Why does everyone keep increasing their international stock %?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
simplesauce
Posts: 109
Joined: Tue Jan 17, 2017 8:22 am

Why does everyone keep increasing their international stock %?

Post by simplesauce » Thu Nov 23, 2017 8:55 pm

Hi all. I would like to know why many finance authors and investing resources continue to increase their recommended equity allocation to international stocks year after year.

Is this starting to get out of control? Is it justified?

For example, Burton Malkiel has continued to increase his percentage to international stocks with every edition of his book. He now recommends 50% US/50% International. And with his company, Wealthfront, the international stock percentage is through the roof.

Vanguard’s recommendation has also continued to climb. From 20%, to 30%, to 40%.

I can think of many other authors who have increased over the years as well. In Jack Bogle’s eyes, it seems many are jumping on these “exotic” investments, without really considering the risk.

Bogle says to limit the international exposure to 20% of your equity allocation. Perhaps this is a good rule of thumb.

AlohaJoe
Posts: 2627
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Why does everyone keep increasing their international stock %?

Post by AlohaJoe » Thu Nov 23, 2017 8:58 pm

You could try searching the forum and seeing the 10,000 previous threads of the topic of international investing.

tigerdoc93
Posts: 98
Joined: Wed Oct 07, 2015 8:50 pm

Re: Why does everyone keep increasing their international stock %?

Post by tigerdoc93 » Thu Nov 23, 2017 9:01 pm

B/c international markets are “cheaper” and forecast to have better returns in near future. Of course nobody knows what will happen.

J295
Posts: 1212
Joined: Sun Jan 01, 2012 11:40 pm

Re: Why does everyone keep increasing their international stock %?

Post by J295 » Thu Nov 23, 2017 9:10 pm

My recollection is that in the last couple of years there were quite a few posts advocating against international allocations, because international had been underperforming US only. Now that International has strengthened, it seems there is the rather predictable new push for more international allocation.

Not everyone has increased… We have remained steady regardless of immediate past performance
Last edited by J295 on Thu Nov 23, 2017 9:11 pm, edited 1 time in total.

sambb
Posts: 1800
Joined: Sun Mar 10, 2013 3:31 pm

Re: Why does everyone keep increasing their international stock %?

Post by sambb » Thu Nov 23, 2017 9:11 pm

I see no problem with the new international allowances. I am glad I am investing in other places. Makes sense to me.

User avatar
randomizer
Posts: 702
Joined: Sun Jul 06, 2014 3:46 pm

Re: Why does everyone keep increasing their international stock %?

Post by randomizer » Thu Nov 23, 2017 9:21 pm

These authors are just shifting closer towards world market-cap weighting, which makes perfect sense. Some may have arguments based on inflated P/E ratios in the US too, but you don't need to go there to justify the shift.

User avatar
digarei
Posts: 680
Joined: Sat Jul 05, 2014 1:41 am
Location: Sacramento
Contact:

Re: Why does everyone keep increasing their international stock %?

Post by digarei » Thu Nov 23, 2017 9:24 pm

simplesauce wrote:
Thu Nov 23, 2017 8:55 pm
Hi all. I would like to know why many finance authors and investing resources continue to increase their recommended equity allocation to international stocks year after year.

Is this starting to get out of control? Is it justified?

For example, Burton Malkiel has continued to increase his percentage to international stocks with every edition of his book. He now recommends 50% US/50% International. And with his company, Wealthfront, the international stock percentage is through the roof.

Vanguard’s recommendation has also continued to climb. From 20%, to 30%, to 40%.

I can think of many other authors who have increased over the years as well. In Jack Bogle’s eyes, it seems many are jumping on these “exotic” investments, without really considering the risk.

Bogle says to limit the international exposure to 20% of your equity allocation. Perhaps this is a good rule of thumb.
It’s takes time to turn a laden vessel... I remember reading Vanguard’s research from 10 years ago that suggested that a market portfolio was likely to outperform one that was US centric. Now, imagine the outcry if the company decided in light of that research to abruptly modify all of their Target Date Retirement funds so that U.S. stocks were reduced from 100% to 50%.

Of course, this is conjecture on my part. Nevertheless, had I been in charge I too would have implemented such measures incrementally and over a long period of time. If the research holds (and my assessment is correct) we should expect additional shifts toward international in their recommendations along with further reconstitution of their retirement and balance funds.

I don’t remember hearing or reading anything from Jack Bogle that would suggest he believes that international equities are exotic but someone may prove me wrong.
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

livesoft
Posts: 57163
Joined: Thu Mar 01, 2007 8:00 pm

Re: Why does everyone keep increasing their international stock %?

Post by livesoft » Thu Nov 23, 2017 9:26 pm

I think the main reason for recent increases is chasing performance. After all, international funds have finally outperformed US funds in 2017. It may be time to start rebalancing out of international funds for that reason.
This signature message sponsored by sscritic: Learn to fish.

User avatar
yatesd
Posts: 491
Joined: Sun Nov 03, 2013 8:19 am
Location: MD

Re: Why does everyone keep increasing their international stock %?

Post by yatesd » Thu Nov 23, 2017 9:27 pm

I'm mixed on the issue.

The pragmatic part of me considers the higher expenses and inefficiencies that are built into the cost of international investing. I also understand the argument that the US represents a portion of the world equity markets that are close to 50% so perfect diversification would suggest higher international investing.

