The "American companies I invest in already have international exposure" argument --- valid or not?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Doc
Posts: 8372
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Doc » Wed Apr 04, 2018 12:14 pm

Noobvestor wrote:
Wed Apr 04, 2018 12:01 pm
As it happens, I tilt toward small, value and emerging markets, but I also hold a 'core' of Total Stock and Total International - i.e. I approached it from a baseline of global investing. So ask yourself not 'Is US investing enough?' but rather 'Why should I concentrate my investments politically, economically and geographically?'
Ok, you tilt to small, value and EM. What is the reasoning for the core portion being Total Stock and Total International and not Large Cap Blend US and Large Cap Developed foreign.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

User avatar
stemikger
Posts: 4846
Joined: Thu Apr 08, 2010 5:02 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by stemikger » Wed Apr 04, 2018 5:09 pm

Posted by Noobvestor
Doesn't make sense to me. Because you made the decision a long time ago, you just stick with it? I guess in hindsight that's probably worked out for you, but will it going forward? Do you consider new bonds (e.g. TIPS) when they come out, or just stick with the same fund at all costs?

To those folks still arguing 'but they're highly correlated!' read up and see how little that mattered to a Japanese investor. We've had two decades of high correlation (around .75), yet a Japanese investor saw around 1/10th the returns (worse if you go back a few more years). As I am every time this debate comes up, I'm struck by how much people try to justify a position they reach emotionally with retroactive arguments, then ignore (or pivot to US exceptionalism when confronted with) real-world examples of this strategy failing horribly in actual, real-world examples.
I think if someone simply held a basic 60/40 balanced fund for most of their mid to later investing years and that is what enabled them to stop trying to figure out what the future is going to do will do just fine. I personally think if the U.S. does fail, the other international countries are not going to do well either. I'm sure there will be many strategies that will do better than the plain vanilla all U.S. 60/40 balanced fund, but the number of funds that will do worse is a long, long list. No one knows the future and I truly believe adding international is not the deal breaker the professionals want us to believe.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

User avatar
triceratop
Moderator
Posts: 5468
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by triceratop » Wed Apr 04, 2018 5:49 pm

stemikger wrote:
Wed Apr 04, 2018 5:09 pm
Posted by Noobvestor
Doesn't make sense to me. Because you made the decision a long time ago, you just stick with it? I guess in hindsight that's probably worked out for you, but will it going forward? Do you consider new bonds (e.g. TIPS) when they come out, or just stick with the same fund at all costs?

To those folks still arguing 'but they're highly correlated!' read up and see how little that mattered to a Japanese investor. We've had two decades of high correlation (around .75), yet a Japanese investor saw around 1/10th the returns (worse if you go back a few more years). As I am every time this debate comes up, I'm struck by how much people try to justify a position they reach emotionally with retroactive arguments, then ignore (or pivot to US exceptionalism when confronted with) real-world examples of this strategy failing horribly in actual, real-world examples.
I think if someone simply held a basic 60/40 balanced fund for most of their mid to later investing years and that is what enabled them to stop trying to figure out what the future is going to do will do just fine. I personally think if the U.S. does fail, the other international countries are not going to do well either. I'm sure there will be many strategies that will do better than the plain vanilla all U.S. 60/40 balanced fund, but the number of funds that will do worse is a long, long list. No one knows the future and I truly believe adding international is not the deal breaker the professionals want us to believe.
Two things.

1) it’s important to separate what you can prove from what you believe. I can prove holding international stocks makes one more diversified. In the past for some investors in some countries this has made an enormous difference. Notice their feelings had nothing to do with their outcome. Conversely I doubt you can prove anything about your personal feelings on future behavior of international stocks in a world of declining US dominance other than that you do in fact feel them. They’re just opinions.

2) it’s important to separate what is a probably-okay plan which has a reasonable expectation of outperforming most fund and a plan which is just as cheap and executes on the same principles of low-cost buy and hold investing in a superior way (superior here meaning it fulfills the principles in a more complete way — the operating principle being maximal equity diversification). It doesn’t convince one of anything to say a 60/40 balanced portfolio will probably do fine. I agree with you! That’s not where the disagreement lies so it’s strange to state it as an offer of proof.

3) I view with great skepticism arguments that dismiss an investment strategy because “the professionals want us to do this”. No, there are many independent Bogleheads making this same argument. It’s anti-intellectual to dismiss academics and researchers trying to search for better portfolios for investors because of their profession. Critique biases, ideas, not status, IMO.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
JoMoney
Posts: 5371
Joined: Tue Jul 23, 2013 5:31 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by JoMoney » Wed Apr 04, 2018 7:47 pm

Here are things I know about International stocks that are aside from any 'feelings' :
As a foreign person I have little to no legal recourse or voting rights with regard to 'international' securities, I'm not even legally able to "own" the companies in many foreign places. Through a series of agreements between international banks (and some fees muddied into the process), or sometimes through shell-companies operating as holding companies, some foreign entity acts as an intermediary that says they'll act on my behalf. This derivative process creates additional risks (and costs) for the foreigner buying these securities that don't exist for someone buying in their domestic market.
Similarly with currency risks when the asset is denominated in a currency other than what you spend in, there is additional volatility involved with no compensation for bearing the risk. ... and the sovereign activities of foreign governments, when times are hard, will almost always be more beneficial and looking out for the interests of their own citizens than to foreign "investors" ... and taxes, there are tax concerns and situations that are again usually more beneficial for citizens of a country to own domestic.
There are legitimate risks and expenses that an 'international investor' is exposed to that a domestic one isn't. When academics look at 'global market weights' as people actually hold them, not just as some broad average that doesn't represent any individual, they find that there is a very strong preference for people to hold more than 'global market weights' in their own country. Despite the claims of some that this is some 'irrational home-bias' there may be very rational reasons for doing so.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
Noobvestor
Posts: 4690
Joined: Mon Aug 23, 2010 1:09 am
Contact:

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Noobvestor » Wed Apr 04, 2018 8:23 pm

stemikger wrote:
Wed Apr 04, 2018 5:09 pm
Posted by Noobvestor

To those folks still arguing 'but they're highly correlated!' read up and see how little that mattered to a Japanese investor. We've had two decades of high correlation (around .75), yet a Japanese investor saw around 1/10th the returns (worse if you go back a few more years). As I am every time this debate comes up, I'm struck by how much people try to justify a position they reach emotionally with retroactive arguments, then ignore (or pivot to US exceptionalism when confronted with) real-world examples of this strategy failing horribly in actual, real-world examples.
I think if someone simply held a basic 60/40 balanced fund for most of their mid to later investing years and that is what enabled them to stop trying to figure out what the future is going to do will do just fine. I personally think if the U.S. does fail, the other international countries are not going to do well either. I'm sure there will be many strategies that will do better than the plain vanilla all U.S. 60/40 balanced fund, but the number of funds that will do worse is a long, long list. No one knows the future and I truly believe adding international is not the deal breaker the professionals want us to believe.
If you believe that the US can't underperform dramatically (like Japan did) for decades, that's US exceptionalism. I am sure there's nothing I can say to convince you it can happen here too, but we should be clear about what you're saying. You can 'believe' all you want that international won't be a deal-breaker, but that doesn't make it true, and we have real historical examples in which it has been critically important.

But OK: if you're far enough along in your saving and investing career that you can afford a few decades of flat returns, then you're probably right - it won't break you if that scenario materializes. But then you're just making a case for an outlier portfolio that doesn't need actual returns. In which case, that's fine for you, but dangerous for other forum investors who are reading these threads and might follow your lead.
Doc wrote:
Wed Apr 04, 2018 12:14 pm
Noobvestor wrote:
Wed Apr 04, 2018 12:01 pm
As it happens, I tilt toward small, value and emerging markets, but I also hold a 'core' of Total Stock and Total International - i.e. I approached it from a baseline of global investing. So ask yourself not 'Is US investing enough?' but rather 'Why should I concentrate my investments politically, economically and geographically?'
Ok, you tilt to small, value and EM. What is the reasoning for the core portion being Total Stock and Total International and not Large Cap Blend US and Large Cap Developed foreign.
For all the reasons total-market indexing makes sense as a default (plenty of books on this, and forum threads). Not sure I understand why you would ask about Large Cap Blend and Large Cap Developed - these are less diversified, would have higher turnover, might have higher costs (not sure). Why not start with the set of broadest total-world-market funds? To avoid overlap (which doesn't matter) at the expense of efficiency?

Or perhaps you're asking in a roundabout way why I tilt toward small, value and emerging rather than large and developed? If so: there are cases to be made that these have higher risks and potential rewards, and small/value in particular move somewhat independently of beta. Again, there are books on these subjects. But regardless, despite my tilts, I have more diversification than an only-US portfolio would.
JoMoney wrote:
Wed Apr 04, 2018 7:47 pm
Similarly with currency risks when the asset is denominated in a currency other than what you spend in, there is additional volatility involved with no compensation for bearing the risk. ... and the sovereign activities of foreign governments, when times are hard, will almost always be more beneficial and looking out for the interests of their own citizens than to foreign "investors" ... and taxes, there are tax concerns and situations that are again usually more beneficial for citizens of a country to own domestic.
Currency risk cuts both ways - there are risks to being 100% USD. But let's break down a typical portfolio (incidentally, this is also what I hold): 60/40 stocks/bonds, bonds in USD, half of stocks in USD. That's 70% of the portfolio in USD. I don't know what the optimal exposure is, but I like having 'most' of my money in USD, and 'some' of my money in a diversified set of other currencies to hedge USD decline.
JoMoney wrote:
Wed Apr 04, 2018 7:47 pm
There are legitimate risks and expenses that an 'international investor' is exposed to that a domestic one isn't. When academics look at 'global market weights' as people actually hold them, not just as some broad average that doesn't represent any individual, they find that there is a very strong preference for people to hold more than 'global market weights' in their own country. Despite the claims of some that this is some 'irrational home-bias' there may be very rational reasons for doing so.
Well, I suspect some of it is irrational, but it absolutely also makes rational sense that people in non-US countries would tilt more toward their home country. Let's take the UK, third-largest stock market in the world, and say you have a 60/40 portfolio (with GBP bonds). If you held global weights, you'd have less than half (46%) in GBP. Not sure where the line is, but obviously if currency is the driving concern, then if you're in any other country aside from the US there is a stronger argument for tilting toward your home country if you want to hold 'mostly' home currency.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Oddibe McDowell
Posts: 147
Joined: Fri May 18, 2007 10:40 pm

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Oddibe McDowell » Wed Apr 04, 2018 8:29 pm

JoMoney wrote:
Wed Apr 04, 2018 7:47 pm
Here are things I know about International stocks that are aside from any 'feelings' :
As a foreign person I have little to no legal recourse or voting rights with regard to 'international' securities, I'm not even legally able to "own" the companies in many foreign places. Through a series of agreements between international banks (and some fees muddied into the process), or sometimes through shell-companies operating as holding companies, some foreign entity acts as an intermediary that says they'll act on my behalf. This derivative process creates additional risks (and costs) for the foreigner buying these securities that don't exist for someone buying in their domestic market.
Similarly with currency risks when the asset is denominated in a currency other than what you spend in, there is additional volatility involved with no compensation for bearing the risk. ... and the sovereign activities of foreign governments, when times are hard, will almost always be more beneficial and looking out for the interests of their own citizens than to foreign "investors" ... and taxes, there are tax concerns and situations that are again usually more beneficial for citizens of a country to own domestic.
There are legitimate risks and expenses that an 'international investor' is exposed to that a domestic one isn't. When academics look at 'global market weights' as people actually hold them, not just as some broad average that doesn't represent any individual, they find that there is a very strong preference for people to hold more than 'global market weights' in their own country. Despite the claims of some that this is some 'irrational home-bias' there may be very rational reasons for doing so.
JoMoney - I always appreciate your well thought out posts.

Any thoughts on these costs. Too minor to fuss with or significant in your mind?

I have a question about foreign tax withholding in 401k’s and IRA’s.

It is my understanding that certain forgeign governments without a portion of dividends paid for taxes. In a “taxable” account, a US investor can use a foreign tax credit to offset what we would normally pay in US taxes. However, this is not available in a 401k or IRA. I assume this applies to both stock and bond funds - so it would apply to the Target Date funds?

From Jack Bogle’s Little Book, it seems that historically the return of the market depends on earnings growth and dividend yield.

