Why International again?

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Tycoon
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Re: Why International again?

Post by Tycoon » Fri May 04, 2018 3:57 pm

Shikoku wrote:
Mon Mar 12, 2018 6:03 am
This is why...
Image
Source: https://nationwidefinancial.com/media/p ... 2224AO.pdf
I'm always suspicious of a graph with a vertical axis that doesn't start at zero.
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guyesmith
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Re: Why International again?

Post by guyesmith » Fri May 04, 2018 3:59 pm

SimpleGift wrote:
Fri May 04, 2018 3:43 pm
guyesmith wrote:
Fri May 04, 2018 3:23 pm
It seems odd to me the weighted cap by country in this study is MUCH MUCH different than what is weighted in FTSE Global All Cap Index (which is tracked by VT/VTWSX). It gives 52% to the US and your link gives 38%. Any idea why?
The FTSE Global All Cap Index includes only free-float shares from a country's stock market (i.e., it excludes those shares not freely investable, which are held by private family groups, government agencies, other corporations, etc.) — while the World Federation of Exchanges data includes all shares on a country's domestic stock market.

Because the U.S. has a much higher percentage of free-float shares generally than other stock markets around the world, its market-cap weighting is therefore higher in the FTSE Index — at least that's how I understand it.
Interesting! Thanks for exposing that. Does that mean VTSAX has more or less US stocks than Total World since it’s not free-float?

Edit: explaining not exposing :D

gluskap
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Re: Why International again?

Post by gluskap » Fri May 04, 2018 4:00 pm

I'm probably in the minority but I don't hold any international for the reasons below:

I have VTSAX which I believe is diversified enough because it holds a lot of international companies.
The only thing simpler than a 3 fund portfolio is a 2 fund portfolio. I just don't think the extra expense and complexity are worth the little bit extra in diversification that I get in return. This is a subjective call. I don't think there is a huge difference either way and when not sure I tend to follow Occam's razor and go with the simpler option.

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SimpleGift
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Re: Why International again?

Post by SimpleGift » Fri May 04, 2018 4:16 pm

guyesmith wrote:
Fri May 04, 2018 3:59 pm
Does that mean VTSAX has more or less US stocks than Total World since it’s not free-float?
I think you'll find that Vanguard's Total Stock Market Index is also a free-float index:
Vanguard wrote:Vanguard Total Stock Market Index Fund seeks to track the investment performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq.
For the U.S., it really doesn't matter so much, since 95% of the market cap of listed companies is free-float (table below). But for other MSCI cap-weighted indexes around the world, the percentage of free-float is much less:
Cordially, Todd

chatbotte
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Re: Why International again?

Post by chatbotte » Fri May 04, 2018 4:49 pm

guyesmith wrote:
Fri May 04, 2018 3:23 pm
Thank you for sharing this. Great doc.

It seems odd to me the weighted cap by country in this study is MUCH MUCH different than what is weighted in FTSE Global All Cap Index (which is tracked by VT/VTWSX). It gives 52% to the US and your link gives 38%. Any idea why?
guyesmith,

I think the tangency portfolio in the chart has 40 percent international equities in it, or 60 percent U.S. equities: "As illustrated in the chart above, an allocation of 40% international stocks produced the highest annualized return over this period at the lowest amount of risk." That's pretty close to what VT is holding at the moment.

carofe
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Re: Why International again?

Post by carofe » Tue May 08, 2018 6:08 pm

Also, take into account that the Efficient Frontier is "over this period". The EF graph can change depending on the period. In fact, there have been cases where the "recommended" allocation according to EF didn't go that well in the following period.
Jack Bogle has a good analysis about EF in his Common Sense on Mutual Fund Book.
US Total Stock Market + Intermediate Term Bond. That's it.

columbia
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Re: Why International again?

Post by columbia » Tue May 08, 2018 6:29 pm

Looking over the allocation for VSMGX, which would be a perfectly reasonable buy and hold for life fund:
https://personal.vanguard.com/us/funds/ ... true#tab=2

Between stocks and bonds, just a touch over 36% is ex-US. That certainly seems reasonable, aside from whether one thinks it’s necessary.

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oldzey
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Re: Why International again?

Post by oldzey » Tue May 08, 2018 6:33 pm

0% international works for me. :beer
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

guyesmith
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Re: Why International again?