Personally, I am about 25% international. The patriotic part of me is inclined to invest and support US companies...as I assume other markets exhibit similar biases. Global markets, but not necessarily global interests.

User avatar
digarei
Posts: 680
Joined: Sat Jul 05, 2014 1:41 am
Location: Sacramento
Contact:

Re: Why does everyone keep increasing their international stock %?

Post by digarei » Thu Nov 23, 2017 9:36 pm

livesoft wrote:
Thu Nov 23, 2017 9:26 pm
I think the main reason for recent increases is chasing performance. After all, international funds have finally outperformed US funds in 2017.
What do you mean by recent?
livesoft wrote:
Thu Nov 23, 2017 9:26 pm
It may be time to start rebalancing out of international funds for that reason.
Into U.S. equities? As in ‘Buy high, Sell low? :twisted:
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

flyingaway
Posts: 1516
Joined: Fri Jan 17, 2014 10:19 am

Re: Why does everyone keep increasing their international stock %?

Post by flyingaway » Thu Nov 23, 2017 9:38 pm

Lower valuation is an excuse for chasing performance. A stock only rises when many people buy it, same to the international stocks.

livesoft
Posts: 57163
Joined: Thu Mar 01, 2007 8:00 pm

Re: Why does everyone keep increasing their international stock %?

Post by livesoft » Thu Nov 23, 2017 9:39 pm

Sell international and buy small-cap value or bonds. Be sure to check your market timing bands beforehand though.
This signature message sponsored by sscritic: Learn to fish.

teigers
Posts: 21
Joined: Tue Jul 03, 2012 1:25 pm
Location: Connecticut, USA

Re: Why does everyone keep increasing their international stock %?

Post by teigers » Thu Nov 23, 2017 9:43 pm

Because the correct allocation is the one that approximates the market portfolio (which is about 55% international), but there is still a lot of home bias that people are getting over.

alex_686
Posts: 2583
Joined: Mon Feb 09, 2015 2:39 pm

Re: Why does everyone keep increasing their international stock %?

Post by alex_686 » Thu Nov 23, 2017 9:45 pm

randomizer wrote:
Thu Nov 23, 2017 9:21 pm
These authors are just shifting closer towards world market-cap weighting, which makes perfect sense. Some may have arguments based on inflated P/E ratios in the US too, but you don't need to go there to justify the shift.
The critical bit is not the world market cap weighted, but the fact that world markets have become more integrated. It used to be that world markets were different. Their accounting and regulatory standards have harmonized, costs have fallen, etc. etc. Market weighted indexes tend to be dominated by mega cap multinationals. These companies tend to be influenced by global factors, not their home markets. IIRC China is the last major market that is not highly integrated.
Last edited by alex_686 on Thu Nov 23, 2017 9:46 pm, edited 1 time in total.

User avatar
BuyAndHoldOn
Posts: 89
Joined: Mon Mar 30, 2015 6:51 pm

Re: Why does everyone keep increasing their international stock %?

Post by BuyAndHoldOn » Thu Nov 23, 2017 9:45 pm

AlohaJoe wrote:
Thu Nov 23, 2017 8:58 pm
You could try searching the forum and seeing the 10,000 previous threads of the topic of international investing.
Good idea.

tigerdoc93 wrote:
Thu Nov 23, 2017 9:01 pm
B/c international markets are “cheaper” and forecast to have better returns in near future. Of course nobody knows what will happen.
That is the prevailing wisdom right now and recently.

J295 wrote:
Thu Nov 23, 2017 9:10 pm
My recollection is that in the last couple of years there were quite a few posts advocating against international allocations, because international had been underperforming US only. Now that International has strengthened, it seems there is the rather predictable new push for more international allocation.

Not everyone has increased… We have remained steady regardless of immediate past performance
Those posts were interesting, and probably got a lot of people thinking. I noticed there were not as many of those [debates] in the last year.

flyingaway wrote:
Thu Nov 23, 2017 9:38 pm
Lower valuation is an excuse for chasing performance. A stock only rises when many people buy it, same to the international stocks.
I agree. EM in particular has [more] appealing value metrics, but perhaps for good reason (like volatility, risk, lack of transparency in markets, etc.).

livesoft wrote:
Thu Nov 23, 2017 9:39 pm
Sell international and buy small-cap value or bonds. Be sure to check your market timing bands beforehand though.
Yes, even the Bogleheads - myself included - are prone to the latest fads in investing. But we try, right?

User avatar
digarei
Posts: 680
Joined: Sat Jul 05, 2014 1:41 am
Location: Sacramento
Contact:

Re: Why does everyone keep increasing their international stock %?

Post by digarei » Thu Nov 23, 2017 9:55 pm

livesoft wrote:
Thu Nov 23, 2017 9:39 pm
Sell international and buy small-cap value or bonds. Be sure to check your market timing bands beforehand though.
I can’t tell if you’re serious or just ...?

As for me, I have enough small cap value, thank you very much!

And my fixed income allocation is right where I want it.

I’ve been cautious in increasing international stocks: my IPS says to maintain 33% and its share of equites remains well within the +/- 4% rebalancing band even after recent gains in FTSE All World ex-US.
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

flyingaway
Posts: 1516
Joined: Fri Jan 17, 2014 10:19 am

Re: Why does everyone keep increasing their international stock %?

