Common Sense on Mutual Funds

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simplesauce
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Common Sense on Mutual Funds

Post by simplesauce » Sun Nov 26, 2017 8:46 am

I just finished reading Bogle’s book again, and it is wonderful.

I am particularly intrigued by the section where he says you do not need any international stocks in your portfolio.

I feel that this is very profound! I don’t see any other investment authors talking this way.

Are you convinced by Bogle’s reasons? Are you concerned about the risks he discusses? (currency, lack of investor protections in foreign countries, etc.)

Do you share his enthusiasm for US Stocks in the future?

livesoft
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Re: Common Sense on Mutual Funds

Post by livesoft » Sun Nov 26, 2017 9:01 am

I think he is wrong. I share his enthusiasm for US stocks in the future. He apparently does not share my enthusiasm for international stocks in the future.
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FrugalInvestor
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Re: Common Sense on Mutual Funds

Post by FrugalInvestor » Sun Nov 26, 2017 9:02 am

You'll find a lot of discussion on the topic here....

viewtopic.php?f=10&t=232946
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

livesoft
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Re: Common Sense on Mutual Funds

Post by livesoft » Sun Nov 26, 2017 9:06 am

FrugalInvestor wrote:
Sun Nov 26, 2017 9:02 am
You'll find a lot of discussion on the topic here....
Ha! simplesauce starts another thread on the essentially the same subject 2 days later. I like it.
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UncleLongHair
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Re: Common Sense on Mutual Funds

Post by UncleLongHair » Sun Nov 26, 2017 10:13 am

I look at it this way.

The US has proven to be one of the best engines of economic growth that the world has ever seen. It's ingrained in the culture, the rules and regulations, the capitalist society, the relatively fair and transparent markets, economic policy, perpetually growing population, etc. US businesses themselves are very diversified and in almost every conceivable industry.

If you are going to invest in another country's economy, you take on a lot of risks that we don't have in the US. Corruption, inflation, weak currency or currency manipulation, stagnant populations, fiscal policy that doesn't encourage growth, high taxes, etc. It obviously depends on which country you're talking about.

Can you really say that these economies will perform better than the US? Maybe you can pick one that does, or time it right. The only thing most investors have to go on is past performance so you can go back in history and extrapolate that into the future. But why is that meaningful or correct? If you looked at China's economy 50 years ago it was totally different than today.

So I'm comfortable being nearly 100% in invested in the US and Canada.

552BB
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Re: Common Sense on Mutual Funds

Post by 552BB » Sun Nov 26, 2017 10:46 am

Good morning simplesauce,


simplesauce wrote:
Sun Nov 26, 2017 8:46 am
I just finished reading Bogle’s book again, and it is wonderful.

I am particularly intrigued by the section where he says you do not need any international stocks in your portfolio.

I feel that this is very profound! I don’t see any other investment authors talking this way.

Are you convinced by Bogle’s reasons? Are you concerned about the risks he discusses? (currency, lack of investor protections in foreign countries, etc.)

Do you share his enthusiasm for US Stocks in the future?


This book and 'John Bogle on Mutual Funds' were the books I read so many years ago that got me going down the index path to my financial freedom.

We here on this forum are mere mortals.

John Bogle to many is a Saint and almost 'godlike'. Although I say that somewhat in jest, I believe that Mr. Bogle is a figure in financial circles that is of unquestionable character;..... moral, ethical, a person of unimpeachable stature.

I believe this to my core.



So, although I do have a small amount of international index funds in my accounts (less than 20%), I take the counsel given in those first books of his as golden.

I travel to Mexico quite a bit. I have property and other investments down there. So I do have some knowledge of business in other countries and the risks involved, including currency risks.

I think he is spot-on about the risks involved in international investing.

There are risks, and there are rewards.

Heed the warnings, tread cautiously.



That is what I believe.



:sharebeer
Last edited by 552BB on Sun Nov 26, 2017 10:48 am, edited 2 times in total.

snarlyjack
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Re: Common Sense on Mutual Funds

Post by snarlyjack » Sun Nov 26, 2017 10:47 am

I thought Jack Bogle wrote a excellent book.

As far as international investing the Kitces Report
had some interesting analysis on the Trinity Study
4% rule using international investing.

https://www.aicpa.org/interestareas/per ... ch2012.pdf

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Phineas J. Whoopee
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Re: Common Sense on Mutual Funds

Post by Phineas J. Whoopee » Sun Nov 26, 2017 3:02 pm

UncleLongHair wrote:
Sun Nov 26, 2017 10:13 am
I look at it this way.

...

