International Questions and Benefit to Vanguard

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BlackHat
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International Questions and Benefit to Vanguard

Post by BlackHat » Sun Jul 08, 2018 10:32 am

Hello Everybody,

I have a few questions that may be a little strange or unfounded but certainly related to investing. I'm a 100% US investor for what it's worth.

1. Is the rise of international investing trying to make investing politically correct? For example, We can't bet that the United States is better than
other countries because that would be wrong to bet on one group of people over another?

2. Does Vanguard gain any power, influence or benefit from getting more assets under management in international funds?

3. Do Vanguard international funds offer the proper diversification benefit to even be worth it? Since 1997 the correlation of the Total International
Investing shares (VGTSX) has had a US market correlation of .86.

4. Is International Investing just diversification for the sake of diversification?

Thank you for helping me, BlackHat
“Life is really simple, but we insist on making it complicated.” -- Confucius

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triceratop
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Re: International Questions and Benefit to Vanguard

Post by triceratop » Sun Jul 08, 2018 11:18 am

BlackHat wrote:
Sun Jul 08, 2018 10:32 am
Hello Everybody,

I have a few questions that may be a little strange or unfounded but certainly related to investing. I'm a 100% US investor for what it's worth.

1. Is the rise of international investing trying to make investing politically correct? For example, We can't bet that the United States is better than
other countries because that would be wrong to bet on one group of people over another?

But you can bet that the US is better than other countries. I see above that you invest 100% in US equities and bonds; therefore Vanguard has not stopped you in any way. The ability to align your bets along with collective market wisdom is different from forcing one to. By the way, the same applies to total market indexing vs. picking individual sectors and stocks -- is it "politically correct" (what does this even mean?) to think the growth prospects for Google, Apple, Novartis, Tesla, etc. are all priced into their respective stocks?

2. Does Vanguard gain any power, influence or benefit from getting more assets under management in international funds?


Yes, to the extent that investors such as myself would not be able to invest all my assets with Vanguard because I value diversification and therefore will invest in international equities, either at Vanguard or at a rival who will offer that product to me.

3. Do Vanguard international funds offer the proper diversification benefit to even be worth it? Since 1997 the correlation of the Total International
Investing shares (VGTSX) has had a US market correlation of .86.


If their correlations are so similar as to render them identical investments, then why has Total International underperformed Total U.S. to such a significant extent since inception (1996)?

4. Is International Investing just diversification for the sake of diversification?

All diversification is "diversification for the sake of diversification"

Thank you for helping me, BlackHat
I have found when trying to understand if I am incorrect or misunderstanding another perspective to find the best possible framing of what other people believe and grapple with that, rather than project my own disagreements or suspicions with a perspective onto what other people believe. I'm not saying this is what you're doing here, but I find skepticism like "does Vanguard have ulterior motives" to be unhelpful.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

columbia
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Re: International Questions and Benefit to Vanguard

Post by columbia » Sun Jul 08, 2018 11:23 am

I wonder what the global cap weight would be, if all of the US based target date funds skipped international all along and now. I’m sure some crafty person here could run the approximate numbers. ;)

delamer
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Re: International Questions and Benefit to Vanguard

Post by delamer » Sun Jul 08, 2018 11:31 am

Based on a few sources that I found in a quick look, the US GDP makes up about 20% to 25% of global GDP. And we have about 4% of the world’s population.

So the question to me is why would you ignore the rest of the world in making your investing choices?

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triceratop
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Re: International Questions and Benefit to Vanguard

Post by triceratop » Sun Jul 08, 2018 11:36 am

columbia wrote:
Sun Jul 08, 2018 11:23 am
I wonder what the global cap weight would be, if all of the US based target date funds skipped international all along and now. I’m sure some crafty person here could run the approximate numbers. ;)
At end of 2015 total TDF assets (including bonds) totaled less than $800 billion USD (source: Morningstar), while at the beginning of 2015 global equities market cap was about $70 trillion USD (source: Deutsche, McKinsey).

"That dog don't hunt"
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

averagedude
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Re: International Questions and Benefit to Vanguard

Post by averagedude » Sun Jul 08, 2018 11:43 am

I would answer all of your questions as no. IMO, i think it is naive to think that the United States will always be the best place to invest in the next several hundred years. When and if, no one really knows. Take a look at a historic chart of the Japanese stock market. Their stock market is lower now than it was in 1990. That is over 25 years. I remember all of the management books about how the US needs to emulate them, and how hard working their people was. There was some, that said Japan would overtake the US as the economic engine of the world. Japan is a wonderful country and does have hard working people, but they are suffering from demographic issues, and they had a huge bubble in 1990. Vanguard does recommend putting 20% to 50% internationally, and i believe this is wise advice to investors.

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