have given you over 5 times as much as investing in the S&P 500 over the last three decades. Do you have any explanation of what is changing to make US indexing a good investment prospect when (compared to investing in BEN only) it hasn't been that in decades?

We would not usually require an explanation of what is changing in to refrain from investing everything in Franklin Templeton stock, or some active manager that outperformed before, or in South Africa. Why is the US versus ex-US comparison treated differently?

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sat Jul 29, 2017 6:21 pm

Simple. The real return on the ex-US index over the last 20+ years has been pathetic, while being very volatile. Simply not a worthwhile investment. If the US index did just as poorly, I would say the same thing about that. Any investment that returns so little over such a long period of time while also being so volatile is simply disqualified from my perspective. It has proven itself not to work even in the long run, so it's perfectly reasonable to raise the question of "what will change" when people say that it still makes sense to invest in it even with its very disappointing track record of over 20 years.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by patrick » Sat Jul 29, 2017 6:29 pm

visualguy wrote:Simple. The real return on the ex-US index over the last 20+ years has been pathetic, while being very volatile. Simply not a worthwhile investment. If the US index did just as poorly, I would say the same thing about that. Any investment that returns so little over such a long period of time while also being so volatile is simply disqualified from my perspective. It has proven itself not to work even in the long run, so it's perfectly reasonable to raise the question of "what will change" when people say that it still makes sense to invest in it even with its very disappointing track record of over 20 years.
Would you consider international investing a good idea if, instead of using an ex-US index, you only invested in countries with a long term record of performing better than the US?
Last edited by patrick on Sat Jul 29, 2017 6:30 pm, edited 1 time in total.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by chevca » Sat Jul 29, 2017 7:11 pm

watchnerd wrote:
retireearly wrote:I'm just reading through this and like many other threads on international, I am continually surprised that many on this site, those I would think understand diversification, trying not to outsmart markets, etc, more than others, either shun or have hardly any Int exposure.
This is part of what confounds me -- picking something other than the global market weight is just another way of trying to guess / pick winners.

The fact that it happens to have worked out recently doesn't eliminate the philosophical inconsistency with what is generally held to be axiomatic, ie. that trying to predict future winner's is a fool's errand.
What confounds you also confounds me. :happy

I see this a lot from the international folks... US only is picking the winners. Where to you get that from? I have yet to see in an international thread where a US only type, or Bogle, or anyone says, go with US only because it will be the winner year in, year out, and each and every decade. The US only types seem to just go that way because US will likely be good enough going forward.

It seems to me the international types are guessing, or wanting the winners... hold it all, then you have the winner no matter which does better.

Me... I don't really care about winners. I just want good enough. I don't tilt to SCV, don't take risk on the bond side, don't feel a need for any international stock... I think Vanguard's Balanced Index Fund is likely to to good enough for probably about anyone out there, and that's why I base my strategy off that. It's been brought up many times in this thread about Vanguard recommending international. If that's the case, why do they still keep the sinful balanced index fund around and other mingled funds with no international?? They're probably likely to do good enough, would be my guess.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by chevca » Sat Jul 29, 2017 7:17 pm

patrick wrote:Would you consider international investing a good idea if, instead of using an ex-US index, you only invested in countries with a long term record of performing better than the US?
My answer... Sure, I would likely do that if I could pick and choose what countries I felt comfortable investing in. They wouldn't even need to have a long record of being better than the US... just a long record of being good or decent.

But, that's not exactly easy to find anything like that for fund choices. At least in my investing options/accounts.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sat Jul 29, 2017 7:23 pm

chevca wrote: What confounds you also confounds me. :happy

I have yet to see in an international thread where a US only type, or Bogle, or anyone says, go with US only because it will be the winner year in, year out, and each and every decade.
Well, you certainly have statements that justify holding US-only based on past results, which is just another flavor of pretending to be able to forecast the future / pick winners, such as:
visualguy wrote:Simple. The real return on the ex-US index over the last 20+ years has been pathetic, while being very volatile. Simply not a worthwhile investment. If the US index did just as poorly, I would say the same thing about that. Any investment that returns so little over such a long period of time while also being so volatile is simply disqualified from my perspective. It has proven itself not to work even in the long run, so it's perfectly reasonable to raise the question of "what will change" when people say that it still makes sense to invest in it even with its very disappointing track record of over 20 years.
visualguy wrote: Significant ex-US index holdings would have been a pretty big drag on my portfolio, and I've been investing in the stock market for over 20 years. Fortunately, I didn't hold any.
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