Why International again?

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InvestInLife
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Why International again?

Post by InvestInLife » Thu Mar 08, 2018 7:39 pm

I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.

livesoft
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Re: Why International again?

Post by livesoft » Thu Mar 08, 2018 7:45 pm

No worries. Nobody is going to force you to invest in international if you don't want to.

But quite a lot of the US economy is really covered by stocks of foreign companies. They are household names: Samsung, Honda, Toyota, Shell, BP, and a lot more.
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Noobvestor
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Re: Why International again?

Post by Noobvestor » Thu Mar 08, 2018 7:55 pm

Geographical, economic, political and currency diversification. Also: hindsight is 20/20 - some countries do better than others, and it depends on period. If you think the US is exceptional and the market can't price country-specific risks/returns, then your crystal ball is clearer than mine.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Noobvestor
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Re: Why International again?

Post by Noobvestor » Thu Mar 08, 2018 8:00 pm

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988.
https://www.bogleheads.org/wiki/Callan_ ... nt_returns

I think you're running the numbers wrong. Also, international beat US from 2000-2010 (overall, not every year). Long time to lag global returns.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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cfs
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Re: Why International again?

Post by cfs » Thu Mar 08, 2018 8:11 pm

Well, because investing in internationals is FUN !!!

My signature applies.

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whodidntante
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Re: Why International again?

Post by whodidntante » Thu Mar 08, 2018 8:15 pm

If you understand the reasons and reject them all, then put in your sell order tomorrow morning and don't look back. I'm 52% ex-USA and still accumulating, so I might even be on the other side of your trade.

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willthrill81
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Re: Why International again?

Post by willthrill81 » Thu Mar 08, 2018 8:15 pm

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
Unless you can see into the future, you do not know this.

There have been many years and periods where international outperformed the U.S.

I think that U.S. investors should have some international exposure, though I don't think that a 50/50 split is necessary or even 'optimal'. That being said, 2008/2009 taught us that if the U.S. goes down the tubes, international is likely to do the same.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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JoMoney
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Re: Why International again?

Post by JoMoney » Thu Mar 08, 2018 8:34 pm

I'm in the minority around here that agrees with Jack Bogle on a "International" stock allocation. I don't think it's necessary for U.S. investors. You can build a reasonably well diversified portfolio of stocks from those traded on U.S. exchanges, or even more simply to buy the whole " U.S. Market " in a simple low cost fund.
Maybe international is currently "cheaper" relative to it's future returns... maybe it isn't... that's the kind of thing that we'll only know in hindsight. But I do think there are risks and expenses related to an international allocation that just aren't necessary, and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Tycoon
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Re: Why International again?

Post by Tycoon » Thu Mar 08, 2018 8:37 pm

JoMoney wrote:
Thu Mar 08, 2018 8:34 pm
I'm in the minority around here that agrees with Jack Bogle on a "International" stock allocation. I don't think it's necessary for U.S. investors. You can build a reasonably well diversified portfolio of stocks from those traded on U.S. exchanges, or even more simply to buy the whole " U.S. Market " in a simple low cost fund.
Maybe international is currently "cheaper" relative to it's future returns... maybe it isn't... that's the kind of thing that we'll only know in hindsight. But I do think there are risks and expenses related to an international allocation that just aren't necessary, and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
You're not alone.
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randomizer
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Re: Why International again?

Post by randomizer » Thu Mar 08, 2018 8:41 pm

I can read about the past but I cannot see the future. So I choose to invest in a total world portfolio, cap weighted.
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texasgal47
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Re: Why International again?

Post by texasgal47 » Thu Mar 08, 2018 8:47 pm

Another poster here who agrees with Jack Bogle and does not like the increased portfolio volatility with international. I, too, had 20% international per Vanguard's recommendation, waited three years to think it through, then sold it all and have no regrets.

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Re: Why International again?

Post by willthrill81 » Thu Mar 08, 2018 9:02 pm

JoMoney wrote:
Thu Mar 08, 2018 8:34 pm
I'm in the minority around here that agrees with Jack Bogle on a "International" stock allocation. I don't think it's necessary for U.S. investors. You can build a reasonably well diversified portfolio of stocks from those traded on U.S. exchanges, or even more simply to buy the whole " U.S. Market " in a simple low cost fund.
Maybe international is currently "cheaper" relative to it's future returns... maybe it isn't... that's the kind of thing that we'll only know in hindsight. But I do think there are risks and expenses related to an international allocation that just aren't necessary, and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
Necessary? Very likely not.