Post by guyesmith » Tue May 08, 2018 9:34 pm

chatbotte wrote:
Fri May 04, 2018 4:49 pm
guyesmith wrote:
Fri May 04, 2018 3:23 pm
Thank you for sharing this. Great doc.

It seems odd to me the weighted cap by country in this study is MUCH MUCH different than what is weighted in FTSE Global All Cap Index (which is tracked by VT/VTWSX). It gives 52% to the US and your link gives 38%. Any idea why?
guyesmith,

I think the tangency portfolio in the chart has 40 percent international equities in it, or 60 percent U.S. equities: "As illustrated in the chart above, an allocation of 40% international stocks produced the highest annualized return over this period at the lowest amount of risk." That's pretty close to what VT is holding at the moment.
Thank you

hilink73
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Re: Why International again?

Post by hilink73 » Tue May 08, 2018 11:39 pm

oldzey wrote:
Tue May 08, 2018 6:33 pm
0% international works for me. :beer
0% international works for me, at the moment.

Fixed that for you.


Would you like to explain why you think betting on one single economy is a wise strategy?
Or why you think it will work for you?

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JoMoney
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Re: Why International again?

Post by JoMoney » Wed May 09, 2018 12:11 am

hilink73 wrote:
Tue May 08, 2018 11:39 pm
oldzey wrote:
Tue May 08, 2018 6:33 pm
0% international works for me. :beer
0% international works for me, at the moment.

Fixed that for you.


Would you like to explain why you think betting on one single economy is a wise strategy?
Or why you think it will work for you?
Pretty sure oldzey was talking about investing in a broad U.S. market index, which is different than saying "betting on one single economy" as if all economies were the same (they're not), or as if companies traded primarily within a single countries stock exchange were limited to a single countries economy (they're not).

Image
https://personal.vanguard.com/pdf/icrrhb.pdf
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fortyofforty
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Re: Why International again?

Post by fortyofforty » Wed May 09, 2018 6:22 am

columbia wrote:
Tue May 08, 2018 6:29 pm
Looking over the allocation for VSMGX, which would be a perfectly reasonable buy and hold for life fund:
https://personal.vanguard.com/us/funds/ ... true#tab=2

Between stocks and bonds, just a touch over 36% is ex-US. That certainly seems reasonable, aside from whether one thinks it’s necessary.
When I am pressed to recommend "one fund to rule them all" I usually choose one of the LifeStrategy Funds. For younger folks, it's LS Growth. Start early. Don't worry about allocations. Just keep putting your money away and let time and the markets do the rest. Moderate Growth is a perfectly reasonable choice, although I wish the expense ratio were a tad bit lower.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

Bacchus01
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Re: Why International again?

Post by Bacchus01 » Wed May 09, 2018 7:17 am

hilink73 wrote:
Tue May 08, 2018 11:39 pm
oldzey wrote:
Tue May 08, 2018 6:33 pm
0% international works for me. :beer
0% international works for me, at the moment.

Fixed that for you.


Would you like to explain why you think betting on one single economy is a wise strategy?
Or why you think it will work for you?
Because it’s not betting on one single economy. Not even close

chatbotte
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Re: Why International again?

Post by chatbotte » Wed May 09, 2018 7:32 am

hilink73 wrote:
Tue May 08, 2018 11:39 pm
oldzey wrote:
Tue May 08, 2018 6:33 pm
0% international works for me. :beer
0% international works for me, at the moment.

Fixed that for you.


Would you like to explain why you think betting on one single economy is a wise strategy?
Or why you think it will work for you?
hilink73,

I'm with you, but maybe you should be the one to do the explaining for oldzey, if you want to convince oldzey that you're right. :) So why is it not a wise strategy? The U.S. is a huge, and I mean a HUGE market. Biggest market in the world by a galactic margin. :) Highly diversified (3500+). Highly liquid. No political risk whatsoever. SEC oversight. And so on and so forth. No need to hold international.

Agggm
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Re: Why International again?

Post by Agggm » Wed May 09, 2018 7:39 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
+1

Gauntlet
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Re: Why International again?

Post by Gauntlet » Wed May 09, 2018 8:10 am

By adding international diversification an investor gets an additional 6,000 companies including great companies like Samsung and Toyota, and companies in economies that will likely be the largest in the world during this century (China and India). Not to mention that adding international diversification has become very inexpensive and convenient. Why fight it?

guyesmith
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Re: Why International again?