Can you really say that these economies will perform better than the US? Maybe you can pick one that does, or time it right. The only thing most investors have to go on is past performance so you can go back in history and extrapolate that into the future. But why is that meaningful or correct? If you looked at China's economy 50 years ago it was totally different than today.

So I'm comfortable being nearly 100% in invested in the US and Canada.
I'm happy you're comfortable, but I'd like to respond to the underlined bits. Here's for the first two:

I look at my role with respect to my portfolio as that of a risk manager, not a return maximizer. By including international I may or may not be increasing return, but I am increasing diversification. That's my choice, not necessarily yours.

In terms of extrapolating from history, using past performance is such a lousy way to predict future results the government forces mutual fund companies to tell us it's a lousy way.

PJW

harvestbook
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Re: Common Sense on Mutual Funds

Post by harvestbook » Sun Nov 26, 2017 3:08 pm

I can't live Bogle's life or invest in his timeline. I also don't have to accept his biases. It's possible the US economy is peaking right now. All the claims of American economic exceptionalism can be rebutted or not assumed to continue.

But invest however you feel like. Bogle himself says "Nobody knows nothing," and I guess he's including himself.
I'm not smart enough to know, and I can't afford to guess.

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Taylor Larimore
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Re: Mr. Bogle's "Common Sense on Mutual Funds"

Post by Taylor Larimore » Sun Nov 26, 2017 3:16 pm

Bogleheads:

Many investors believe that Jack Bogle's "Common Sense on Mutual Funds" may be the best book about mutual fund investing that has ever been written. These are excerpts:

viewtopic.php?t=46036

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

RadAudit
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Re: Common Sense on Mutual Funds

Post by RadAudit » Sun Nov 26, 2017 3:29 pm

snarlyjack wrote:
Sun Nov 26, 2017 10:47 am
I thought Jack Bogle wrote a excellent book.

As far as international investing the Kitces Report
had some interesting analysis on the Trinity Study
4% rule using international investing.

https://www.aicpa.org/interestareas/per ... ch2012.pdf
Thanks for the link. The 4% rule seems to get a little more complex the further you get in to the weeds.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

UncleLongHair
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Re: Common Sense on Mutual Funds

Post by UncleLongHair » Sun Nov 26, 2017 5:42 pm

By including international I may or may not be increasing return, but I am increasing diversification
Diversifying into investments that perform worse doesn't have a benefit in terms of either risk or returns. You could "diversify" into the economies of Yemen and Sudan for example, but these are terrible economies and probably terrible investments. Simply holding more, different investments doesn't either reduce your risk or increase your returns.

staythecourse
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Re: Common Sense on Mutual Funds

Post by staythecourse » Sun Nov 26, 2017 5:53 pm

UncleLongHair wrote:
Sun Nov 26, 2017 5:42 pm
By including international I may or may not be increasing return, but I am increasing diversification
Diversifying into investments that perform worse doesn't have a benefit in terms of either risk or returns. You could "diversify" into the economies of Yemen and Sudan for example, but these are terrible economies and probably terrible investments. Simply holding more, different investments doesn't either reduce your risk or increase your returns.
That is not how diversification is seen. Yes diversifying more may not improve returns, but it does decrease risk of major loss just based on math alone. If you put 1/3 into 3 different things (like Talmud suggest) there is less of a chance of wipeout vs. 100% in equities (for example). Just like diversifying in 10 stocks decreases risk of loss vs. putting it all on one stock (which may end up Apple or Enron).

I think the problem you have is you think U.S. is special and is immune to collapse and one is diversifying into less safe equity markets. Then the analogy is more like instead of keeping 100% of your money in a FDIC insured bank you chose to diversify and give 20% to a loan shark.

The difference is there are no greater risk of loss from investing in developed countries and that is why the risk/ return over a long period of time should be the same. Then of course, if the risk was greater then the expected return has to be greater. That is simple finance theory.

It is okay if you believe U.S. is somehow magical. Maybe you are right. Then, of course, that is why I diversify since I have no crystal ball saying so and Mr. Bogle saying so does not make it any more crystal. Besides if return/ risk is basically the same then why wouldn't I choose to diversify since by doing it alone improves my chances of holding a poorly returning equity market during my time horizon.

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

GLState
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Re: Common Sense on Mutual Funds

Post by GLState » Sun Nov 26, 2017 9:02 pm

A three fund portfolio of US stocks, international stocks, and total bond is one of the most recommended portfolios on the boglehead site which seems to go against Mr. Bogle's view of international equity being unnecessary. Mr. Bogle does unwillingly "agree" to no more than 20% international equity. If we followed Mr. Bogle's "best" advice, we would own only a total US equity fund and total bond.