Post by flyingaway » Thu Nov 23, 2017 9:57 pm

digarei wrote:
Thu Nov 23, 2017 9:55 pm
livesoft wrote:
Thu Nov 23, 2017 9:39 pm
Sell international and buy small-cap value or bonds. Be sure to check your market timing bands beforehand though.
I can’t tell if you’re serious or just ...?

As for me, I have enough small cap value, thank you very much!

And my fixed income allocation is right where I want it.

I’ve been cautious in increasing international stocks: my IPS says to maintain 33% and its share of equites remains well within the +/- 4% rebalancing band even after recent gains in FTSE All World ex-US.
I consider livesoft a pseudo boglehead.

User avatar
nisiprius
Advisory Board
Posts: 34312
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why does everyone keep increasing their international stock %?

Post by nisiprius » Thu Nov 23, 2017 9:58 pm

teigers wrote:
Thu Nov 23, 2017 9:43 pm
Because the correct allocation is the one that approximates the market portfolio (which is about 55% international), but there is still a lot of home bias that people are getting over.
Actually, as of 11/2017, the world stock market portfolio is about 48% ex-US, 52% United States.

https://s8.postimg.org/g51k3q9ol/Captur ... .04_PM.png

Calling it "about 50/50" is reasonable enough, but "55% international" suggests whatever is the opposite of home bias.

And the U.S. share is higher than it was in 1990, a fact which some have not believed when I've pointed it out.

People like the narrative that the U.S. market share has been steadily shrinking, but as is so often the case with financial data, that seems to be a very slow, very long-term effect. It's likely shrinking but it is a slow, very long-term effect, and it is not shrinking steadily at all.

Vanguard unfortunately doesn't seem to have updated this paper or the very nice chart in it since 2012.

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
arcticpineapplecorp.
Posts: 2355
Joined: Tue Mar 06, 2012 9:22 pm

Re: Why does everyone keep increasing their international stock %?

Post by arcticpineapplecorp. » Thu Nov 23, 2017 10:06 pm

teigers wrote:
Thu Nov 23, 2017 9:43 pm
Because the correct allocation is the one that approximates the market portfolio (which is about 55% international), but there is still a lot of home bias that people are getting over.
if vanguard's total world stock market index fund is any indication of the true capitalization of the world stock market, then no international is not 55%, it's 47.9% and U.S. is 52.1% according to this:

https://personal.vanguard.com/us/funds/ ... true#tab=2

This fund by FTSE Russell all world cap also has US at 51.99% (essentially 52%) so pretty close to what vanguard's fund has:

https://www.google.com/url?sa=t&rct=j&q ... _zT8n0Uzus

So a weighting of 50/50 is closer to the world market cap. Whether that's appropriate for you, only you can decide. full disclosure, I have 30% international.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

TheNightsToCome
Posts: 156
Joined: Fri Jun 30, 2017 11:48 pm

Re: Why does everyone keep increasing their international stock %?

Post by TheNightsToCome » Thu Nov 23, 2017 10:10 pm

nisiprius wrote:
Thu Nov 23, 2017 9:58 pm
teigers wrote:
Thu Nov 23, 2017 9:43 pm
Because the correct allocation is the one that approximates the market portfolio (which is about 55% international), but there is still a lot of home bias that people are getting over.
Actually, as of 11/2017, the world stock market portfolio is about 48% ex-US, 52% United States.

https://s8.postimg.org/g51k3q9ol/Captur ... .04_PM.png

Calling it "about 50/50" is reasonable enough, but "55% international" suggests whatever is the opposite of home bias.

And the U.S. share is higher than it was in 1990, a fact which some have not believed when I've pointed it out.

People like the narrative that the U.S. market share has been steadily shrinking, but as is so often the case with financial data, that seems to be a very slow, very long-term effect. It's likely shrinking but it is a slow, very long-term effect, and it is not shrinking steadily at all.

Vanguard unfortunately doesn't seem to have updated this paper or the very nice chart in it since 2012.

Image
I believe I've read that Japan was about 50% of global market cap in 1989. The Japanese bubble may be largely responsible for the late 80s dip in your graph.

User avatar
nisiprius
Advisory Board
Posts: 34312
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why does everyone keep increasing their international stock %?

Post by nisiprius » Thu Nov 23, 2017 10:33 pm

TheNightsToCome wrote:
Thu Nov 23, 2017 10:10 pm
...I believe I've read that Japan was about 50% of global market cap in 1989. The Japanese bubble may be largely responsible for the late 80s dip in your graph...
Quite possibly, although I don't see how it bears on the general question of international stock allocation.

Certainly in the 1980s there was a lot of alarmist rhetoric about the United States losing to Japan, along with a lot of nonsense about the Japanese planning in centuries and this being the working-out of a long-term plan. The American software industry was being wiped out by Japanese "software factories;" not quite sure whatever happened to that. And there was a very unpleasant novel by Michael Crichton, "Rising Sun," that did just about everything short of saying "yellow peril."

It would be interesting to find more about what investing magazines were saying about Japan back then. Here's a Scudder ad from 1987:

Image

By the time Fidelity managed to launch the Fidelity Japan fund in 1992, they had to use a somewhat different selling proposition:

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

AlohaJoe
Posts: 2627
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Why does everyone keep increasing their international stock %?

Post by AlohaJoe » Thu Nov 23, 2017 10:35 pm

BuyAndHoldOn wrote:
Thu Nov 23, 2017 9:45 pm
My recollection is that in the last couple of years there were quite a few posts advocating against international allocations
Those posts were interesting, and probably got a lot of people thinking. I noticed there were not as many of those [debates] in the last year.
I feel there have been just as many, if not more, in the last year.