How big of a drag is this on total returns?

is this enough to keep any of you from investing in international stock and international bond funds within your IRAs and 401k’s?

I’m curious if anyone uses this as rationale - or part of the analysis - to stick to U.S. funds only.

I’m just looking into this so I welcome any thoughts.

sschullo
Posts: 2404
Joined: Sun Apr 01, 2007 8:25 am
Location: Rancho Mirage, CA
Contact:

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by sschullo » Wed Apr 04, 2018 8:46 pm

I read JL Collins book and wrote a five-star review on Amazon. I remember thinking about the no international exposure and simply ignored his advice, as he keeped referring to Jack B throughout the book, which was a huge plus for me. I invest in all possible asset classes which are broadly diversified.

Collins also said one nutty suggestion such as to save "at least 50% of your income" for retirement. What? was my initial reaction, and I expressed that it was very discouraging because most people cannot max out the minimum let alone save 50%! (I never maxed out either). But I didn't realize that his audience was primarily young high-income earners. While I did not get any pushback on the International exposure, I got a lot of pushback on the 50% from the high earner millennials who want to be Financially Independent at 25-30 because they CAN save 50%. Good for the millennials!
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

User avatar
JoMoney
Posts: 5371
Joined: Tue Jul 23, 2013 5:31 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by JoMoney » Wed Apr 04, 2018 9:34 pm

Oddibe McDowell wrote:
Wed Apr 04, 2018 8:29 pm
...
Any thoughts on these costs. Too minor to fuss with or significant in your mind?...
I have a question about foreign tax withholding in 401k’s and IRA’s.

It is my understanding that certain forgeign governments without a portion of dividends paid for taxes. In a “taxable” account, a US investor can use a foreign tax credit to offset what we would normally pay in US taxes. However, this is not available in a 401k or IRA. I assume this applies to both stock and bond funds - so it would apply to the Target Date funds?
...
How big of a drag is this on total returns?
...
is this enough to keep any of you from investing in international stock and international bond funds within your IRAs and 401k’s?

I’m curious if anyone uses this as rationale - or part of the analysis - to stick to U.S. funds only.
...
From what I can tell the fees are pretty minor in aggregate, but it's not nothing and these things compound over long periods of time. Taxes are the bigger bite. For me personally, minor or not, I have the opportunity to invest in a low-cost well diversified U.S. portfolio which is good enough for me to not bother with dealing with a dedicated International allocation. I am not in the camp that more "diversification" for its own sake means better. I don't believe mixing a junk bond fund with a treasury bond fund lowers risk through "diversification". Whether or not it would increase "risk adjusted return" is another argument, but there's lots of nuance to that with regard to what is meant by "risk" in that context, and whether or not people have different "risk preferences" with regard to how much and what types of risk they're willing to hold.

As far as quantifying how much the foreign tax withholding amounts to, here's a chart of the MSCI EAFE 'Gross Return' Index (no tax withholding) and the MSCI EAFE 'Net Return' Index (with tax withholding)
Morningstar Link
Here's another using the MSCI ACWI ex.USA index
Morningstar Link
Last edited by JoMoney on Wed Apr 04, 2018 9:46 pm, edited 2 times in total.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Da5id » Wed Apr 04, 2018 9:42 pm

JoMoney wrote:
Wed Apr 04, 2018 7:47 pm
There are legitimate risks and expenses that an 'international investor' is exposed to that a domestic one isn't.
I suppose. Though domestic investors in US headquartered companies with international assets likewise face risks (nationalization, regulatory, whatever) and expenses at the whim of the countries in which business is done. US only investors face single country risk of the US becoming less friendly in whatever way to business interests as well, so that can cut both ways.
Last edited by Da5id on Wed Apr 04, 2018 9:47 pm, edited 1 time in total.

User avatar
triceratop
Moderator
Posts: 5468
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by triceratop » Wed Apr 04, 2018 9:46 pm

Some numbers from the above links by JoMoney:

For MSCI EAFE that corresponds to a 5.39% Gross vs 5.00% Net CAGR.

For MSCI ACWI ex. US that corresponds to a 5.47% Gross vs 5.01% Net CAGR.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

fennewaldaj
Posts: 156
Joined: Sun Oct 22, 2017 11:30 pm

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by fennewaldaj » Wed Apr 04, 2018 10:49 pm

JoMoney wrote:
Wed Apr 04, 2018 7:47 pm

There are legitimate risks and expenses that an 'international investor' is exposed to that a domestic one isn't. When academics look at 'global market weights' as people actually hold them, not just as some broad average that doesn't represent any individual, they find that there is a very strong preference for people to hold more than 'global market weights' in their own country. Despite the claims of some that this is some 'irrational home-bias' there may be very rational reasons for doing so.
I think the points you lay out make a reasonable case for people from non US coutries significantly overweighting there own country as if they did not there own countries equities are a tiny part of their portfolio. However in the US at market weight we already have 50% in the US. If you combine that with a US bond dominated portfolio in a 60/40 you really only have 30ish% foreign exposure. That hardly seems like something to get excessively worried about even if you are more worried about political risk than others are. If you moderately overweight the US to say 70/30 as many do you are talking even less.

User avatar
Noobvestor
Posts: 4690
Joined: Mon Aug 23, 2010 1:09 am
Contact:

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Noobvestor » Wed Apr 04, 2018 11:26 pm

fennewaldaj wrote:
Wed Apr 04, 2018 10:49 pm
I think the points you lay out make a reasonable case for people from non US coutries significantly overweighting there own country as if they did not there own countries equities are a tiny part of their portfolio. However in the US at market weight we already have 50% in the US. If you combine that with a US bond dominated portfolio in a 60/40 you really only have 30ish% foreign exposure. That hardly seems like something to get excessively worried about even if you are more worried about political risk than others are. If you moderately overweight the US to say 70/30 as many do you are talking even less.
And if you take it a step further, too, the hand-wavy worries some international detractors raise of one-off events in foreign countries becomes extra absurd. So you've got a portfolio with 30% ex-US stocks. If the largest country in that mix (Japan) vanished into thin air, which is a crazy extreme example, you'd still lose only 6% of your portfolio. If the largest developing country disappeared overnight (China) you'd lose only 2%.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

wesgreen
Posts: 157
Joined: Fri Jan 07, 2011 9:14 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by wesgreen » Thu Apr 05, 2018 8:50 am

Here's a post in another thread I found interesting and pertaining to our discussion:

Re: How much international stock? A suggestion.
Post by oldzey » Wed Apr 04, 2018 7:56 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 4/4/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,061 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,329 in your Total International Stock Index Fund."