Helpful? Perhaps, but it seems like it might be a coin toss.

Without a doubt, the U.S. only investor is far more diversified than the Canada only or Spain only investor.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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rob
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Re: Why International again?

Post by rob » Thu Mar 08, 2018 9:27 pm

If your a total market person then "Why International" is the wrong question.... What do you know that the market does not? - the market has set that ratio already.

If your not a total market person then the answer is Japan.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

Dominic
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Re: Why International again?

Post by Dominic » Thu Mar 08, 2018 9:34 pm

livesoft wrote:
Thu Mar 08, 2018 7:45 pm
No worries. Nobody is going to force you to invest in international if you don't want to.

But quite a lot of the US economy is really covered by stocks of foreign companies. They are household names: Samsung, Honda, Toyota, Shell, BP, and a lot more.
Since a lot of the ones you listed are oil and auto companies, it should be mentioned that many of the world's biggest pharmaceutical companies (AstraZeneca, GlaxoSmithKline) and banks (HSBC, Santander) are also headquartered in international markets. There are also some mega-corps such as Nestle and Unilever, and firms such as Taiwan Semiconductor, who almost definitely manufactured the chip that powers your smartphone.

Personally, I feel comfortable knowing that I'm not missing out on the profits of any of these companies. Yes, the US market is incredibly diversified and resilient. However, I think that having more diversification will help me more than it will hurt me. Worst case, international underperforms a bit. Best case, international bails me out of a crisis.

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badbreath
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Re: Why International again?

Post by badbreath » Thu Mar 08, 2018 9:35 pm

As someone mentioned the reason I hold them is for the stock that I don't hold in total stock

Month-end ten largest holdings as of 01/31/2018
Rank Holdings
1 Tencent Holdings Ltd.
2 Royal Dutch Shell plc
3 Nestle SA
4 Samsung Electronics Co. Ltd.
5 HSBC Holdings plc
6 Taiwan Semiconductor Manufacturing Co. Ltd.
7 Novartis AG
8 Toyota Motor Corp.
9 Roche Holding AG
10 British American Tobacco plc
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Noobvestor
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Re: Why International again?

Post by Noobvestor » Thu Mar 08, 2018 9:41 pm

JoMoney wrote:
Thu Mar 08, 2018 8:34 pm
... and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
Diversification is precisely helpful because some things do better than others over various different periods. When the US lagged from 2000 to 2010, it helped to have international. From 2010 to 2018, it helped to have US.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Noobvestor
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Re: Why International again?

Post by Noobvestor » Thu Mar 08, 2018 9:45 pm

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
I just noticed this part re-reading your post. According to this Vanguard study, adding between 1% and 60% international decreases volatility:

https://www.vanguard.com/pdf/ISGGEB.pdf
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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arcticpineapplecorp.
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Re: Why International again?

Post by arcticpineapplecorp. » Thu Mar 08, 2018 10:15 pm

here's a good reason:

it's called the "randomness of global equity returns" page 40 of the DFA matrix book 2017:

https://www.ifa.com/pdf/matrix%20book%202017.pdf

Image

what do you see? That's right. The good 'ol USA was only the top dog once since 1997 (in 2014 to be exact). All other years, there was some other country(ies) that did better. Don't you want some of that?
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stemikger
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Re: Why International again?

Post by stemikger » Thu Mar 08, 2018 10:32 pm

Tycoon wrote:
Thu Mar 08, 2018 8:37 pm
JoMoney wrote:
Thu Mar 08, 2018 8:34 pm
I'm in the minority around here that agrees with Jack Bogle on a "International" stock allocation. I don't think it's necessary for U.S. investors. You can build a reasonably well diversified portfolio of stocks from those traded on U.S. exchanges, or even more simply to buy the whole " U.S. Market " in a simple low cost fund.
Maybe international is currently "cheaper" relative to it's future returns... maybe it isn't... that's the kind of thing that we'll only know in hindsight. But I do think there are risks and expenses related to an international allocation that just aren't necessary, and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
You're not alone.
Add me to the minority. Over 23 years without it. Don't think I missed anything.
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jalbert
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Re: Why International again?

Post by jalbert » Thu Mar 08, 2018 10:33 pm

I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes, 
I know it did well last year.
US equities got dusted by non-US ones in USD terms in the 1970's. Research that performed simulations of retirement withdrawal rates has shown that int'l diversification of equities by US retirees during the inflationary period would have greatly reduced the odds of running out of funds.