Here are a few that were easy to find:

January 11: Owning Only the Total Stock Market
February 6: Why Wouldn't You Want International Stocks?
February 13: why invest internationally?
February 26: Why has Vanguard increased International Stock and International Bond in Balanced Funds and Portfolio Recommendations?
April 5: Why are the Vanguard Target Retirement Funds so heavily invested in international?
April 16: Why Invest in International?
May 15: Do you avoid international investing like Jack Bogle?
May 23: International allocation
May 28: 20 percent international
June 1: Q&A WITH JACK BOGLE
June 21: Is a Total Stock Market Index enough...
June 25: International Stocks - New Thoughts
July 24: John Bogle Has Been Right About Investing In International
July 26: Vanguard's Global Wellesley Income and Global Wellington Funds [in registration]
July 27: International & US CAPE
August 20: I own no international stocks. Can you guess why?
August 24: John Bogle video (discusses international)
September 2: 20% International Question
October 11: Larry Swedroe: Non-US Valuations Look Attractive
October 17: The overselling of international diversification
October 19: "Using Jack Bogle's own words against him when it comes to international investing"
October 30: Is International Stock Safer?
November 5: US & International Allocation
November 13: Buffett 90/10 Portfolio vs. Target Retirement (e.g. US-only investing per Buffett's alleged advice)

...and there's more but I stopped looking.

There has been a "debate" about international investing every single week of 2017 so far. Possibly every single day. stemikger is one Boglehead who, off the top of my head, I recall is a proponent of US-only investing. Look through his/her post history and you'll see a dozen posts on US-only just so far in November. (Which is totally fine! People should advocate for what they believe in!)

User avatar
cfs
Posts: 3456
Joined: Fri Feb 23, 2007 1:22 am
Location: My own camino since 2014

Re: Why does everyone keep increasing their international stock %?

Post by cfs » Thu Nov 23, 2017 10:42 pm

Good sell signal!
~ Donating Member ~

User avatar
digarei
Posts: 680
Joined: Sat Jul 05, 2014 1:41 am
Location: Sacramento
Contact:

Re: Why does everyone keep increasing their international stock %?

Post by digarei » Thu Nov 23, 2017 11:26 pm

cfs wrote:
Thu Nov 23, 2017 10:42 pm
Good sell signal!
How much will you be selling?
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

User avatar
rob
Posts: 2839
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Why does everyone keep increasing their international stock %?

Post by rob » Thu Nov 23, 2017 11:31 pm

simplesauce wrote:
Thu Nov 23, 2017 8:55 pm
He now recommends 50% US/50% International.
Welcome back... I'm still here at 50/50 :D
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

TheNightsToCome
Posts: 156
Joined: Fri Jun 30, 2017 11:48 pm

Re: Why does everyone keep increasing their international stock %?

Post by TheNightsToCome » Fri Nov 24, 2017 12:09 am

nisiprius wrote:
Thu Nov 23, 2017 10:33 pm
TheNightsToCome wrote:
Thu Nov 23, 2017 10:10 pm
...I believe I've read that Japan was about 50% of global market cap in 1989. The Japanese bubble may be largely responsible for the late 80s dip in your graph...
Quite possibly, although I don't see how it bears on the general question of international stock allocation.

Certainly in the 1980s there was a lot of alarmist rhetoric about the United States losing to Japan, along with a lot of nonsense about the Japanese planning in centuries and this being the working-out of a long-term plan. The American software industry was being wiped out by Japanese "software factories;" not quite sure whatever happened to that. And there was a very unpleasant novel by Michael Crichton, "Rising Sun," that did just about everything short of saying "yellow peril."

It would be interesting to find more about what investing magazines were saying about Japan back then. Here's a Scudder ad from 1987:

Image

By the time Fidelity managed to launch the Fidelity Japan fund in 1992, they had to use a somewhat different selling proposition:

Image
"Quite possibly, although I don't see how it bears on the general question of international stock allocation."

Not at all. :happy Just thought it might be of some interest.

User avatar
SimpleGift
Posts: 2653
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Why does everyone keep increasing their international stock %?

Post by SimpleGift » Fri Nov 24, 2017 12:51 am

simplesauce wrote:
Thu Nov 23, 2017 8:55 pm
Hi all. I would like to know why many finance authors and investing resources continue to increase their recommended equity allocation to international stocks year after year.
One of the reasons may be that the global universe of investable stocks keeps expanding. For example, in 1990, 59 countries had stock exchanges — while just twenty years later in 2010, 154 countries either hosted an exchange or participated in a regional exchange (according to MSCI). There's been a global "birth of equities" in recent decades.

Here's how the universe of "investable" stocks has grown in the MSCI global indexes over time:
As the opportunities for international stock investing have expanded, the recommended equity allocations seem to have followed.
Cordially, Todd

staythecourse
Posts: 5057
Joined: Mon Jan 03, 2011 9:40 am

Re: Why does everyone keep increasing their international stock %?