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

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Da5id » Thu Apr 05, 2018 9:11 am

wesgreen wrote:
Thu Apr 05, 2018 8:50 am
Here's a post in another thread I found interesting and pertaining to our discussion:

Re: How much international stock? A suggestion.
Post by oldzey » Wed Apr 04, 2018 7:56 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 4/4/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,061 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,329 in your Total International Stock Index Fund."
Would you care to interpret it rather than just repost it? Are you saying "past performance governs future results" perhaps? And what about the actual thesis of this thread, which is whether exposure to foreign markets by US HQ'd companies is enought "international", how does this help inform that topic?

asif408
Posts: 1357
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by asif408 » Thu Apr 05, 2018 9:27 am

wesgreen wrote:
Thu Apr 05, 2018 8:50 am
Here's a post in another thread I found interesting and pertaining to our discussion:

Re: How much international stock? A suggestion.
Post by oldzey » Wed Apr 04, 2018 7:56 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 4/4/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,061 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,329 in your Total International Stock Index Fund."
Just on a whim, I checked and the Mexican stock market has performed better over that time than either:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

And if I shift the start date forward 2 years then Canada, Hong Kong, and Australia also outperformed the US for a 20 year period: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Last edited by asif408 on Thu Apr 05, 2018 9:37 am, edited 1 time in total.

User avatar
Doc
Posts: 8372
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Doc » Thu Apr 05, 2018 9:27 am

In addressing me
Noobvestor wrote:
Wed Apr 04, 2018 8:23 pm
For all the reasons total-market indexing makes sense as a default (plenty of books on this, and forum threads). Not sure I understand why you would ask about Large Cap Blend and Large Cap Developed - these are less diversified, would have higher turnover, might have higher costs (not sure). Why not start with the set of broadest total-world-market funds? To avoid overlap (which doesn't matter) at the expense of efficiency?
You indicate that you tilt.
I tilt toward small, value and emerging markets, but I also hold a 'core' of Total Stock and Total International
Let's just consider international by itself. It is about 20% EM. Say you want to tilt to EM by doubling that to 40%. Now your Dev/EM target is 60/80 instead of 80/20. You can get there by using 80% of Total International fund and 20% of an EM find. Or you also could get there by using 60% of a developed international fund and 40% of an EM fund. In either case you have two funds. You chose the first (core) method. What are the advantages you see going that route instead of the second?

The same argument applies to the US tilt. Why choose TSM plus SV instead of say an S&P 500 (or a Russell 1000) plus SV. The first (core) gives you a lot of mid caps and some some small blend and growth which dilutes your tilt.

I don't disagree with total-market indexing as a default but once you decide to tilt there are other ways to get there. (Several books on this, and forum threads).

(Personally I don't use EM because at market weights it would be only 2.5% of my total portfolio and if it out performed by 50% I wouldn't even see it. But I would still lose sleep if I saw on the business channel that India and China were in a trade war.)
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

wesgreen
Posts: 157
Joined: Fri Jan 07, 2011 9:14 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by wesgreen » Thu Apr 05, 2018 10:29 am

Da5id wrote:
Thu Apr 05, 2018 9:11 am
wesgreen wrote:
Thu Apr 05, 2018 8:50 am
Here's a post in another thread I found interesting and pertaining to our discussion:

Re: How much international stock? A suggestion.
Post by oldzey » Wed Apr 04, 2018 7:56 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 4/4/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,061 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,329 in your Total International Stock Index Fund."
Would you care to interpret it rather than just repost it? Are you saying "past performance governs future results" perhaps? And what about the actual thesis of this thread, which is whether exposure to foreign markets by US HQ'd companies is enought "international", how does this help inform that topic?
Here you go: This seems to support Bogle and Buffet's view that American companies have enough international exposure. What is your interpretation?

Silk McCue
Posts: 1083
Joined: Thu Feb 25, 2016 7:11 pm

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Silk McCue » Thu Apr 05, 2018 10:45 am

wesgreen wrote:
Thu Apr 05, 2018 10:29 am
Da5id wrote:
Thu Apr 05, 2018 9:11 am
wesgreen wrote:
Thu Apr 05, 2018 8:50 am
Here's a post in another thread I found interesting and pertaining to our discussion:

Re: How much international stock? A suggestion.
Post by oldzey » Wed Apr 04, 2018 7:56 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 4/4/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,061 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,329 in your Total International Stock Index Fund."
Would you care to interpret it rather than just repost it? Are you saying "past performance governs future results" perhaps? And what about the actual thesis of this thread, which is whether exposure to foreign markets by US HQ'd companies is enought "international", how does this help inform that topic?
Here you go: This seems to support Bogle and Buffet's view that American companies have enough international exposure. What is your interpretation?
1) The information provided in the post says absolutely NOTHING about US companies having enough International exposure. That point is not made at all.

2) The performance difference between the 2 funds during the referenced period says NOTHING about future comparative performance of the funds.

Cheers

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

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Da5id » Thu Apr 05, 2018 11:46 am

wesgreen wrote:
Thu Apr 05, 2018 10:29 am
Here you go: This seems to support Bogle and Buffet's view that American companies have enough international exposure. What is your interpretation?
That one can't draw any conclusions about the topic from the data, which feels like the only logical position to me. If you want to go with "it proves US stocks were better over that period", you are of course trivially right, that is what the data says. Have a look at the graph in this article: https://www.factorinvestor.com/blog/inv ... pessimists for historic US vs int'l. US has won recently, no doubt about it. But there have been ups and downs over the years.

If US stocks will "always" have better returns over the long run, presumably US market cap will asymptotically approach 100% of global cap. Is that your prediction?