But it also would be a mistake to look at the robust int'l equity returns of 2002-2006 and assume that loading up on int'l equities will juice returns. Nobody knows what will happen moving forward.
Index fund investor since 1987.

MrPotatoHead
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Re: Why International again?

Post by MrPotatoHead » Thu Mar 08, 2018 10:45 pm

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
And you would trust Vanguard or any financial service company exactly why? Never forget they profit from you directly. They have been hawking internationals for years now, with subpar performance. It seems to me the best way to bolster the returns and hide their subpar performance is to induce a bunch of investors to buy into the funds and raise up their valuations so it becomes a self fulfilling prophecy.

Saint Bogle is ambivalent at best on your need for internationals. It is hard to argue with the reality that most U.S. indexes give you international exposure at a much healthier ER. There also is a theory that your investments should be denominated in the currency of the country you live in. Some may claim we are on the brink of one of the greatest economic spurts in U.S. history. Certainly, demographically, it may be the last tango for a long while. That being said I have a 18-20% International exposure, call it drinking the Koolaid. Still others,like Swedroe, would claim that now is the time to buy internationals while the the valuations look good vs U.S.

Then again some would argue the purpose of international isn't to bolster returns as much as to diversify risk. In the end, I would not worry much about it if I was over 45. International may make a lot more sense for those under 45. Still in all, it is hard to go wrong with the U.S. total stock market or S&P500.

jhawktx
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Re: Why International again?

Post by jhawktx » Thu Mar 08, 2018 11:04 pm

stemikger wrote:
Thu Mar 08, 2018 10:32 pm
Tycoon wrote:
Thu Mar 08, 2018 8:37 pm
JoMoney wrote:
Thu Mar 08, 2018 8:34 pm
I'm in the minority around here that agrees with Jack Bogle on a "International" stock allocation. I don't think it's necessary for U.S. investors. You can build a reasonably well diversified portfolio of stocks from those traded on U.S. exchanges, or even more simply to buy the whole " U.S. Market " in a simple low cost fund.
Maybe international is currently "cheaper" relative to it's future returns... maybe it isn't... that's the kind of thing that we'll only know in hindsight. But I do think there are risks and expenses related to an international allocation that just aren't necessary, and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
You're not alone.
Add me to the minority. Over 23 years without it. Don't think I missed anything.
The only thing you missed was the higher expenses you would have paid had you owned International.

fennewaldaj
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Re: Why International again?

Post by fennewaldaj » Thu Mar 08, 2018 11:31 pm

jhawktx wrote:
Thu Mar 08, 2018 11:04 pm
stemikger wrote:
Thu Mar 08, 2018 10:32 pm
Tycoon wrote:
Thu Mar 08, 2018 8:37 pm
JoMoney wrote:
Thu Mar 08, 2018 8:34 pm
I'm in the minority around here that agrees with Jack Bogle on a "International" stock allocation. I don't think it's necessary for U.S. investors. You can build a reasonably well diversified portfolio of stocks from those traded on U.S. exchanges, or even more simply to buy the whole " U.S. Market " in a simple low cost fund.
Maybe international is currently "cheaper" relative to it's future returns... maybe it isn't... that's the kind of thing that we'll only know in hindsight. But I do think there are risks and expenses related to an international allocation that just aren't necessary, and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
You're not alone.
Add me to the minority. Over 23 years without it. Don't think I missed anything.
The only thing you missed was the higher expenses you would have paid had you owned International.
Is the ER difference really great enough for this to even be a remotely reasonable argument? 0.11 vs 0.04 is not a big enough difference to avoid an asset class.

patrick
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Re: Why International again?

Post by patrick » Thu Mar 08, 2018 11:40 pm

If you are going to look at past results, note that Australian and South African stocks have both dramatically outperformed US stocks from 1900 to present -- a much longer period than the short time you are looking at. With this long history of superior performance, why not keep all of your investments in South Africa and/or Australia? Why invest in the US at all?

H-Town
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Re: Why International again?

Post by H-Town » Thu Mar 08, 2018 11:45 pm

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
Vanguard has something called Target Retirement Fund which is most suitable for you. You see... it takes away your "trying to be smart", "want to be cute", "chasing returns", "home country bias", "wishy washy in allocation", etc. from harming the long term return of your portfolio.