Post by staythecourse » Fri Nov 24, 2017 1:01 am

livesoft wrote:
Thu Nov 23, 2017 9:26 pm
I think the main reason for recent increases is chasing performance. After all, international funds have finally outperformed US funds in 2017. It may be time to start rebalancing out of international funds for that reason.
There are two questions at play. 1. Why are experts advicing increasing their international exposure? and 2. Why is it a good idea to increase your international exposure? I agree with Livesoft the answer to the first is performance chasing. The answer to the second is multifactorial, including, but not limited to: Decreasing home country bias, better approximation of world equity market caps, increasing geographical and political diversification, etc...

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

User avatar
JoMoney
Posts: 4461
Joined: Tue Jul 23, 2013 5:31 am

Re: Why does everyone keep increasing their international stock %?

Post by JoMoney » Fri Nov 24, 2017 1:44 am

My opinion differs, but: People believe the valuations in some international stocks make them more appealing than U.S. stocks. Some people believe 'home country bias' is a risk and believe they're helping people by diversifying out of their home country investments.

Perhaps cynical reasons:
By making changes it gives 'advisers' the feeling that they're doing something for their pay, and/or a reason to update and write a new book or article.

There's more middle-men and higher fees and expenses to be made in buying and holding international stocks. In the case of Vanguard, by getting more money into these funds it causes the weighted expense ratios to go down which translates to higher bonuses (Vanguard Partnership Plan http://www.philly.com/philly/blogs/inq- ... eport.html )
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
Lancelot
Posts: 166
Joined: Thu Jul 05, 2007 9:09 pm
Location: Philippines

Re: Why does everyone keep increasing their international stock %?

Post by Lancelot » Fri Nov 24, 2017 2:44 am

Subjective, but having lived abroad for some time I still keep the majority of my investments in the US market. First world countries are OK but third world aren't the most transparent (yes, that's where the growth is.)

Having said that, I do have a position in Vanguard Emerging Markets :)
No Where for Very Long...

minimalistmarc
Posts: 139
Joined: Fri Jul 24, 2015 4:38 pm

Re: Why does everyone keep increasing their international stock %?

Post by minimalistmarc » Fri Nov 24, 2017 3:08 am

If you hold less than 40% international then you are underweighting the global market cap and tilting to the US.

If you do this then you are saying that you know more than all the other investment dollars in the world.

User avatar
JoMoney
Posts: 4461
Joined: Tue Jul 23, 2013 5:31 am

Re: Why does everyone keep increasing their international stock %?

Post by JoMoney » Fri Nov 24, 2017 3:54 am

minimalistmarc wrote:
Fri Nov 24, 2017 3:08 am
If you hold less than 40% international then you are underweighting the global market cap and tilting to the US.

If you do this then you are saying that you know more than all the other investment dollars in the world.
Or maybe you're saying there are additional risks with international stocks, and you'd sleep better passing on that... especially with internationals additional expenses, tax considerations , and the availability for U.S. investors to get a very reasonably diversified portfolio without going there.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

minimalistmarc
Posts: 139
Joined: Fri Jul 24, 2015 4:38 pm

Re: Why does everyone keep increasing their international stock %?

Post by minimalistmarc » Fri Nov 24, 2017 4:42 am

JoMoney wrote:
Fri Nov 24, 2017 3:54 am
minimalistmarc wrote:
Fri Nov 24, 2017 3:08 am
If you hold less than 40% international then you are underweighting the global market cap and tilting to the US.

If you do this then you are saying that you know more than all the other investment dollars in the world.
Or maybe you're saying there are additional risks with international stocks, and you'd sleep better passing on that... especially with internationals additional expenses, tax considerations , and the availability for U.S. investors to get a very reasonably diversified portfolio without going there.
That's fine, if you think you have an edge on the market and don't think that all that information is priced in, then use your egde to outperform.

I prefer to accept that I know nothing the market doesn't, and keep to global market weighting.

Being a UK investor, that means holding ~ 55% UK stocks and only 6% UK stocks in my all world ETF.

http://monevator.com/why-a-total-world- ... -you-need/

sambb
Posts: 1800
Joined: Sun Mar 10, 2013 3:31 pm

Re: Why does everyone keep increasing their international stock %?

Post by sambb » Fri Nov 24, 2017 4:55 am

minimalistmarc wrote:
Fri Nov 24, 2017 3:08 am
If you hold less than 40% international then you are underweighting the global market cap and tilting to the US.

If you do this then you are saying that you know more than all the other investment dollars in the world.
Yes, this statement seems the most logical.

JustinR
Posts: 417
Joined: Tue Apr 27, 2010 11:43 pm

Re: Why does everyone keep increasing their international stock %?

Post by JustinR » Fri Nov 24, 2017 5:18 am

Bogleheads: "We believe that we don't know how any holdings will perform, so we buy the market. *Except US vs International."

bgf
Posts: 77
Joined: Fri Nov 10, 2017 9:35 am

Re: Why does everyone keep increasing their international stock %?

Post by bgf » Fri Nov 24, 2017 7:19 am

nisiprius wrote:
Thu Nov 23, 2017 10:33 pm
TheNightsToCome wrote:
Thu Nov 23, 2017 10:10 pm
...I believe I've read that Japan was about 50% of global market cap in 1989. The Japanese bubble may be largely responsible for the late 80s dip in your graph...
Quite possibly, although I don't see how it bears on the general question of international stock allocation.

Certainly in the 1980s there was a lot of alarmist rhetoric about the United States losing to Japan, along with a lot of nonsense about the Japanese planning in centuries and this being the working-out of a long-term plan. The American software industry was being wiped out by Japanese "software factories;" not quite sure whatever happened to that. And there was a very unpleasant novel by Michael Crichton, "Rising Sun," that did just about everything short of saying "yellow peril."