I've been investing in index funds for over 15 years. I'm accustomed to not owning the hot stock or the hot fund or the hot country. I'm content to get the market return whether it be domestic or international. IMO, the benefits of diversification do not stop at the US border.

TJSI
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Re: Common Sense on Mutual Funds

Post by TJSI » Sun Nov 26, 2017 9:19 pm

Mr. Whoopee

I don't think diversification is synonymous with reducing risk. There are risks with international investments which are probably harder to understand and evaluate than US based investments.

There are great international companies and countries with a long history of stability but just adding an investment for diversification may not get the job done.

TJSI

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Wildebeest
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Re: Common Sense on Mutual Funds

Post by Wildebeest » Sun Nov 26, 2017 9:30 pm

Common Sense on Mutual Funds is a great book. I recall reading it 1999 and thinking it was brilliant and when I reread it recently, I was again taken by his brilliance.

No I do not agree with his admonition that there is no need for international funds. I also was surprised that he was not in favor of investing in a 529.
Mr Bogle is a great man and like all great men, you can not be right all the time.

I just hope to be right over 50 % of the time and my bet is 50 % international.
The Golden Rule: One should treat others as one would like others to treat oneself.

skierrex
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Re: Common Sense on Mutual Funds

Post by skierrex » Sun Nov 26, 2017 9:46 pm

There are so many things about international investing that I can't pretend to understand, I couldn't possibly put any money in international. Currency risk, international politics, international taxation, corruption, foreign relations, fair trade agreements...

Multiply that by, what, 50 or 100 countries?

I won't invest in things I don't understand.

Dead Man Walking
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Re: Common Sense on Mutual Funds

Post by Dead Man Walking » Sun Nov 26, 2017 10:07 pm

The most important lesson that I learned from Jack's book was the importance of costs. It's darn near impossible to outperform a low cost mutual fund whether it is an index fund or an active fund.

DMW

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cfs
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Re: Common Sense on Mutual Funds

Post by cfs » Mon Nov 27, 2017 9:51 pm

This was my first [and best] investment book. I had the book for many years and read it many times during my US Navy deployments. Finally gave it to one of my squared-away junior Sailors when I packed my gear for retirement. Wishing YOU and your family a Merry Christmas, and thanks for reading.
~ Your Money, Your Portfolio, Your Decision ~

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patrick013
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Re: Common Sense on Mutual Funds

Post by patrick013 » Mon Nov 27, 2017 10:42 pm

I'd go with the EM Index fund for China and other emerging markets
and let the 500 index fund cover Europe and whatever else it
has for revenue in other foreign markets. But not as high as
Vanguard recommends. To me it's information. They display
plenty of stats for negative correlation and numerical diversification
but little fundamental information.

I'd stay at 10% for the EM just because of good news regarding those
markets in the form of revenues and exports adding returns. There's
other "tilts" and foreign economies can be smallish which can limit gains.
I remember last year when brokers were recommending China ETF's.
So now they're up 30%. Should be a good buy and hold within the
EM Index.

Just MO.
age in bonds, buy-and-hold, 10 year business cycle

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Phineas J. Whoopee
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Re: Common Sense on Mutual Funds

Post by Phineas J. Whoopee » Tue Nov 28, 2017 3:18 pm

UncleLongHair wrote:
Sun Nov 26, 2017 5:42 pm
By including international I may or may not be increasing return, but I am increasing diversification
Diversifying into investments that perform worse doesn't have a benefit in terms of either risk or returns. You could "diversify" into the economies of Yemen and Sudan for example, but these are terrible economies and probably terrible investments. Simply holding more, different investments doesn't either reduce your risk or increase your returns.
UncleLongHair's quote is from me, upthread.

This is my response to TJSI's post, as well.

If I shared your conviction about the US and Canada being far less risky and promising far better returns I might do as you suggest and invest only there. I don't share your conviction, not in the sense of saying after several decades your portfolio definitely won't have returned more than mine, but in the sense of saying I'm not convinced by the argument, which people here frequently post.

You don't have to agree that by diversifying internationally I'm reducing risk, and you don't have to do the same. You have every right to post your opinion (within forum guidelines), as do I. We disagree. I'm not trying to convince you personally, and for your sake I hope you wind up having been right, and I wind up having been wrong.

UncleLongHair - I believe the implied equation of Yemen and Sudan with all the rest of the world incorporates two logical fallacies: false dilemma; and false equivalence. If other logicians among us conclude I'm incorrect they're invited to post as much.

PJW

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