See this chart, tell us what do you see.
Image

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raven15
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Re: Why International again?

Post by raven15 » Thu Mar 08, 2018 11:59 pm

Speaking for myself, I just typed all the funds I invest in into Morningstar and was surprised that over my time frame the top three have been international funds, with Vanguard midcap coming in 4th. If I had been invested only in USA I would have less money.
It's Time. Adding Interest.

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raven15
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Re: Why International again?

Post by raven15 » Fri Mar 09, 2018 12:00 am

arcticpineapplecorp. wrote:
Thu Mar 08, 2018 10:15 pm
here's a good reason:

it's called the "randomness of global equity returns" page 40 of the DFA matrix book 2017:

https://www.ifa.com/pdf/matrix%20book%202017.pdf

Image

what do you see? That's right. The good 'ol USA was only the top dog once since 1997 (in 2014 to be exact). All other years, there was some other country(ies) that did better. Don't you want some of that?
Wow nice chart.
It's Time. Adding Interest.

InvestInLife
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Re: Why International again?

Post by InvestInLife » Fri Mar 09, 2018 12:05 am

Noobvestor wrote:
Thu Mar 08, 2018 9:45 pm
InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
I just noticed this part re-reading your post. According to this Vanguard study, adding between 1% and 60% international decreases volatility:

https://www.vanguard.com/pdf/ISGGEB.pdf
Great link, am reading it now. While the article expresses that historically holding international has reduced volatility somewhat, and then gives great statistics for it, beginning on page 8 the article points out that the opposite has been true for the past (now, ten) years, and that this trend is likely to continue as global markets become more correlated, due to increased globalization. It ends with a recommendation for twenty to forty percent in ex-US equities.

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SimpleGift
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Re: Why International again?

Post by SimpleGift » Fri Mar 09, 2018 1:02 am

Just to point out that, strictly speaking, it's impossible to have a "U.S.-only portfolio" in this day and age. With today's multinationals and global sales and supply lines, U.S. large-cap companies derive around 30% of their revenues from overseas (chart below) — with all the foreign currency exposure and other risks which this entails.
So the portfolio decision is no longer between U.S.-domiciled vs. foreign-domiciled companies — everyone now has international revenue exposure! — but rather the degree of international exposure that one wants to target in their equity portfolio.
Last edited by SimpleGift on Fri Mar 09, 2018 1:28 am, edited 1 time in total.
Cordially, Todd

stimulacra
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Re: Why International again?

Post by stimulacra » Fri Mar 09, 2018 1:28 am

I guess home country bias comes to mind; Japan in the 1980's, Russia before WWI, Germany during the “Golden Twenties”… things are good, even great, before they suddenly go downhill or stagnate indefinitely.

I have international because it's been relatively cheap to either rebalance into or direct new cashflow into and also as a hedge against U.S.

International stocks are a backup plan in the event the U.S. economy tanks hard.

The U.S. hasn't defaulted on any of its debt obligations in over 200 years (there's some argument about what happened in 1979) but what happens to the S&P 500 when it does? A recession would be the best case scenario.

To be fair, maybe the main reason against international stocks is that you might have to be outside the U.S. to enjoy the full benefit. If some of the black swan events regarding the U.S. economy comes to fruition, you might want to be elsewhere when it happens.

hilink73
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Re: Why International again?

Post by hilink73 » Fri Mar 09, 2018 2:20 am

willthrill81 wrote:
Thu Mar 08, 2018 9:02 pm
JoMoney wrote:
Thu Mar 08, 2018 8:34 pm
I'm in the minority around here that agrees with Jack Bogle on a "International" stock allocation. I don't think it's necessary for U.S. investors. You can build a reasonably well diversified portfolio of stocks from those traded on U.S. exchanges, or even more simply to buy the whole " U.S. Market " in a simple low cost fund.
Maybe international is currently "cheaper" relative to it's future returns... maybe it isn't... that's the kind of thing that we'll only know in hindsight. But I do think there are risks and expenses related to an international allocation that just aren't necessary, and the story of it reducing risk or providing a "diversification benefit" really hasn't proven justified - it's period dependent - pick a period where it has worked and I'll show you another where it hasn't.
Necessary? Very likely not.

Helpful? Perhaps, but it seems like it might be a coin toss.

Without a doubt, the U.S. only investor is far more diversified than the Canada only or Spain only investor.
Diversified like a single government?

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JoMoney
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Re: Why International again?