It would be interesting to find more about what investing magazines were saying about Japan back then. Here's a Scudder ad from 1987:

Image

By the time Fidelity managed to launch the Fidelity Japan fund in 1992, they had to use a somewhat different selling proposition:

Image
very interesting post!

i hear the japanese market bubble and then bear market referenced often in the context of alarmist rhetoric about equity investments all over the financial sites i frequent. i would love to read a book specifically about the rise and fall of the japanese markets... i recall from one book i have read, i can't remember which, that there was incredibly convoluted cross-ownership of japanese property and stock between japanese companies... i think this was a large structural component of both the rise and then the crash, and it is a structural component that has never existed in the US.

i suppose that is a large part of the reason some investors avoid international investments - the corporate legal structure is very good in the US and not necessarily as shareholder friendly elsewhere...

anyway, i know very little about it. does anyone have any book recommendations?

bgf
Posts: 77
Joined: Fri Nov 10, 2017 9:35 am

Re: Why does everyone keep increasing their international stock %?

Post by bgf » Fri Nov 24, 2017 7:20 am

bgf wrote:
Fri Nov 24, 2017 7:19 am
nisiprius wrote:
Thu Nov 23, 2017 10:33 pm
TheNightsToCome wrote:
Thu Nov 23, 2017 10:10 pm
...I believe I've read that Japan was about 50% of global market cap in 1989. The Japanese bubble may be largely responsible for the late 80s dip in your graph...
Quite possibly, although I don't see how it bears on the general question of international stock allocation.

Certainly in the 1980s there was a lot of alarmist rhetoric about the United States losing to Japan, along with a lot of nonsense about the Japanese planning in centuries and this being the working-out of a long-term plan. The American software industry was being wiped out by Japanese "software factories;" not quite sure whatever happened to that. And there was a very unpleasant novel by Michael Crichton, "Rising Sun," that did just about everything short of saying "yellow peril."

It would be interesting to find more about what investing magazines were saying about Japan back then. Here's a Scudder ad from 1987:

Image

By the time Fidelity managed to launch the Fidelity Japan fund in 1992, they had to use a somewhat different selling proposition:

Image
very interesting post!

i hear the japanese market bubble and then bear market referenced often in the context of alarmist rhetoric about equity investments all over the financial sites i frequent. i would love to read a book specifically about the rise and fall of the japanese markets... i recall from one book i have read, i can't remember which, that there was incredibly convoluted cross-ownership of japanese property and stock between japanese companies... i think this was a large structural component of both the rise and then the crash, and it is a structural component that has never existed in the US.

i suppose that is a large part of the reason some investors avoid international investments - the corporate legal structure is very good in the US and not necessarily as shareholder friendly elsewhere... i guess in the case of 1980s japan, it was TOO shareholder friendly...

anyway, i know very little about it. does anyone have any book recommendations?

as for allocations, i've kept mine at 50-25-25 (US, Int'l, Emg) for the past several years, which is as long as I've been invested.

User avatar
oldcomputerguy
Posts: 2089
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Why does everyone keep increasing their international stock %?

Post by oldcomputerguy » Fri Nov 24, 2017 7:46 am

teigers wrote:
Thu Nov 23, 2017 9:43 pm
Because the correct allocation is the one that approximates the market portfolio (which is about 55% international), but there is still a lot of home bias that people are getting over.
I would submit that the question is a bit more complicated than that due to currency and political risk in international investing.
Anybody know why there's a 20-pound frozen turkey up in the light grid?

User avatar
BuyAndHoldOn
Posts: 89
Joined: Mon Mar 30, 2015 6:51 pm

Re: Why does everyone keep increasing their international stock %?

Post by BuyAndHoldOn » Fri Nov 24, 2017 8:13 am

minimalistmarc wrote:
Fri Nov 24, 2017 3:08 am
If you hold less than 40% international then you are underweighting the global market cap and tilting to the US.

If you do this then you are saying that you know more than all the other investment dollars in the world.
Overall a fair point, but (As I am sure you know) the situation is more nuanced. Not every country is like the US with Global Capital coming in and out and allowing for active decisions. China's stock market is primarily retail investors who *I believe* have restrictions on investing overseas.

Without perfect markets and perfect information and perfect decision making, the global market cap won't reflect a perfect consensus for us to pattern our portfolios.

As more countries create investible markets, the global market cap will be altered per the point below.
SimpleGift wrote:
Fri Nov 24, 2017 12:51 am

... the global universe of investable stocks keeps expanding. For example, in 1990, 59 countries had stock exchanges — while just twenty years later in 2010, 154 countries either hosted an exchange or participated in a regional exchange (according to MSCI). There's been a global "birth of equities" in recent decades.

Here's how the universe of "investable" stocks has grown in the MSCI global indexes over time:
As the opportunities for international stock investing have expanded, the recommended equity allocations seem to have followed.

MnD
Posts: 3087
Joined: Mon Jan 14, 2008 12:41 pm

Re: Why does everyone keep increasing their international stock %?