Post by guyesmith » Wed May 09, 2018 8:13 am

Agggm wrote:
Wed May 09, 2018 7:39 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
Thanks for sharing this!

Paper conclusion:

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. Although finance theory dictates
that an upper asset allocation limit should be based
on the global market capitalization for international
equities (currently approximately 51%), we have
demonstrated that international allocations exceeding
40% have not historically added significant additional
diversification benefits, particularly accounting for
costs.
For many investors, an allocation between
20% and 40% should be considered reasonable,
given the historical benefits of diversification.
Allocations closer to 40% may be suitable for
those investors seeking to be closer to a marketproportional
weighting or for those who are hoping
to obtain potentially greater diversification benefits
and are less concerned with the potential risks and
higher costs. On the other hand, allocations closer
to 20% may be viewed as offering a greater balance
among the benefits of diversification, the risks of
currency volatility and higher U.S. to non-U.S. stock
correlations, investor preferences, and costs.

Interesting when thinking about the weighting of Total World (VT/VTWSX)

chatbotte
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Re: Why International again?

Post by chatbotte » Wed May 09, 2018 8:24 am

Gauntlet wrote:
Wed May 09, 2018 8:10 am
By adding international diversification an investor gets an additional 6,000 companies including great companies like Samsung and Toyota, and companies in economies that will likely be the largest in the world during this century (China and India). Not to mention that adding international diversification has become very inexpensive and convenient. Why fight it?
Gauntlet,

What do you need the additional 6,000 companies for? You're highly diversified if you invest in the U.S.

Valuethinker
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Re: Why International again?

Post by Valuethinker » Wed May 09, 2018 8:44 am

chatbotte wrote:
Wed May 09, 2018 8:24 am
Gauntlet wrote:
Wed May 09, 2018 8:10 am
By adding international diversification an investor gets an additional 6,000 companies including great companies like Samsung and Toyota, and companies in economies that will likely be the largest in the world during this century (China and India). Not to mention that adding international diversification has become very inexpensive and convenient. Why fight it?
Gauntlet,

What do you need the additional 6,000 companies for? You're highly diversified if you invest in the U.S.
You are playing Devils Advocate?

The answer is obvious. More diversification.

deltaneutral83
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Re: Why International again?

Post by deltaneutral83 » Wed May 09, 2018 8:58 am

chatbotte wrote:
Wed May 09, 2018 8:24 am
What do you need the additional 6,000 companies for? You're highly diversified if you invest in the U.S.
The chart above shows that with just 20% to Intl you'd have reduced your St. Dev. from 16.2 to 14.9 and your equity returns went from about 10.45% CAGR to roughly 10.38%. The past is the past, but Intl. could actually outperform the next 40 years from 2018-2058 and as of this moment it represents over half the world's market cap. We could also see Intl slide further into the abyss, I just see too many benefits vs. downside to having 20-25% Intl. I think this chart might be better if it included the market cap of US/Intl along the way.

Gauntlet
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Re: Why International again?

Post by Gauntlet » Wed May 09, 2018 9:28 am

chatbotte wrote:
Wed May 09, 2018 8:24 am
Gauntlet wrote:
Wed May 09, 2018 8:10 am
By adding international diversification an investor gets an additional 6,000 companies including great companies like Samsung and Toyota, and companies in economies that will likely be the largest in the world during this century (China and India). Not to mention that adding international diversification has become very inexpensive and convenient. Why fight it?
Gauntlet,

What do you need the additional 6,000 companies for? You're highly diversified if you invest in the U.S.
I would argue that if I only owned U.S. companies that I am not "highly" diversified because I would be missing half of the world's companies. As is often said on this board, there are many roads to Dublin and one would probably be fine investing in nothing but the S&P 500 and CDs. However, the arguments for diversifying into international equity markets seem overwhelming strong to me.

MnD
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Re: Why International again?

Post by MnD » Wed May 09, 2018 10:33 am

$30 trillion in wealth is going to transfer to millennials from baby-boomers checking out over the next 30 years. Younger investors don't have nearly the "US good foreign risky-bad" mindset that many baby-boomers have from growing up during the cold war and other formative year experiences. Regardless of those that still persist with "US is all you need" investing viewpoint, you can't stop the march of time and trillions of dollars that by generational transfer will be flowing into reasonable international allocations via target date funds, robo-advisors and one-fund equity solutions like Total World.