Post by JoMoney » Fri Mar 09, 2018 2:21 am

fennewaldaj wrote:
Thu Mar 08, 2018 11:31 pm
...
Is the ER difference really great enough for this to even be a remotely reasonable argument? 0.11 vs 0.04 is not a big enough difference to avoid an asset class.
That's a decision you'll have to make for yourself, but it is higher, and the ER is only one piece of the higher expenses. It doesn't include the foreign tax withholding impacts, higher spreads and brokerage expenses on foreign exchanges, the fees paid to intermediary banks who hold title to the foreign stocks for benefit of the international "owner", transactional issues based on time of day trading in the U.S. vs on a foreign exchange, etc...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Valdeselad
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Re: Why International again?

Post by Valdeselad » Fri Mar 09, 2018 3:11 am

Also keep in mind that your returns will be highly influenced by the relative strength (or weakness) of the USD. By investing in international, you are just as exposed to currrency movements as you are to the performance of the underlying companies.

Ari
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Re: Why International again?

Post by Ari » Fri Mar 09, 2018 5:00 am

The world market portfolio has historically outperformed the vast majority of single country markets. A few countries have managed to outperform it historically (among them my home country of Sweden). If you are a skilled country-picker, it seems reasonable to choose to invest in the country or countries that will perform well. I don't really know which countries will outperform in the future (I don't think it's as easy as relying on past results), so I prefer to own the entire market. That way I can be sure to have exposure to whatever country outperforms, and not risk having a major decline by investing everything in a single country and have that country perform badly. "Rather than searching for the needle, buy the haystack", as someone put it.

Same thing goes with currencies. I don't know which currency will outperform, so I prefer holding all of them rather than concentrating in a single one.
All in, all the time.

Ari
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Re: Why International again?

Post by Ari » Fri Mar 09, 2018 5:03 am

Ari wrote:
Fri Mar 09, 2018 5:00 am
The world market portfolio has historically outperformed the vast majority of single country markets.
A better way to put it: The CAGR (compounded annual growth rate) of the world market portfolio is significantly higher than the CAGR for the average single-country market portfolio. And more importantly, the world market has been able to sustain a much higher yearly withdrawal rate.
All in, all the time.

InvestInLife
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Re: Why International again?

Post by InvestInLife » Fri Mar 09, 2018 9:24 am

Ari wrote:
Fri Mar 09, 2018 5:03 am
Ari wrote:
Fri Mar 09, 2018 5:00 am
The world market portfolio has historically outperformed the vast majority of single country markets.
A better way to put it: The CAGR (compounded annual growth rate) of the world market portfolio is significantly higher than the CAGR for the average single-country market portfolio. And more importantly, the world market has been able to sustain a much higher yearly withdrawal rate.
In portfoliovisualizer.com backtest portfolio asset class allocation, I enter 10,000 set to maximum date range, defaults to 1986.
Portfolio 1: 100% US Stock Market. Final balance: 250,840. CAGR 10.56. Stdev 15.01.
Portfolio 2: 100% ex-US Stock Market. Final balance: 102,288. CAGR 7.52. Stdev 17.88.

BogleMelon
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Re: Why International again?

Post by BogleMelon » Fri Mar 09, 2018 9:33 am

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
They are wrong of course, and so you are by comparing past performance and assuming it is going to repeat.

The only 1 right thing is: no one knows nothing!

I hold intl to diversify, not to chase performance. I can control diversification, but I can not control the future performance.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

dbr
Posts: 27207
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Re: Why International again?

Post by dbr » Fri Mar 09, 2018 9:43 am

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade.
I doubt any Vanguard newsletter anyone got says we all "need" to hold some international or "we will lose big time" over the next decade. Anyway why would you take investing advice from a mutual fund company?

How much, if any, to hold in international is always a discussion because it is always a choice. A general observation is that the more it is discussed the less it matters. The current evidence based on that is that it does not matter at all.

My personal choice is to hold a little more diversity in stocks rather than less and let the chips fall where they may. I have no interest in timing things based on valuations.

BogleMelon
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Re: Why International again?

Post by BogleMelon » Fri Mar 09, 2018 9:43 am

SimpleGift wrote:
Fri Mar 09, 2018 1:02 am
U.S. large-cap companies derive around 30% of their revenues from overseas.
This is kind of a dilemma for me. Does selling to a foreign customer is the same as owning a foreign business?

The way I understand it, selling to a foreign country doesn't diversify away the political, and other risks of owning only one country.