Post by MnD » Fri Nov 24, 2017 9:09 am

JustinR wrote:
Fri Nov 24, 2017 5:18 am
Bogleheads: "We believe that we don't know how any holdings will perform, so we buy the market. *Except US vs International."
I think what we're seeing is the is the gradual demise of the last sentence which in my opinion is a good thing for US investors.
"Fear of things foreign" is the basis of nationalism and jingoism which clearly hasn't gone away if one keep up with the news, and this can certainly spill over into individual investing biases. It's also a generational issue. The oldest edge of investors fought in WWII or had spouses or siblings that did. The baby-boomers, which still control a very large percentage of investable assets were raised by that WWII generation and lived through the cold war. Subsequent generations do not see whole blocks of nations as bad/risky/inferior and the relentless shift to market cap indexing on a global scale reflects this generational turnover.

Da5id
Posts: 1609
Joined: Fri Feb 26, 2016 8:20 am

Re: Why does everyone keep increasing their international stock %?

Post by Da5id » Fri Nov 24, 2017 9:18 am

I'm a fan of having at least some international. I'm at 1/3 of my stocks Int'l, a specific choice I can't really defend as opposed to say 40% or market weight, but that I personally regard as better than 0%.

But IMHO maybe in some cases it is belief in the literature about the benefits of international diversification (see e.g. https://personal.vanguard.com/pdf/ISGGEB.pdf for a summary from 2014). Some cases may be following the herd - target retirement funds perhaps are somewhat influenced by what the competitors are doing for example. Some of the choices by advisers/fund families may be tactical based on current beliefs about market valuations (a belief on their part that US stocks are overpriced, Int'l more reasonable).

User avatar
TD2626
Posts: 586
Joined: Thu Mar 16, 2017 3:40 pm

Re: Why does everyone keep increasing their international stock %?

Post by TD2626 » Fri Nov 24, 2017 9:54 am

MnD wrote:
Fri Nov 24, 2017 9:09 am
JustinR wrote:
Fri Nov 24, 2017 5:18 am
Bogleheads: "We believe that we don't know how any holdings will perform, so we buy the market. *Except US vs International."
I think what we're seeing is the is the gradual demise of the last sentence which in my opinion is a good thing for US investors.
"Fear of things foreign" is the basis of nationalism and jingoism which clearly hasn't gone away if one keep up with the news, and this can certainly spill over into individual investing biases. It's also a generational issue. The oldest edge of investors fought in WWII or had spouses or siblings that did. The baby-boomers, which still control a very large percentage of investable assets were raised by that WWII generation and lived through the cold war. Subsequent generations do not see whole blocks of nations as bad/risky/inferior and the relentless shift to market cap indexing on a global scale reflects this generational turnover.
Good points. This "fear of things foreign" might actually be the true reason for some people's bias against stocks from foreign countries. Of course, there aren't many who really admit this openly (or even are able to recognize it in themselves).

To the extent that someone is unable to invest internationally at all and is opening themselves up to a Japan-type bubble scenario in their home country, I feel this emotional bias may be a behavioral error. Recognizing behavioral errors and working to base investments on rational logic and math can be helpful.

There are some rational reasons for a tilt toward a home country. Currency risk is a big one. Higher costs of international investment still exist, but the cost difference between Total Stock and Total International is minimal these days. Other issues (like currency or political risk) should, in my opinion, be at least partially priced in.

I try to, as many experts recommend, start from a perspective of global cap weight. I like Total World for this. Given that so many companies are multinationals, it shouldn't matter where their headquarters are based. Overweighting Ford vs Toyota, or Apple vs Samsung, or Exxon vs Shell, is about as logical to me as overweighting stocks that have an odd number of letters in their name, or overweighting stocks from one's home state or city, or overweighting stocks in companies founded in even numbered years. The multinationals that are dominate cap weight funds are in general thoroughly globalized, and unless you're reading the balance sheets of the companies involved (say Exxon vs Shell) and believe the markets are wrong, Total World investing seems to me to be the ultimate conclusion of the theory behind cap weight indexing.

dh
Posts: 232
Joined: Sun Mar 13, 2011 8:01 pm

Re: Why does everyone keep increasing their international stock %?

Post by dh » Fri Nov 24, 2017 9:59 am

Someone has already posted that the increase in international is probably performance chasing. A year ago, when US stocks were outperforming International, individuals were saying 100% US (and no international). While not the reverse (100% international, 0% US), it seems that performance chasing is going the other direction.

Many years ago I wrote in the equity section of my IPS -- "Every year on December 1 rebalance back to 50% International / 50% US because I am too dumb to know what will outperform next year." How did I come to that conclusion?
https://www.callan.com/wp-content/uploa ... d_2017.pdf

Da5id
Posts: 1609
Joined: Fri Feb 26, 2016 8:20 am

Re: Why does everyone keep increasing their international stock %?

Post by Da5id » Fri Nov 24, 2017 10:19 am

dh wrote:
Fri Nov 24, 2017 9:59 am
Someone has already posted that the increase in international is probably performance chasing. A year ago, when US stocks were outperforming International, individuals were saying 100% US (and no international). While not the reverse (100% international, 0% US), it seems that performance chasing is going the other direction.
I think it is unfair to call performance chasing myself. e.g. while Vanguard Total International (VTIAX) has outperformed Vanguard Total Stock (VTSAX) for this year, VTSAX is still way ahead in longer periods. The trends cited (Vanguard's recommendations and also Vanguard increasing Int'l in mixed for example) way predate this year. In fact, the at the time of Vanguards change Int'l was consistently underperforming. Who are you saying is chasing specifically? Forum posters? Because OP was mostly about authors and mutual fund companies.

livesoft
Posts: 57163
Joined: Thu Mar 01, 2007 8:00 pm

Re: Why does everyone keep increasing their international stock %?