User avatar
Noobvestor
Posts: 4690
Joined: Mon Aug 23, 2010 1:09 am
Contact:

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Noobvestor » Thu Apr 05, 2018 6:57 pm

wesgreen wrote:
Thu Apr 05, 2018 10:29 am
Da5id wrote:
Thu Apr 05, 2018 9:11 am
wesgreen wrote:
Thu Apr 05, 2018 8:50 am
Here's a post in another thread I found interesting and pertaining to our discussion:

Re: How much international stock? A suggestion.
Post by oldzey » Wed Apr 04, 2018 7:56 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 4/4/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,061 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,329 in your Total International Stock Index Fund."
Would you care to interpret it rather than just repost it? Are you saying "past performance governs future results" perhaps? And what about the actual thesis of this thread, which is whether exposure to foreign markets by US HQ'd companies is enought "international", how does this help inform that topic?
Here you go: This seems to support Bogle and Buffet's view that American companies have enough international exposure. What is your interpretation?
This would seem to support the opposite conclusion, actually. If US and international perform very differently, then having 'only US' is not substantially similar to having both US and international. This is a point I've made over and over again. Thanks for reinforcing it.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

User avatar
Noobvestor
Posts: 4690
Joined: Mon Aug 23, 2010 1:09 am
Contact:

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Noobvestor » Thu Apr 05, 2018 7:17 pm

Doc wrote:
Thu Apr 05, 2018 9:27 am
Let's just consider international by itself. It is about 20% EM. Say you want to tilt to EM by doubling that to 40%. Now your Dev/EM target is 60/80 instead of 80/20. You can get there by using 80% of Total International fund and 20% of an EM find. Or you also could get there by using 60% of a developed international fund and 40% of an EM fund. In either case you have two funds. You chose the first (core) method. What are the advantages you see going that route instead of the second?
I don't think it makes a significant difference either way. Honestly, I made the decision years ago, and can't recall why. It may have been related to expense ratios, which may have changed since. My overall point was to 'start' with the global market then tilt from there - for international, for instance, I don't see any difference in the scenarios you described, except (potentially) tax advantages from turnover and/or expense differences. So if one wanted to tilt emerging, starting with Total International or Developed and adding Emerging would both be fine.

Fund choices can/should come after asset allocation choices - the 'starting point' concept is about allocation, not funds. So instead of asking 'why should I add international to a US portfolio?' it's a question of 'why should I subtract international from a global portfolio?'
Doc wrote:
Thu Apr 05, 2018 9:27 am
The same argument applies to the US tilt. Why choose TSM plus SV instead of say an S&P 500 (or a Russell 1000) plus SV. The first (core) gives you a lot of mid caps and some some small blend and growth which dilutes your tilt.
I think you have this backward. TSM's inclusion of midcaps gives one more of a tilt toward small (away from large), not less. Also, last I checked, 500 and TSM had the same expense ratio, so you get that extra mid/small exposure for 'free.' Plus if you're in a taxable account, you'll have less turnover from a total-market index. In other words: there are good reasons to start with TSM on the US side even if tilting from there.

Note: expense ratios (compounded by the absence of cheaper admiral shares) are also the reason I didn't start with Vanguard Total World.
Doc wrote:
Thu Apr 05, 2018 9:27 am
I don't disagree with total-market indexing as a default but once you decide to tilt there are other ways to get there. (Several books on this, and forum threads).
I completely agree. Bigger picture: I tend to the subscribe to the 'avoiding big mistakes' camp of investing. It's possible (though unlikely now, since I have a lot in taxable with big tax gains, so hard to change) that I could further optimize my portfolio and tilts, though to me it's sufficient that I have a large core holding of global stocks and that it's arranged in a relatively cost- and tax-efficient way.
Doc wrote:
Thu Apr 05, 2018 9:27 am
(Personally I don't use EM because at market weights it would be only 2.5% of my total portfolio and if it out performed by 50% I wouldn't even see it. But I would still lose sleep if I saw on the business channel that India and China were in a trade war.)
I still can't figure this piece out. If it would be a small part of your portfolio, why would you ever lose sleep over it? If EM was just 2.5% of your portfolio, China's entire market could go to zero and you'd lose less than 1% of your portfolio. Nothing to lose sleep over. I'm not sure what your US percentage is, but a US-only, 60/40 investor could lose more from one tech giant going under. If I were inclined to lose sleep over things that might cost me around 1% of my portfolio (I'm not), I'd be much more worried about a single company than a whole country with equivalent stakes.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

dknightd
Posts: 567
Joined: Wed Mar 07, 2018 11:57 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by dknightd » Thu Apr 05, 2018 7:27 pm

Investing in foreign companies also invests you in currency risk. I happen to think that as the economy becomes more global things will even out. That will probably require "standards of living" to become more uniform. I figure most of my income comes from working in the USA. So I like the global diversification. VMMY

bgf
Posts: 479
Joined: Fri Nov 10, 2017 9:35 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by bgf » Fri Apr 06, 2018 7:18 am

the benefit of diversification for me is not reduced volatility through uncorrelated assets. the benefit of diversification for me is generating the highest probability of catching ALL of those very rare long term superperforming companies that generate the gross majority of index returns.

i think the probability of some of these companies coming from outside of the US over the next 30-50 years is very high. there is no way that i will remove the opportunity to invest in those companies for any of the negatives listed so far in this thread.

https://papers.ssrn.com/sol3/papers.cfm ... id=2900447
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

User avatar
JoMoney
Posts: 5371
Joined: Tue Jul 23, 2013 5:31 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by JoMoney » Fri Apr 06, 2018 8:47 am

bgf wrote:
Fri Apr 06, 2018 7:18 am
the benefit of diversification for me is not reduced volatility through uncorrelated assets. the benefit of diversification for me is generating the highest probability of catching ALL of those very rare long term superperforming companies that generate the gross majority of index returns.

i think the probability of some of these companies coming from outside of the US over the next 30-50 years is very high. there is no way that i will remove the opportunity to invest in those companies for any of the negatives listed so far in this thread.

https://papers.ssrn.com/sol3/papers.cfm ... id=2900447
Well if you're going to invest in small-caps, being as diversified as possible makes sense. The issue isn't as prevalent in large-caps, as is evident by just looking at something like returns of the Dow 30. The paper you linked mentions:
...small stocks more frequently deliver returns that fail to match benchmarks. At the decade horizon,
only 42.4% of stocks in the smallest decile have buy-and-hold returns that are positive and only
36.6% have buy-and-hold returns that exceed those of the one-month Treasury bill. In contrast,
81.3% of stocks in the largest decile have positive decade buy-and-hold returns, and 70.5%
outperform the one-month Treasury bill. ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
stemikger
Posts: 4846
Joined: Thu Apr 08, 2010 5:02 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by stemikger » Fri Apr 06, 2018 9:22 am