Owning a local business (in a local street) that sells to tourists is not the same as owning a franchise in 50 streets! After all if that one street was raided by gang members, the tourists wouldn't dare to come and buy from you. They would go downtown where it is safe to shop and where the other franchise stores located.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Da5id
Posts: 2035
Joined: Fri Feb 26, 2016 8:20 am

Re: Why International again?

Post by Da5id » Fri Mar 09, 2018 9:56 am

InvestInLife wrote:
Fri Mar 09, 2018 9:24 am
Ari wrote:
Fri Mar 09, 2018 5:03 am
Ari wrote:
Fri Mar 09, 2018 5:00 am
The world market portfolio has historically outperformed the vast majority of single country markets.
A better way to put it: The CAGR (compounded annual growth rate) of the world market portfolio is significantly higher than the CAGR for the average single-country market portfolio. And more importantly, the world market has been able to sustain a much higher yearly withdrawal rate.
In portfoliovisualizer.com backtest portfolio asset class allocation, I enter 10,000 set to maximum date range, defaults to 1986.
Portfolio 1: 100% US Stock Market. Final balance: 250,840. CAGR 10.56. Stdev 15.01.
Portfolio 2: 100% ex-US Stock Market. Final balance: 102,288. CAGR 7.52. Stdev 17.88.
He said "average single-country market". I assume your point is "US stocks were better over that period". If that is your point, I gather your implied point is "US stocks are currently better on a risk adjusted basis, will remain better forever, and other stocks from other countries are not worth investing in, at least for a US domiciled investor".

Could be. Each does what they want. For me, I can't see why US won't someday be Japan, underperforming after overperformance. I also dislike the argument that US stocks give "enough" foreign exposure, because those arguing it don't specify even roughly how much foreign exposure they want. And if one doesn't so specify, how can one know it is "enough"? Heck, you could get "too much" foreign exposure from S&P 500, and should maybe tilt your US stocks to avoid so much of what is, from your point of view, unwanted exposure.

lostdog
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Re: Why International again?

Post by lostdog » Fri Mar 09, 2018 9:58 am

I follow Vanguards recommendation to diversify at 40% international. They know more than me.


https://investor.vanguard.com/investing ... -investing
Hear the clock ticking? That’s your life flying by while you listen to market pundits and watch stock prices fluctuate. -Humble Dollar

Da5id
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Re: Why International again?

Post by Da5id » Fri Mar 09, 2018 10:01 am

dbr wrote:
Fri Mar 09, 2018 9:43 am
InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade.
I doubt any Vanguard newsletter anyone got says we all "need" to hold some international or "we will lose big time" over the next decade. Anyway why would you take investing advice from a mutual fund company?
Yeah, I'd like to see that newsletter too. I think https://www.vanguard.com/pdf/ISGGEB.pdf is well written. And it's version of what you say is Vanguards advice from the conclusion is
In light of quantitative analysis and qualitative considerations, we have demonstrated that
domestic investors should consider allocating part of their portfolios to international securities, and that a 20% allocation may be a reasonable starting point
That is a far cry from "lose big time over next decade". I think Vanguard doesn't tend to be so foolish in its pronouncements, that is more the realm of CNBC pundits.

InvestInLife
Posts: 81
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Re: Why International again?

Post by InvestInLife » Fri Mar 09, 2018 10:56 am

Da5id wrote:
Fri Mar 09, 2018 9:56 am
InvestInLife wrote:
Fri Mar 09, 2018 9:24 am
Ari wrote:
Fri Mar 09, 2018 5:03 am
Ari wrote:
Fri Mar 09, 2018 5:00 am
The world market portfolio has historically outperformed the vast majority of single country markets.
A better way to put it: The CAGR (compounded annual growth rate) of the world market portfolio is significantly higher than the CAGR for the average single-country market portfolio. And more importantly, the world market has been able to sustain a much higher yearly withdrawal rate.
In portfoliovisualizer.com backtest portfolio asset class allocation, I enter 10,000 set to maximum date range, defaults to 1986.
Portfolio 1: 100% US Stock Market. Final balance: 250,840. CAGR 10.56. Stdev 15.01.
Portfolio 2: 100% ex-US Stock Market. Final balance: 102,288. CAGR 7.52. Stdev 17.88.
He said "average single-country market". I assume your point is "US stocks were better over that period". If that is your point, I gather your implied point is "US stocks are currently better on a risk adjusted basis, will remain better forever, and other stocks from other countries are not worth investing in, at least for a US domiciled investor".

