Vanguard says international will beat US stocks in next decade

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Re: Vanguard says international will beat US stocks in next decade

Post by HEDGEFUNDIE »

jhawktx wrote: Sun Dec 23, 2018 6:29 pm Don't forget the expense ratios are higher for International vs Domestic.
Insurance isn’t free either.
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Re: Vanguard says international will beat US stocks in next decade

Post by jhawktx »

HEDGEFUNDIE wrote: Sun Dec 23, 2018 6:33 pm
jhawktx wrote: Sun Dec 23, 2018 6:29 pm Don't forget the expense ratios are higher for International vs Domestic.
Insurance isn’t free either.
Your international "insurance" hasn't worked to "insure" you against underperformance. In fact you've paid extra for the privilege of getting underperformance. No thanks.
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Re: Vanguard says international will beat US stocks in next decade

Post by UpperNwGuy »

jhawktx wrote: Sun Dec 23, 2018 6:29 pm Don't forget the expense ratios are higher for International vs Domestic.
But not by much.
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Re: Vanguard says international will beat US stocks in next decade

Post by drk »

jhawktx wrote: Sun Dec 23, 2018 6:29 pm Don't forget the expense ratios are higher for International vs Domestic.
Are you suggesting that this should be a factor in deciding asset allocation? How big a difference in expense ratio should cause one to change their asset allocation, seven bps as in VTI/VXUS or ITOT/IXUS, or more? Why expense ratio rather than total cost of ownership?
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Re: Vanguard says international will beat US stocks in next decade

Post by jhawktx »

drk wrote: Sun Dec 23, 2018 7:16 pm
jhawktx wrote: Sun Dec 23, 2018 6:29 pm Don't forget the expense ratios are higher for International vs Domestic.
Are you suggesting that this should be a factor in deciding asset allocation? How big a difference in expense ratio should cause one to change their asset allocation, seven bps as in VTI/VXUS or ITOT/IXUS, or more? Why expense ratio rather than total cost of ownership?
I am statng a fact: It is more expensive for a US investor to invest in foreign stocks compared to US stocks.
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Re: Vanguard says international will beat US stocks in next decade

Post by drk »

jhawktx wrote: Sun Dec 23, 2018 7:30 pm I am statng a fact: It is more expensive for a US investor to invest in foreign stocks compared to US stocks.
No, you were introducing a non sequitur, and not even an accurate one: when looking at total cost of ownership, it is less expensive for some US investors to invest in non-US stocks compared to US stocks. Even looking solely at expense ratios, an investor can pay the same 0% when buying the Fidelity Zero funds.
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Re: Vanguard says international will beat US stocks in next decade

Post by Vulcan »

HEDGEFUNDIE wrote: Sun Dec 23, 2018 6:01 pm I mean, theoretically I’m with you Nisi. But theory doesn’t put food on the table or $ in my account.
Ah, so you didn't mean what I thought you meant (using international diversification as a hedge against falling dollar).

But if you do not think that your home country's falling curency is a potential danger to hedge against, then why all the concern about foreign currency fluctuations? If, say, Israeli shekel becomes cheaper, wouldn't that mean that Israeli shares become more expensive in shekels?
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: Vanguard says international will beat US stocks in next decade

Post by HEDGEFUNDIE »

Vulcan wrote: Sun Dec 23, 2018 8:15 pm
HEDGEFUNDIE wrote: Sun Dec 23, 2018 6:01 pm I mean, theoretically I’m with you Nisi. But theory doesn’t put food on the table or $ in my account.
Ah, so you didn't mean what I thought you meant (using international diversification as a hedge against falling dollar).