Posted by Noobvestor
But OK: if you're far enough along in your saving and investing career that you can afford a few decades of flat returns, then you're probably right - it won't break you if that scenario materializes. But then you're just making a case for an outlier portfolio that doesn't need actual returns. In which case, that's fine for you, but dangerous for other forum investors who are reading these threads and might follow your lead.
I think you are asking the wrong person to stop giving this advice besides I doubt anyone here would need my advice let alone take it. This came right from Mr. Bogle's mouth and his book. Also, I would hardly describe a simple balanced index fund as dangerous.
In my 1993 Book Bogle on Mutual Funds, after discussing the large number of asset allocation strategies available to investors, I raised the possibility that "less is more" --that a simple mainstream (i.e., index) balanced fund, 60 percent in U.S. stocks, 40 percent in U.S. bonds one that provides extraordinary diversification and operates at rock-bottom cost, would offer the functional equivalent of having your entire portfolio overseen by an investment advisory firm.

Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity and bond holdings in all U.S. index funds.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

User avatar
triceratop
Moderator
Posts: 5468
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by triceratop » Fri Apr 06, 2018 9:29 am

A 1993 book is one thing. Which current Vanguard offerings in the indexed international space existed in 1993? As far as I can tell, none. The Emerging Markets fund began in 1994.

Why should the same advice apply today if the reasons are no longer valid?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

bgf
Posts: 479
Joined: Fri Nov 10, 2017 9:35 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by bgf » Fri Apr 06, 2018 9:32 am

JoMoney wrote:
Fri Apr 06, 2018 8:47 am
bgf wrote:
Fri Apr 06, 2018 7:18 am
the benefit of diversification for me is not reduced volatility through uncorrelated assets. the benefit of diversification for me is generating the highest probability of catching ALL of those very rare long term superperforming companies that generate the gross majority of index returns.

i think the probability of some of these companies coming from outside of the US over the next 30-50 years is very high. there is no way that i will remove the opportunity to invest in those companies for any of the negatives listed so far in this thread.

https://papers.ssrn.com/sol3/papers.cfm ... id=2900447
Well if you're going to invest in small-caps, being as diversified as possible makes sense. The issue isn't as prevalent in large-caps, as is evident by just looking at something like returns of the Dow 30. The paper you linked mentions:
...small stocks more frequently deliver returns that fail to match benchmarks. At the decade horizon,
only 42.4% of stocks in the smallest decile have buy-and-hold returns that are positive and only
36.6% have buy-and-hold returns that exceed those of the one-month Treasury bill. In contrast,
81.3% of stocks in the largest decile have positive decade buy-and-hold returns, and 70.5%
outperform the one-month Treasury bill. ...
what matters is the mean excess return, not the median. in other words, with a long term horizon, the statistics you mentioned mean little without the magnitude of their over or under performance. a very small percentage of companies account for an incredibly outsized proportion of wealth creation because the magnitude of their outperformance was extreme. see amazon or microsoft for two of the most recent examples.

as the paper also states, and which i think is the main point of the article:

"Perhaps the most striking illustration of the degree to which long term return performance
is concentrated in relatively few stocks arises when measuring aggregate wealth creation in the
U.S. public stock markets. I define wealth creation as the accumulation of market value in
excess of the value that would have been obtained if the invested capital had earned one-month
Treasury bill interest rates. I calculate that the approximately 25,300 companies that issued
stocks appearing in the CRSP common stock database since 1926 are collectively responsible for
lifetime shareholder wealth creation of nearly $35 trillion dollars, measured as of December
2016. However, just five firms (Exxon Mobile, Apple, Microsoft, General Electric, and
International Business Machines) account for ten percent of the total wealth creation. The
ninety top-performing companies, slightly more than one third of one percent of the companies
that have listed common stock, collectively account for over half of the wealth creation.
The
1,092 top-performing companies, slightly more than four percent of the total, account for all of
the net wealth creation.
That is, the remaining ninety six percent of companies whose common
stock has appeared in the CRSP data collectively generated lifetime dollar gains that matched
gains on one-month Treasury bills.

At first glance, the finding that most stocks generate negative lifetime excess (relative to
Treasury bills) returns is difficult to reconcile with models that presume investors to be riskaverse,
since those models imply a positive anticipated mean excess return. Note, however, that
implications of standard asset pricing models are with regard to stocks’ mean excess return,
while the fact that the majority of common stock returns are less than Treasury returns reveals
that the median excess return is negative. Thus, the results are not necessarily at odds with the
implications of standard asset pricing models. Further, most empirical tests of asset pricing
models focus on short horizon returns, where the differential between mean and median returns
is relatively modest."

basically, there are many, many companies out there and only a small percentage of them are going to end up doing the real work of wealth creation over the long term for the investor. if you are not invested in those few companies, your returns are going to suffer.

as most bogleheads are index investors, they do not have to worry about this problem. unlike active investors, passive investors own the whole market.

however, if you invest only in the US, then you do face this problem. you are exposing yourself to the possibility of missing out on these companies over the next 20, 30, 50 years, IF they happen to come from outside the US.

i dont want to have that problem.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

User avatar
stemikger
Posts: 4846
Joined: Thu Apr 08, 2010 5:02 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by stemikger » Fri Apr 06, 2018 2:21 pm

triceratop wrote:
Fri Apr 06, 2018 9:29 am
A 1993 book is one thing. Which current Vanguard offerings in the indexed international space existed in 1993? As far as I can tell, none. The Emerging Markets fund began in 1994.

Why should the same advice apply today if the reasons are no longer valid?
He just updated his Little Book of Common Sense and that is where he put it because he still feels the same way.

Not sure what has changed since I started investing in 1995. All because Vanguard now offers it does not mean I need it. According to Warren Buffett nothing has changed since he started investing in 1951.

https://www.youtube.com/watch?v=cbfScwPylxs
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

User avatar
triceratop
Moderator
Posts: 5468
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by triceratop » Fri Apr 06, 2018 2:49 pm

stemikger wrote:
Fri Apr 06, 2018 2:21 pm
triceratop wrote:
Fri Apr 06, 2018 9:29 am
A 1993 book is one thing. Which current Vanguard offerings in the indexed international space existed in 1993? As far as I can tell, none. The Emerging Markets fund began in 1994.