Could be. Each does what they want. For me, I can't see why US won't someday be Japan, underperforming after overperformance. I also dislike the argument that US stocks give "enough" foreign exposure, because those arguing it don't specify even roughly how much foreign exposure they want. And if one doesn't so specify, how can one know it is "enough"? Heck, you could get "too much" foreign exposure from S&P 500, and should maybe tilt your US stocks to avoid so much of what is, from your point of view, unwanted exposure.
This is a great discussion, by the way. I appreciate all angles on this.

I posted my data entry to show what I was looking at. From these numbers I read that holding international funds since 1986 would have lowered CAGR and increased volatility, and reduced total portfolio value. Also someone had suggested I may be doing the numbers wrong, which is a fair question, so I'm showing my math to make sure I was doing it right.

And when I hear about total world portfolios beating US portfolios, I haven't found those numbers yet, but would like to if they are out there.

I understand that some years international stocks win out, just like some years differing asset clases win. But in the larger picture over time, based on portfoliovisualizer's math, it seems like international mix drags down a porfolio compared to Total US. I understand the theories about diversification. But in practice, I just don't see it doing what the theories say. I don't wish to diversify into something which has had historically trailing performance and increased risk, in the pursuit of theoretically lessening risk and increasing performance.

I am seeking to genuinely understand the issue. I'm not against international actually, but I do have these questions.

As to my recap of Vanguard's newsletter, yes I am just rephrasing their point... I'm sure they are much more tactful in their wording. But the consensus from the pundits is that international is the way to go.

Valuethinker
Posts: 35683
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Re: Why International again?

Post by Valuethinker » Fri Mar 09, 2018 11:18 am

InvestInLife wrote:
Fri Mar 09, 2018 10:56 am
Da5id wrote:
Fri Mar 09, 2018 9:56 am
InvestInLife wrote:
Fri Mar 09, 2018 9:24 am
Ari wrote:
Fri Mar 09, 2018 5:03 am
Ari wrote:
Fri Mar 09, 2018 5:00 am
The world market portfolio has historically outperformed the vast majority of single country markets.
A better way to put it: The CAGR (compounded annual growth rate) of the world market portfolio is significantly higher than the CAGR for the average single-country market portfolio. And more importantly, the world market has been able to sustain a much higher yearly withdrawal rate.
In portfoliovisualizer.com backtest portfolio asset class allocation, I enter 10,000 set to maximum date range, defaults to 1986.
Portfolio 1: 100% US Stock Market. Final balance: 250,840. CAGR 10.56. Stdev 15.01.
Portfolio 2: 100% ex-US Stock Market. Final balance: 102,288. CAGR 7.52. Stdev 17.88.
He said "average single-country market". I assume your point is "US stocks were better over that period". If that is your point, I gather your implied point is "US stocks are currently better on a risk adjusted basis, will remain better forever, and other stocks from other countries are not worth investing in, at least for a US domiciled investor".

Could be. Each does what they want. For me, I can't see why US won't someday be Japan, underperforming after overperformance. I also dislike the argument that US stocks give "enough" foreign exposure, because those arguing it don't specify even roughly how much foreign exposure they want. And if one doesn't so specify, how can one know it is "enough"? Heck, you could get "too much" foreign exposure from S&P 500, and should maybe tilt your US stocks to avoid so much of what is, from your point of view, unwanted exposure.
This is a great discussion, by the way. I appreciate all angles on this.

I posted my data entry to show what I was looking at. From these numbers I read that holding international funds since 1986 would have lowered CAGR and increased volatility, and reduced total portfolio value. Also someone had suggested I may be doing the numbers wrong, which is a fair question, so I'm showing my math to make sure I was doing it right.

And when I hear about total world portfolios beating US portfolios, I haven't found those numbers yet, but would like to if they are out there.

I understand that some years international stocks win out, just like some years differing asset clases win. But in the larger picture over time, based on portfoliovisualizer's math, it seems like international mix drags down a porfolio compared to Total US. I understand the theories about diversification. But in practice, I just don't see it doing what the theories say. I don't wish to diversify into something which has had historically trailing performance and increased risk, in the pursuit of theoretically lessening risk and increasing performance.

I am seeking to genuinely understand the issue. I'm not against international actually, but I do have these questions.