But if you do not think that your home country's falling curency is a potential danger to hedge against, then why all the concern about foreign currency fluctuations? If, say, Israeli shekel becomes cheaper, wouldn't that mean that Israeli shares become more expensive in shekels?
I do think a weakening dollar is a risk, but I choose to hedge that risk through my healthy allocation of Long Term Treasuries, not my equities. With my equities, I’m looking to cut unrewarded volatility by hedging out foreign currency risk. My equities and my bonds play well together as they are negatively correlated. It’s all quite a harmonious symphony.
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Re: Vanguard says international will beat US stocks in next decade

Post by wesgreen »

At least the dollar is bound to drop back down at some point. I hope Vanguard gets lucky and is right about this (international stocks to outperform U.S. stocks over the next 10 years by a margin of 3 to 3.5 percent), but I'll believe it when I see it. That would be a long awaited chance to finally switch my Int. allocation back to US, and recover some of what I lost by listening to their advice many years ago.
My trust in Vanguard doesn't grow when I see them make predictions like this, which tend to be wrong. I wonder what their motive might be - calming down customers who are voicing disappointment over their Target funds?



oldzey wrote: Sun Dec 23, 2018 5:11 pm Time will tell... :beer
It has told plenty, thank you. I think I stick with Mr. Bogle from now on.
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Re: Vanguard says international will beat US stocks in next decade

Post by triceratop »

drk wrote: Sun Dec 23, 2018 7:35 pm
jhawktx wrote: Sun Dec 23, 2018 7:30 pm I am statng a fact: It is more expensive for a US investor to invest in foreign stocks compared to US stocks.
No, you were introducing a non sequitur, and not even an accurate one: when looking at total cost of ownership, it is less expensive for some US investors to invest in non-US stocks compared to US stocks. Even looking solely at expense ratios, an investor can pay the same 0% when buying the Fidelity Zero funds.
I don't think this is true. If you're referring to the foreign tax credit, don't forget that the international funds' total returns are net returns (net of taxes), not gross returns. I say that as a person who invests heavily in foreign stocks.

Or maybe I am just misunderstanding you (possible!).
jhawktx wrote: Sun Dec 23, 2018 6:42 pm
HEDGEFUNDIE wrote: Sun Dec 23, 2018 6:33 pm
jhawktx wrote: Sun Dec 23, 2018 6:29 pm Don't forget the expense ratios are higher for International vs Domestic.
Insurance isn’t free either.
Your international "insurance" hasn't worked to "insure" you against underperformance. In fact you've paid extra for the privilege of getting underperformance. No thanks.
This is not how you determine whether insurance works in any other facet of life, so why would you expect it to apply here?
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Re: Vanguard says international will beat US stocks in next decade

Post by samsdad »

Austintatious wrote: Sun Dec 23, 2018 4:52 pm
drk wrote: Sun Dec 23, 2018 4:07 pm
samsdad wrote: Sun Dec 23, 2018 3:31 pm I've been trying to figure out how Vanguard (or anyone else) figures out the valuations of securities in countries where the local government actively manipulates their market in differing amounts year to year?
One could look at the hubbub over the last couple of years with Wells Fargo (asset level frozen by the Fed), Amazon (bidding war among major cities for a new large outpost), or Air Lease Corp and Invesco (both large, undisclosed holdings of the Commerce Secretary) and conclude that a US-only portfolio does not inoculate yourself against government involvement, shady or otherwise.
drk, the legitimate instances you cite barely scratch the surface of the corruption that exists in the relationship between the U. S. government and big business. Dollar for dollar, no other country comes close to matching the level of corruption that occurs right here at home. Look no further than the level of corruption and criminality that caused the 2008 crash, crimes that were openly perpetrated by big business on a massive scale, crimes that were facilitated and condoned by the U.S. government, before, during and since that financial crisis. Anyone genuinely believing that kind of corruption isn't going on right here, right now, is ignoring the quite obvious. And all that has real implications for this discussion about allocation to international securities -to wit, excluding international stocks solely or primarily for fear of corruption is likely not a well thought out policy.
I surely hope you jest. Transparency International, some organization tasked with indexing the perceptions of corruption worldwide, puts the US at 16th out of 180 countries. https://www.transparency.org/news/featu ... index_2017

The World Economic Forum relies on this data in part to formulate its Global Competitiveness Report. The US is ranked #1 in the latest report, which is designed to
assess[] the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.
https://en.wikipedia.org/wiki/Global_Co ... ess_Report

As far as weeding out international equities based on fear of corruption, I don't see why that is a fallacy, or otherwise not well thought out. It is a factor, perhaps the primary factor depending on how broadly you want to define the term, in my decision to be 100% US equities. According to Transparency International:
The index, which ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople, uses a scale of zero to 100, where zero is highly corrupt and 100 is very clean. This year, the index found that more than two-thirds of countries score below 50, with an average score of 43.