Why should the same advice apply today if the reasons are no longer valid?
What has changed? Other then they now offer it, I don't think anything has changed since I started investing in 1995. According to Warren Buffett nothing has changed since in started investing.

https://www.youtube.com/watch?v=cbfScwPylxs
I mean, Indexed access to international developed and emerging markets now only costs 7bp more than indexed access to US. Was that true then? There wasn't even a Vanguard fund tracking international indices! That is what has changed.

I don't care for Buffett's aphorisms; aphorisms in general are a clever way of stating things without proof and avoiding being called out on that. I just showed you something proving Buffett incorrect, anyway.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
tadamsmar
Posts: 7721
Joined: Mon May 07, 2007 12:33 pm

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by tadamsmar » Fri Apr 06, 2018 3:04 pm

JustinR wrote:
Fri Mar 30, 2018 6:40 pm
People like JL Collins argue that they don't need an international allocation because the companies in US total stock market already do business internationally.

Is this actually a valid argument? I feel like this is different from investing in non-American companies.

Does this line of thinking have merit or not?
My buddy Straw Man says you should underweight those US companies that do business internationally because (1) JL Collins said "International bad!" and (2) his argument is just as valid as Collin's argument because those remaining US stocks are still doing business with members of same species so you're still diversified without those stocks. Straw's argument sounds good to me. I'm a Strawhead, I'll wear my fingers to the nub defending his position. I win because you will never find that point on the slippery slope where diversified becomes undiversified. But one can use a mathematical/empirical Nobel Prize winning argument on the risk-reducing effects of international diversification to justify it. I assume JL Collins would likely pooh pooh that math and point out that it was not a real Nobel Prize. The math may leave one underweighting international, by the way.

User avatar
spdoublebass
Posts: 431
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by spdoublebass » Fri Apr 06, 2018 3:39 pm

triceratop wrote:
Fri Mar 30, 2018 6:46 pm

See also this recent topic: Global Revenue Exposure of Your Stock Portfolio?
I've read this thread with a lot interest. It's something I read about but do not fully understand. I do find people opinions interesting, I'm more intrigued by the OP.

The question I have is this: Is revenue exposer comparable in any way to market weight? I worded this question poorly I know, but I don't know how else to ask it.

In the link provided above, if you look at a 75/25% Dom/International allocation, it puts you roughly at market weight. Is this the argument? is this why some are comfortable with 25% international allocation? I'm just trying to understand the importance of revenue exposer.

With Vanguard recommending 40% International, that's like thinking market weight with a 20% tilt to US. I know people don't typically hold market weight, but I like referring to it because how far one strays from it is really what their tilts are. I just like it as a starting point.

Also, when you look at the exposer chart for 50/50 (which is close to market weight), you see that the greatest revenue exposer is for EM with 35%. Is this revenue exposer the really why many prefer to overweight domestically?

To me this ties in with this other study:
https://finpage.blog/2017/03/25/investi ... ld-part-3/


I know I didn't make a statement here, but I am just curious what to make of the revenue exposer information.
I'm trying to think, but nothing happens

staythecourse
Posts: 5813
Joined: Mon Jan 03, 2011 9:40 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by staythecourse » Fri Apr 06, 2018 3:54 pm

Late to the party and too lazy to read all the replies, but when one adds ANY asset or subasset class they have to ask WHY they are adding it to their portfolio.

The most valid reasons I have seen to support adding international equities is from Mr. Seigel excellent "Stocks for the Long Run". He explains there the reasons are either 1. Diversification or 2. Currency hedging. Diversification, I am guessing, can be in relation to either geographical diversification and/ or MPT theory of diversification. The second, is currency hedging. I think the data is pretty strong U.S. vs. international and who trump who all comes down to the value of the dollar vs. foreign currency. When dollar is up US equities win and when down international win.

The reason I bring the points above up is this premise of this thread has NOTHING to do with if one should be in or not in international equities. This is something Mr. Bogle and others have brought up as having to do with the merits or not of international investing when it has nothing to do with if one should or not.

Off the topic, but maybe will show this in real life is the PP by Harry Browne. The reason he does NOT have international is because the gold component is his currency hedge and all the other assets add more then enough diversification thus making international equities unnecessary. So for PP folks adding international does not add much to the portfolio.

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

User avatar
stemikger
Posts: 4846
Joined: Thu Apr 08, 2010 5:02 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by stemikger » Fri Apr 06, 2018 5:02 pm

triceratop wrote:
Fri Apr 06, 2018 2:49 pm
stemikger wrote:
Fri Apr 06, 2018 2:21 pm
triceratop wrote:
Fri Apr 06, 2018 9:29 am
A 1993 book is one thing. Which current Vanguard offerings in the indexed international space existed in 1993? As far as I can tell, none. The Emerging Markets fund began in 1994.

Why should the same advice apply today if the reasons are no longer valid?
What has changed? Other then they now offer it, I don't think anything has changed since I started investing in 1995. According to Warren Buffett nothing has changed since in started investing.

https://www.youtube.com/watch?v=cbfScwPylxs
I mean, Indexed access to international developed and emerging markets now only costs 7bp more than indexed access to US. Was that true then? There wasn't even a Vanguard fund tracking international indices! That is what has changed.

I don't care for Buffett's aphorisms; aphorisms in general are a clever way of stating things without proof and avoiding being called out on that. I just showed you something proving Buffett incorrect, anyway.
Oh, I see what you are saying. I'll check it out. Thanks
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

User avatar
Noobvestor
Posts: 4690
Joined: Mon Aug 23, 2010 1:09 am
Contact:

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Noobvestor » Fri Apr 06, 2018 6:33 pm

staythecourse wrote:
Fri Apr 06, 2018 3:54 pm
Late to the party and too lazy to read all the replies, but when one adds ANY asset or subasset class they have to ask WHY they are adding it to their portfolio.
Again, I think this is the wrong question to be asking. The real question is: why would one SUBTRACT international from a global portfolio? Framing matters. If people think domestic is the default, they will think they are doing something active by 'adding international.' But if people understand that total (global) market indexing is the default, then they have to decide how far to tilt away from that and why.