I like being positioned at global market cap now - in a good spot to ride the wave. 8-)
http://www.pewresearch.org/fact-tank/20 ... y-boomers/
Image

chatbotte
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Re: Why International again?

Post by chatbotte » Wed May 09, 2018 12:09 pm

Gauntlet wrote:
Wed May 09, 2018 9:28 am
chatbotte wrote:
Wed May 09, 2018 8:24 am
Gauntlet wrote:
Wed May 09, 2018 8:10 am
By adding international diversification an investor gets an additional 6,000 companies including great companies like Samsung and Toyota, and companies in economies that will likely be the largest in the world during this century (China and India). Not to mention that adding international diversification has become very inexpensive and convenient. Why fight it?
Gauntlet,

What do you need the additional 6,000 companies for? You're highly diversified if you invest in the U.S.
I would argue that if I only owned U.S. companies that I am not "highly" diversified because I would be missing half of the world's companies. As is often said on this board, there are many roads to Dublin and one would probably be fine investing in nothing but the S&P 500 and CDs. However, the arguments for diversifying into international equity markets seem overwhelming strong to me.
Gauntlet,

You don't have to hold the global portfolio of all assets in order to hold your optimum portfolio. As Bill Sharpe put it in his book Investors and Markets: "While few investors would be well advised to invest solely in the world market portfolio, extensive diversification is still highly desirable."

So to me, not holding half of the world's companies is not necessarily the sign of a lack of diversification or the sign of a suboptimal portfolio. I think you're overextrapolating the logic of Bill Sharpe's CAPM and taking too extreme a viewpoint. Or, to put it even better, you wrongly assume that asset pricing and portfolio choice are synonymous.

hilink73
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Re: Why International again?

Post by hilink73 » Wed May 09, 2018 12:53 pm

chatbotte wrote:
Wed May 09, 2018 12:09 pm
So to me, not holding half of the world's companies is not necessarily the sign of a lack of diversification or the sign of a suboptimal portfolio. I think you're overextrapolating the logic of Bill Sharpe's CAPM and taking too extreme a viewpoint. Or, to put it even better, you wrongly assume that asset pricing and portfolio choice are synonymous.
No, it's more a sign of a very shortsighted strategy and maybe a sign of missed history lessons in school.

One single government, one single point of failure.

Just to name a few former world powers: Spain, Portugal, Great Britain, Germany, France.

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oldzey
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Re: Why International again?

Post by oldzey » Wed May 09, 2018 1:06 pm

The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSMX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VGTSX) was 4/29/1996.

Per Morningstar, as of 5/8/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,948 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,654 in your Total International Stock Index Fund.

Of course, past performance does not indicate future performance.

Image
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

columbia
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Re: Why International again?

Post by columbia » Wed May 09, 2018 1:31 pm

hilink73 wrote:
Wed May 09, 2018 12:53 pm
chatbotte wrote:
Wed May 09, 2018 12:09 pm
So to me, not holding half of the world's companies is not necessarily the sign of a lack of diversification or the sign of a suboptimal portfolio. I think you're overextrapolating the logic of Bill Sharpe's CAPM and taking too extreme a viewpoint. Or, to put it even better, you wrongly assume that asset pricing and portfolio choice are synonymous.
No, it's more a sign of a very shortsighted strategy and maybe a sign of missed history lessons in school.

One single government, one single point of failure.

Just to name a few former world powers: Spain, Portugal, Great Britain, Germany, France.

Retired folks probably have a greater single point of failure to worry about about....

chatbotte
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Re: Why International again?

Post by chatbotte » Wed May 09, 2018 1:37 pm

hilink73 wrote:
Wed May 09, 2018 12:53 pm
chatbotte wrote:
Wed May 09, 2018 12:09 pm
So to me, not holding half of the world's companies is not necessarily the sign of a lack of diversification or the sign of a suboptimal portfolio. I think you're overextrapolating the logic of Bill Sharpe's CAPM and taking too extreme a viewpoint. Or, to put it even better, you wrongly assume that asset pricing and portfolio choice are synonymous.
No, it's more a sign of a very shortsighted strategy and maybe a sign of missed history lessons in school.

One single government, one single point of failure.