As to my recap of Vanguard's newsletter, yes I am just rephrasing their point... I'm sure they are much more tactful in their wording. But the consensus from the pundits is that international is the way to go.
Why arbitrarily choose 1986?

Why not choose 1968?

Dimson & Marsh have data back to 1900 or so.

bloom2708
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Location: Fargo, ND

Re: Why International again?

Post by bloom2708 » Fri Mar 09, 2018 11:23 am

As a lower limit, put 20% into Total International.

You get 6,800 additional stocks and now participate in the full market. If you have Total US and Total US Bond. You bought the haystack.

You can't know the future. You can't know if US or International will be optimal. You can't know. Buy them both.
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

dbr
Posts: 27207
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Re: Why International again?

Post by dbr » Fri Mar 09, 2018 11:27 am

InvestInLife wrote:
Fri Mar 09, 2018 10:56 am

As to my recap of Vanguard's newsletter, yes I am just rephrasing their point... I'm sure they are much more tactful in their wording. But the consensus from the pundits is that international is the way to go.
You didn't just rephrase the point. You distorted it to something not even remotely what they said. The concern here is not just your understanding but other readers coming to this forum and getting a wrong idea from this.

User avatar
zonto
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Location: Boston, MA

Re: Why International again?

Post by zonto » Fri Mar 09, 2018 11:32 am

I'll throw my $0.02 into the billionth thread on the topic. These are some of my favorite sources, in addition to the quilts posted above.

Global Diversification: Accepting Good Enough to Avoid Terrible - A Wealth of Common Sense
Diversification is about accepting good enough while missing out on great but avoiding terrible.

The Benefit of International Diversification - Novel Investor
A little over half the time (24 of 45 years) [either US or international equity markets] outperformed the other by at least 10%. Put another way, at least half the time, one market underperformed the other by at least 10%.

Some of these are great returns beaten out by a better one. Some are low returns or losses being beaten. A random low return or loss will hurt, but it won’t destroy your chance to grow money. The risk is being hit with a string of low returns and/or losses, which has happened before – the U.S. stock market saw several 5 and 10 year periods, and one of 15 years, with little to no returns – and will likely happen again at some point.

This happens because markets go through cycles of great returns followed by poor returns. Sometimes those periods of poor returns last longer than expected.

Now, what happens if you start investing in U.S. stocks at the beginning of a period of poor returns? What if it lasts longer than you expect? What if your stock allocation, of only U.S. stocks, barely beats inflation or worse doesn’t beat inflation over the next decade?

There is always a risk that your stock allocation doesn’t cooperate, right when you need your money to grow. That risk grows if you rely on an overly concentrated stock allocation that has little to no return over a longer time period. Owning stocks from countries other than your own, lowers that risk over time.

As U.S. stock prices rise, the risk-return trade-off gets tricky - Vanguard
Even so, our five-year outlook for U.S. stocks is subdued at best, and the benefits of global diversification are particularly compelling because of better prospects for non-U.S. equity markets. Our simulations show that, under current market conditions, a globally diversified 60% stock/40% bond portfolio may offer return prospects that are on par with an all-U.S. equity portfolio, while having significantly less tail risk
“Diversification is about accepting good enough while missing out on great but avoiding terrible.” - Ben Carlson

chevca
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Re: Why International again?

Post by chevca » Fri Mar 09, 2018 11:34 am

Personally, I don't see a point in holding only 10% of your equities in INT. That's neither going to harm nor help much. So, why bother? Bump it up to at least 25% or 30% of equities, or stick with all US.

Dulocracy
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Location: Atlanta, GA

Re: Why International again?

Post by Dulocracy » Fri Mar 09, 2018 12:28 pm

arcticpineapplecorp. wrote:
Thu Mar 08, 2018 10:15 pm
here's a good reason:

it's called the "randomness of global equity returns" page 40 of the DFA matrix book 2017:

https://www.ifa.com/pdf/matrix%20book%202017.pdf

Image

what do you see? That's right. The good 'ol USA was only the top dog once since 1997 (in 2014 to be exact). All other years, there was some other country(ies) that did better. Don't you want some of that?
This is the answer. I am stealing your post for a discussion with a friend about this issue. Thanks!
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

2015
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Re: Why International again?

Post by 2015 » Fri Mar 09, 2018 1:17 pm

International/No international is yet another circular debate here with people whirling their time around it like water going down the drain in a bathtub. I really, really like the signature that cfs has with respect to any of these debates/decisions.

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