I hold Treasuries and TIPS instead of Total Bond, but I still think Total Bond is a good 'starting point' - heck, considering US + international bonds is a good starting point. But international yields are low, and Total Bond has corporates, and I want my risk on the equity side, and have some inflation protection on the bond side. So I have consciously made and articulated reasons for selecting the non-default bond exposure I have.

It's by no means a perfect parallel, but I'm reminded of the opt-in versus opt-out problem for organ donation. Unsurprisingly, there are significantly more organ donors in countries where people have to consciously opt out of the program. According to this article, at least, it's the difference between 90% of the population being donors versus 15% - rather remarkable: https://sparq.stanford.edu/solutions/op ... n-donation
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

michaeljc70
Posts: 3086
Joined: Thu Oct 15, 2015 3:53 pm

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by michaeljc70 » Fri Apr 06, 2018 6:55 pm

I listened to a podcast recently featuring Michael Kitces. He has done a lot of research on retirement planning, particularly around the 4% rule. One interesting thing he said is that the 4% rule held pretty much in most developed economies over time. The exception was countries that lost a major war.

The podcast is here:
https://www.madfientist.com/michael-kitces-interview/

Given the size of the US economy, who knows. It would take down many other economies today. That could change as other economies surpass ours in size and over time. Personally, I add international stocks as it is so easy. Are we arguing over few basis points ER?

hilink73
Posts: 274
Joined: Tue Sep 20, 2016 3:29 pm

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by hilink73 » Sun Apr 08, 2018 2:34 am

JoMoney wrote:
Wed Apr 04, 2018 7:47 pm
Here are things I know about International stocks that are aside from any 'feelings' :
As a foreign person I have little to no legal recourse or voting rights with regard to 'international' securities, I'm not even legally able to "own" the companies in many foreign places. Through a series of agreements between international banks (and some fees muddied into the process), or sometimes through shell-companies operating as holding companies, some foreign entity acts as an intermediary that says they'll act on my behalf. This derivative process creates additional risks (and costs) for the foreigner buying these securities that don't exist for someone buying in their domestic market.
1)
Again a very US centric view.
International also includes Europe, where you have similar rights as in the US (and even better consumer and investor protection).

2)
Investing in foreign countries poses the same risks for everybody, no matter if a US person invests "internationally" or if I, as a European invest "internationally". But I know that my rights in the US as a non US person are very different and almost not enforceable compared to a US person in the US. Still, I do invest in the US (but only 25% of my equity holdings).

3)
"International" sounds more exotic than it is and thus creates a mental barrier for most Americans as it seems.
Why is that?
Maybe if US funds companies would start splitting their "international" funds into Europe, AsiaPacifc and Emergin Markets funds we would get another view how diverse our investment planet is.



For the the record: my allocation is 25% US, 28% EU, 10% JP (as AsiaPacific proxy), 37% EM.
No reason for me to put everything in the same basket.

User avatar
JoMoney
Posts: 5371
Joined: Tue Jul 23, 2013 5:31 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by JoMoney » Sun Apr 08, 2018 9:29 am

hilink73 wrote:
Sun Apr 08, 2018 2:34 am
1)
Again a very US centric view.
International also includes Europe, where you have similar rights as in the US (and even better consumer and investor protection).
Yes, my 'view' is as a U.S. person (although I don't currently live in the U.S.) . No, as a U.S. citizen I don't have the same rights and protections investing in European companies, although the treaties and economic ties make the situation less of an issue between U.S. and Europe than with something like emerging market stocks.
hilink73 wrote:
Sun Apr 08, 2018 2:34 am
2)
Investing in foreign countries poses the same risks for everybody, no matter if a US person invests "internationally" or if I, as a European invest "internationally". But I know that my rights in the US as a non US person are very different and almost not enforceable compared to a US person in the US. Still, I do invest in the US (but only 25% of my equity holdings).
That's true, a non-US citizen European would be exposed to additional risks investing in U.S. companies... but I didn't suggest that wasn't the case... for a EU person the U.S. would be 'international'
hilink73 wrote:
Sun Apr 08, 2018 2:34 am
3)
"International" sounds more exotic than it is and thus creates a mental barrier for most Americans as it seems.
Why is that?
Maybe if US funds companies would start splitting their "international" funds into Europe, AsiaPacifc and Emergin Markets funds we would get another view how diverse our investment planet is.
...
There are many such funds available in U.S., Vanguard offered seperate Europe and Asia funds long before they had a broad international fund.... But how the fund company chooses to create funds doesn't change the different risks and tax characteristics of owning the underlying international stocks.... but FWIW, U.S. invests more in foreign equity than non-U.S. people invest into U.S. equity (at least according to U.S. Federal reserve bank data).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
oldzey
Posts: 953
Joined: Sun Apr 13, 2014 8:38 pm
Location: Land of Lincoln

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by oldzey » Sun Apr 08, 2018 3:14 pm

Da5id wrote:
Thu Apr 05, 2018 9:11 am
wesgreen wrote:
Thu Apr 05, 2018 8:50 am
Here's a post in another thread I found interesting and pertaining to our discussion:

Re: How much international stock? A suggestion.
Post by oldzey » Wed Apr 04, 2018 7:56 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 4/4/2018, if you had invested $10,000 in both funds on 4/29/1996, you would currently have $61,061 in your Total Stock U.S. Stock Market Index Fund, which would be more than double as much as the $29,329 in your Total International Stock Index Fund."
Would you care to interpret it rather than just repost it? Are you saying "past performance governs future results" perhaps? And what about the actual thesis of this thread, which is whether exposure to foreign markets by US HQ'd companies is enought "international", how does this help inform that topic?
The last line of my original post is missing: "Of course, past performance does not indicate future performance." 8-)
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

wesgreen
Posts: 157
Joined: Fri Jan 07, 2011 9:14 am

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by wesgreen » Sun Apr 08, 2018 4:55 pm

I should have mentioned it was a partial quote, and provided the link. My apologies!
wg

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

Re: The "American companies I invest in already have international exposure" argument --- valid or not?

Post by Da5id » Mon Apr 09, 2018 8:06 am

oldzey wrote:
Sun Apr 08, 2018 3:14 pm
The last line of my original post is missing: "Of course, past performance does not indicate future performance." 8-)
Unclear on your point then. Please clarify.

Post Reply