Just to name a few former world powers: Spain, Portugal, Great Britain, Germany, France.
hilink73,

Nice theory. Doesn't really answer the question of how much international you should hold if you're a U.S. investor though. Not very quantitative, to say the least, and possibly the wrong investment theory altogether.

columbia
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Re: Why International again?

Post by columbia » Wed May 09, 2018 1:40 pm

oldzey wrote:
Wed May 09, 2018 1:06 pm
The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSMX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VGTSX) was 4/29/1996.

Per Morningstar, as of 5/8/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,948 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,654 in your Total International Stock Index Fund.

Of course, past performance does not indicate future performance.

Image
Per Portfolio Visualizer since Jan 1986:

US: $236,704
Int: $96,413

That’s shockingly not close.

guyesmith
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Re: Why International again?

Post by guyesmith » Wed May 09, 2018 1:45 pm

columbia wrote:
Wed May 09, 2018 1:40 pm
oldzey wrote:
Wed May 09, 2018 1:06 pm
The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSMX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VGTSX) was 4/29/1996.

Per Morningstar, as of 5/8/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,948 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,654 in your Total International Stock Index Fund.

Of course, past performance does not indicate future performance.

Image
Per Portfolio Visualizer since Jan 1986:

US: $236,704
Int: $96,413

That’s shockingly not close.
Wow! Seems to me there is an awful lot of speculation and hopeful thinking in order to convince ourselves we need international. We can find charts to prove it strong either way. At the end of the day an informed investor either hopes the US kills it for 40 more years or speculates the ex-US world overtakes the US. Oh the turmoil! lol

Edit: If we all simply buy the weighted market (Vanguard Total World Stock Index, VT, VTWSX) we could sleep at night. But! What if? What if...my fear of missing out causes me to lose hundreds of thousands by age 70?

deltaneutral83
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Re: Why International again?

Post by deltaneutral83 » Wed May 09, 2018 1:58 pm

columbia wrote:
Wed May 09, 2018 1:40 pm
oldzey wrote:
Wed May 09, 2018 1:06 pm
The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSMX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VGTSX) was 4/29/1996.

Per Morningstar, as of 5/8/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,948 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,654 in your Total International Stock Index Fund.

Of course, past performance does not indicate future performance.

Image
Per Portfolio Visualizer since Jan 1986:

US: $236,704
Int: $96,413

That’s shockingly not close.
With nearly all of the difference being since the trough of March 2009. 1996-2008 was pretty close. This is actually a reason to load up on Intl now if you believe that whole reversion to the mean.

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Hyperborea
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Re: Why International again?

Post by Hyperborea » Wed May 09, 2018 2:01 pm

Why all this talk about US total market? It's shockingly obvious that US small cap value has done far better. Just over the last 19 years NAESX (Vanguard Small Cap Value) has returned almost double that of VTSMX (Vanguard Total US). It's blindingly obvious which one of those one should have been invested in. NAESX turned $10K into over $60K while VTSMX only returned less than $34K. If you could invest in 1999 right now we all know which one would do best.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

rudeboy
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Re: Why International again?

Post by rudeboy » Wed May 09, 2018 2:06 pm

oldzey wrote:
Wed May 09, 2018 1:06 pm
The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSMX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VGTSX) was 4/29/1996.

Per Morningstar, as of 5/8/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,948 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,654 in your Total International Stock Index Fund.

Of course, past performance does not indicate future performance.

Image
The problem with this debate is that facts don't help. One person can look at this chart and say, "The US has done better in the past and therefore is likely to do better in the future." Another can look at the same chart and say, "The US has done better in the past and therefore is likely to do worse in the future."

aristotelian
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Re: Why International again?

Post by aristotelian » Wed May 09, 2018 2:59 pm

Everyone knows that the US has outperformed the world in recent history. You don't need a chart to prove that. The reason to hold international is to hedge against a Black Swan event in which that is no longer the case.

rudeboy
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Re: Why International again?

Post by rudeboy » Wed May 09, 2018 3:25 pm

aristotelian wrote:
Wed May 09, 2018 2:59 pm
Everyone knows that the US has outperformed the world in recent history. You don't need a chart to prove that. The reason to hold international is to hedge against a Black Swan event in which that is no longer the case.
I hold international because I expect a reversion to the mean for US stocks. That's the exact opposite of a Black Swan event (although it might feel like one to a US-only investor).

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ReformedSpender
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Re: Why International again?