Over the last six years, several countries significantly improved their CPI score, including Côte d’Ivoire, Senegal and the United Kingdom, while several countries declined, including Syria, Yemen and Australia.

This year, New Zealand and Denmark rank highest with scores of 89 and 88 respectively. Syria, South Sudan and Somalia rank lowest with scores of 14, 12 and 9 respectively. The best performing region is Western Europe with an average score of 66. The worst performing regions are Sub-Saharan Africa (average score 32) and Eastern Europe and Central Asia (average score 34).
https://www.transparency.org/news/press ... _more_than

The US scored a 75 by the way, beating Western Europe's average of 66, "dollar for euro" you might say. Despite being three thousand years old, China only managed to score a 41, just below the ostensibly well-regulated markets of Burkina Faso, Lesotho, and Tunisia. I haven't checked to see if VTI includes those notable countries, but would you say you were missing out on some free-lunch diversification if it didn't?
Last edited by samsdad on Sun Dec 23, 2018 11:24 pm, edited 1 time in total.
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Re: Vanguard says international will beat US stocks in next decade

Post by junior »

When Vanguard says international will outperform, they mean developed international. I don't think corruption is an issue.
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Re: Vanguard says international will beat US stocks in next decade

Post by fennewaldaj »

samsdad wrote: Sun Dec 23, 2018 3:31 pm I've been trying to figure out how Vanguard (or anyone else) figures out the valuations of securities in countries where the local government actively manipulates their market in differing amounts year to year? Do they have some sort of proprietary corruption algorithm? Do they have phone calls with the local political committee chairs?
I think Vanguard tries to account for this in part by looking for more attractive valuations for EM to consider it fairly valued
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Re: Vanguard says international will beat US stocks in next decade

Post by samsdad »

fennewaldaj wrote: Sun Dec 23, 2018 11:10 pm
samsdad wrote: Sun Dec 23, 2018 3:31 pm I've been trying to figure out how Vanguard (or anyone else) figures out the valuations of securities in countries where the local government actively manipulates their market in differing amounts year to year? Do they have some sort of proprietary corruption algorithm? Do they have phone calls with the local political committee chairs?
I think Vanguard tries to account for this in part by looking for more attractive valuations for EM to consider it fairly valued
Perhaps. I just find it fascinating that on a forum where people debate, at length, whether to invest in some fund or not based upon a difference of a few basis points or because one follows the CRSP index vs the Russell, etc. there is very little discussion about just how much it’s costing to invest in EM or developed based upon local market corruption, etc. I fear it’s because there’s no way to accurately gauge it in terms of a “corruption drag” like we might talk about a “tax drag” and hang a percentage on it.
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Re: Vanguard says international will beat US stocks in next decade

Post by Northern Flicker »

I do think a weakening dollar is a risk, but I choose to hedge that risk through my healthy allocation of Long Term Treasuries, not my equities.
If you are depending on long-term nominal treasuries to hedge exposure to a falling dollar, you may be in for a surprise if the dollar does indeed weaken substantially. Such a weakening may be associated with a rise in US inflation.
Risk is not a guarantor of return.
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Re: Vanguard says international will beat US stocks in next decade

Post by HEDGEFUNDIE »

jalbert wrote: Mon Dec 24, 2018 12:11 am
I do think a weakening dollar is a risk, but I choose to hedge that risk through my healthy allocation of Long Term Treasuries, not my equities.
If you are depending on long-term nominal treasuries to hedge exposure to a falling dollar, you may be in for a surprise if the dollar does indeed weaken substantially. Such a weakening may be associated with a rise in US inflation.
Which is why I limit my bonds to only 20% of my portfolio, the 80% equities offers the inflation hedge. All bases covered!
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Re: Vanguard says international will beat US stocks in next decade