Post by livesoft » Fri Nov 24, 2017 10:21 am

OK, maybe it is not performance chasing of international stocks, but fear that the US is going down the tubes. Suppose all foreign investors pulled out of US stocks and put their money in international stocks. What would that mean for those respective stock markets?
This signature message sponsored by sscritic: Learn to fish.

dh
Posts: 232
Joined: Sun Mar 13, 2011 8:01 pm

Re: Why does everyone keep increasing their international stock %?

Post by dh » Fri Nov 24, 2017 10:33 am

Da5id wrote:
Fri Nov 24, 2017 10:19 am
dh wrote:
Fri Nov 24, 2017 9:59 am
Someone has already posted that the increase in international is probably performance chasing. A year ago, when US stocks were outperforming International, individuals were saying 100% US (and no international). While not the reverse (100% international, 0% US), it seems that performance chasing is going the other direction.
I think it is unfair to call performance chasing myself. e.g. while Vanguard Total International (VTIAX) has outperformed Vanguard Total Stock (VTSAX) for this year, VTSAX is still way ahead in longer periods. The trends cited (Vanguard's recommendations and also Vanguard increasing Int'l in mixed for example) way predate this year. In fact, the at the time of Vanguards change Int'l was consistently underperforming. Who are you saying is chasing specifically? Forum posters? Because OP was mostly about authors and mutual fund companies.
Da5id -- in reply to the title "everyone." I didn't intend for performance chasing to be an attack on anyone or institution! The intent of my post was purely observational as it relates to behavioral decision making, and to share Callan's table. Callan's work has been very instructive for me to stay diversified simply because I do not know what future years hold in store for stocks. Cheers my friend :sharebeer

Da5id
Posts: 1609
Joined: Fri Feb 26, 2016 8:20 am

Re: Why does everyone keep increasing their international stock %?

Post by Da5id » Fri Nov 24, 2017 10:51 am

dh wrote:
Fri Nov 24, 2017 10:33 am
Da5id wrote:
Fri Nov 24, 2017 10:19 am
dh wrote:
Fri Nov 24, 2017 9:59 am
Someone has already posted that the increase in international is probably performance chasing. A year ago, when US stocks were outperforming International, individuals were saying 100% US (and no international). While not the reverse (100% international, 0% US), it seems that performance chasing is going the other direction.
I think it is unfair to call performance chasing myself. e.g. while Vanguard Total International (VTIAX) has outperformed Vanguard Total Stock (VTSAX) for this year, VTSAX is still way ahead in longer periods. The trends cited (Vanguard's recommendations and also Vanguard increasing Int'l in mixed for example) way predate this year. In fact, the at the time of Vanguards change Int'l was consistently underperforming. Who are you saying is chasing specifically? Forum posters? Because OP was mostly about authors and mutual fund companies.
Da5id -- in reply to the title "everyone." I didn't intend for performance chasing to be an attack on anyone or institution! The intent of my post was purely observational as it relates to behavioral decision making, and to share Callan's table. Callan's work has been very instructive for me to stay diversified simply because I do not know what future years hold in store for stocks. Cheers my friend :sharebeer
I do indeed personally stay diversified, have been constant 1/3 int'l stocks for some time. I find Vanguard's take on it persuasive enough, and moreover it agrees with my personal feelings that all US is potentially similar to all Japan in an earlier market, nobody knows nuthin, and buy the haystack (which I think includes Int'l).

I just don't see the chasing here, particularly since Int'l outperformance has really been recent and the changes cited are over a longer period. And while title is indeed "everyone" OP is very much not about everyone, it is about fund companies and pundits.

AlohaJoe
Posts: 2627
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Why does everyone keep increasing their international stock %?

Post by AlohaJoe » Fri Nov 24, 2017 10:56 am

dh wrote:
Fri Nov 24, 2017 9:59 am
Someone has already posted that the increase in international is probably performance chasing. A year ago, when US stocks were outperforming International, individuals were saying 100% US (and no international). While not the reverse (100% international, 0% US), it seems that performance chasing is going the other direction.
Burton Malkiel and Vanguard haven't changed their recommendations in the past 12 months, so claims of performance chasing seen completely false.

The OP specifically asked only about Malkiel and Vanguard and other authors.

Not a single one of those have changed their opinion in 2017.

dh
Posts: 232
Joined: Sun Mar 13, 2011 8:01 pm

Re: Why does everyone keep increasing their international stock %?

Post by dh » Fri Nov 24, 2017 10:58 am

Da5id wrote:
Fri Nov 24, 2017 10:51 am
buy the haystack (which I think includes Int'l).
:thumbsup

9liner
Posts: 17
Joined: Wed Jan 18, 2017 1:03 pm

Re: Why does everyone keep increasing their international stock %?

Post by 9liner » Fri Nov 24, 2017 11:02 am

AlohaJoe wrote:
Thu Nov 23, 2017 8:58 pm
You could try searching the forum and seeing the 10,000 previous threads of the topic of international investing.
There’s always one in the group.....

To respond to the OP, I had previously been against international allocation. However, after much back-and-forth, I’m now approximately 25-30% in international. I realized that I had been missing out on substantial growth opportunities. Suffice to say, international has done very well for me this year.

Post Reply