Post by ReformedSpender » Wed May 09, 2018 3:44 pm

In their 2018 market outlook, Vanguard specifically highlights expected returns for non-U.S. equity markets in the
5.5%–7.5% range, modestly higher than that of U.S. equity (3 - 5%) due to valuations and equity risk premium.

Personally, international does not need to be a significant portion of one's portfolio but believe every little bit of diversification helps.

:beer
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

lostdog
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Re: Why International again?

Post by lostdog » Wed May 09, 2018 4:32 pm

MnD wrote:
Wed May 09, 2018 10:33 am
$30 trillion in wealth is going to transfer to millennials from baby-boomers checking out over the next 30 years. Younger investors don't have nearly the "US good foreign risky-bad" mindset that many baby-boomers have from growing up during the cold war and other formative year experiences. Regardless of those that still persist with "US is all you need" investing viewpoint, you can't stop the march of time and trillions of dollars that by generational transfer will be flowing into reasonable international allocations via target date funds, robo-advisors and one-fund equity solutions like Total World.

I like being positioned at global market cap now - in a good spot to ride the wave. 8-)
http://www.pewresearch.org/fact-tank/20 ... y-boomers/
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Vanguard Total World Equity Index - The rational portfolio

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spdoublebass
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Re: Why International again?

Post by spdoublebass » Wed May 09, 2018 4:54 pm

The problem with these types of threads is that everyone talks past one another.

Words like best, need, even diversification are all relative.

Will one be ok with only TSM? Probably.

Is TSM diversified? Yes.

Is adding International to TSM increasing your diversification? Yes.

Does added diversification equal higher returns? No. It might, but it might not.

I think people read diversification as “is going to outperform”.

But I really don’t know nothing so I should probably stop now and let the others debate.
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Re: Why International again?

Post by LadyGeek » Wed May 09, 2018 6:35 pm

I removed a few off-topic posts. As a reminder, see: Politics and Religion
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Re: Why International again?

Post by chatbotte » Wed May 09, 2018 7:02 pm

spdoublebass wrote:
Wed May 09, 2018 4:54 pm
The problem with these types of threads is that everyone talks past one another.

Words like best, need, even diversification are all relative.

Will one be ok with only TSM? Probably.

Is TSM diversified? Yes.

Is adding International to TSM increasing your diversification? Yes.

Does added diversification equal higher returns? No. It might, but it might not.

I think people read diversification as “is going to outperform”.

But I really don’t know nothing so I should probably stop now and let the others debate.
spdoublebass,

Re higher returns on international: If what MnD writes and lostdog applauds is true, and U.S. investors have started to buy more international stocks than before, then without an offsetting change in the behavior of international investors, valuations of international stocks will have gone up, driving down international returns. That's what home bias reduction will have done. So the past CAGR of international stocks would overstate actual expected returns in that scenario.

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Re: Why International again?

Post by spdoublebass » Wed May 09, 2018 7:13 pm

chatbotte wrote:
Wed May 09, 2018 7:02 pm


Re higher returns on international
I never stated that International would have higher returns.

All I said was that adding international adds diversification.

People seem to think diversification leads to greater return. It doesn't, they may still want to add International because they want more Diversification. The title of this thread is Why International. Some answer this questions by saying "I want more diversification", then others respond with I don't need it, I'm diversified enough with TSM.
My point is both statements can be true at the same time. Neither has anything to do with superior returns.
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Re: Why International again?

Post by chatbotte » Wed May 09, 2018 7:16 pm

spdoublebass wrote:
Wed May 09, 2018 7:13 pm
chatbotte wrote:
Wed May 09, 2018 7:02 pm


Re higher returns on international
I never stated that International would have higher returns.

All I said was that adding international adds diversification.

People seem to think diversification leads to greater return. It doesn't, they may still want to add International because they want more Diversification. The title of this thread is Why International. Some answer this questions by saying "I want more diversification", then others respond with I don't need it, I'm diversified enough with TSM.
My point is both statements can be true at the same time. Neither has anything to do with superior returns.
You asked "Does added diversification equal higher returns?" and replied "No. It might, but it might not." So I'm saying it might not, and possibly will not, looking at figures in this thread that are not my own, but supposedly prove the benefits of going international with at least 20 percent of your ptf.

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Re: Why International again?

Post by spdoublebass » Wed May 09, 2018 7:22 pm

chatbotte wrote:
Wed May 09, 2018 7:16 pm
spdoublebass wrote:
Wed May 09, 2018 7:13 pm
chatbotte wrote:
Wed May 09, 2018 7:02 pm


Re higher returns on international
I never stated that International would have higher returns.

All I said was that adding international adds diversification.

People seem to think diversification leads to greater return. It doesn't, they may still want to add International because they want more Diversification. The title of this thread is Why International. Some answer this questions by saying "I want more diversification", then others respond with I don't need it, I'm diversified enough with TSM.
My point is both statements can be true at the same time. Neither has anything to do with superior returns.
You asked "Does added diversification equal higher returns?" and replied "No. It might, but it might not." So I'm saying it might not, and possibly will not, looking at figures in this thread that are not my own, but supposedly prove the benefits of going international with at least 20 percent of your ptf.

Sorry, I see what you're saying now.
I'm trying to think, but nothing happens

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Re: Why International again?

Post by columbia » Wed May 09, 2018 7:35 pm

deltaneutral83 wrote:
Wed May 09, 2018 1:58 pm
columbia wrote:
Wed May 09, 2018 1:40 pm
oldzey wrote:
Wed May 09, 2018 1:06 pm
The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSMX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VGTSX) was 4/29/1996.

Per Morningstar, as of 5/8/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,948 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,654 in your Total International Stock Index Fund.

Of course, past performance does not indicate future performance.

Image
Per Portfolio Visualizer since Jan 1986:

US: $236,704
Int: $96,413

That’s shockingly not close.
With nearly all of the difference being since the trough of March 2009. 1996-2008 was pretty close. This is actually a reason to load up on Intl now if you believe that whole reversion to the mean.
I suppose it also depends on what one means by “reversion to the mean.” Do I expect international to ever outstrip the returns of the US - the largest and most stable market on the globe - in a similar fashion in my lifetime? I do not and I don’t think that anyone would expect that to happen in the next 30-40 years.

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Re: Why International again?

Post by fortyofforty » Wed May 09, 2018 8:40 pm

Until the worm turns, this debate will have no final outcome. If the worm doesn't turn...
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Re: Why International again?

Post by MnD » Wed May 09, 2018 8:56 pm

I've been listening to this "all you need" argument for decades.
All you need is a small basket of carefully selected blue-chip dividend stocks.
All you need is S&P 500.
All you need is US stocks large and small.
All you need is heavily tilted US portfolio with an underweighted ex-US allocation.

The next time ex-US has a run like 2002-2007 hopefully we can move on to the next "all you need" argument of the dinosaurs! :mrgreen:

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Re: Why International again?

Post by columbia » Wed May 09, 2018 9:06 pm

MnD wrote:
Wed May 09, 2018 8:56 pm
I've been listening to this "all you need" argument for decades.
All you need is a small basket of carefully selected blue-chip dividend stocks.
All you need is S&P 500.
All you need is US stocks large and small.
All you need is heavily tilted US portfolio with an underweighted ex-US allocation.

The next time ex-US has a run like 2002-2007 we can move on to the next "all you need" argument of the dinosaurs! :mrgreen:

Can’t wait to pile in to a small cap value, frontier markets fund, which we’ll supposedly *need*.

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Re: Why International again?

Post by randomguy » Wed May 09, 2018 9:35 pm

Over the past 10 years
Energy has returned .54%
Communiction has returned 5.99%
Consumer discrentionary 13.77%
Healthcare 12.6%
IT 13.2%

Why should I invest in the whole market instead of just picking the sectors that have done the best over the past 10 years?:)

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Re: Why International again?

Post by aristotelian » Wed May 09, 2018 9:55 pm

rudeboy wrote:
Wed May 09, 2018 3:25 pm

I hold international because I expect a reversion to the mean for US stocks. That's the exact opposite of a Black Swan event (although it might feel like one to a US-only investor).
Reversion to mean would be OK. My worry is a Japan scenario.

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Re: Why International again?

Post by oldzey » Wed May 09, 2018 10:20 pm

"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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Re: Why International again?

Post by confusedinvestor » Thu May 10, 2018 12:34 am

Did you run your PV analysis as if you are a Japanese investor living in Japan with a country bias ?

Japanese investor who invested in global porfolios (meaning having some US stocks) finally survived and maybe Vanguard has the perfect crystal ball that US will become Japan at some point during our lifetime ...
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.

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