Post by vineviz »

samsdad wrote: Sun Dec 23, 2018 11:56 pm
fennewaldaj wrote: Sun Dec 23, 2018 11:10 pm
samsdad wrote: Sun Dec 23, 2018 3:31 pm I've been trying to figure out how Vanguard (or anyone else) figures out the valuations of securities in countries where the local government actively manipulates their market in differing amounts year to year? Do they have some sort of proprietary corruption algorithm? Do they have phone calls with the local political committee chairs?
I think Vanguard tries to account for this in part by looking for more attractive valuations for EM to consider it fairly valued
Perhaps. I just find it fascinating that on a forum where people debate, at length, whether to invest in some fund or not based upon a difference of a few basis points or because one follows the CRSP index vs the Russell, etc. there is very little discussion about just how much it’s costing to invest in EM or developed based upon local market corruption, etc. I fear it’s because there’s no way to accurately gauge it in terms of a “corruption drag” like we might talk about a “tax drag” and hang a percentage on it.
I invest to make money, not as a way to demonstrate my personal prejudices.
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Re: Vanguard says international will beat US stocks in next decade

Post by White Coat Investor »

I don't know and I don't care. I just plan to follow my current written investing plan- 1/3 of equity overseas. Stay the course!
Stay the course. No matter what happens, stick to your program. I’ve said ‘Stay the course’ a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you.
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Re: Vanguard says international will beat US stocks in next decade

Post by Northern Flicker »

HEDGEFUNDIE wrote: Mon Dec 24, 2018 1:40 am
jalbert wrote: Mon Dec 24, 2018 12:11 am
I do think a weakening dollar is a risk, but I choose to hedge that risk through my healthy allocation of Long Term Treasuries, not my equities.
If you are depending on long-term nominal treasuries to hedge exposure to a falling dollar, you may be in for a surprise if the dollar does indeed weaken substantially. Such a weakening may be associated with a rise in US inflation.
Which is why I limit my bonds to only 20% of my portfolio, the 80% equities offers the inflation hedge. All bases covered!
Not necessarily if your int’l equities are currency-hedged.
Risk is not a guarantor of return.
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Re: Vanguard says international will beat US stocks in next decade

Post by Hustlinghustling »

vineviz wrote: Mon Dec 24, 2018 2:29 am
samsdad wrote: Sun Dec 23, 2018 11:56 pm
fennewaldaj wrote: Sun Dec 23, 2018 11:10 pm
samsdad wrote: Sun Dec 23, 2018 3:31 pm I've been trying to figure out how Vanguard (or anyone else) figures out the valuations of securities in countries where the local government actively manipulates their market in differing amounts year to year? Do they have some sort of proprietary corruption algorithm? Do they have phone calls with the local political committee chairs?
I think Vanguard tries to account for this in part by looking for more attractive valuations for EM to consider it fairly valued
Perhaps. I just find it fascinating that on a forum where people debate, at length, whether to invest in some fund or not based upon a difference of a few basis points or because one follows the CRSP index vs the Russell, etc. there is very little discussion about just how much it’s costing to invest in EM or developed based upon local market corruption, etc. I fear it’s because there’s no way to accurately gauge it in terms of a “corruption drag” like we might talk about a “tax drag” and hang a percentage on it.
I invest to make money, not as a way to demonstrate my personal prejudices.
+1

samsdad, you’re sounding like a hollywood action flick with these sweeping “USA the best, foreigners corrupt” blanket descriptions.
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Re: Vanguard says international will beat US stocks in next decade

Post by samsdad »

Unbelievable. I’ve posted before that I have no doubt that the US isn’t perfect, free from corruption, etc. but apparently I have to state that every single time I ask about this. Perhaps I’ll add it to my signature if I find it worthwhile to stick around here.

I’ve posted before where, for example, the communist party in China manipulates the heck out of the market there, citing Forbes and Fortune articles—that I didn’t write—but for some reason it’s me that is xenophobic etc., for bringing it up.

I didn’t write the World Economic Forum’s Global Competiviness Report either, nor am I related in any way to Transparency International. I never even knew TI existed till yesterday after doing some research after the poster above made the absolutely ridiculous remark that dollar for dollar US is the most corrupt place on the planet. (I wonder if Messrs. Larimore and Lindauer would agree.) No one else stepped up to the plate (that’s a baseball reference) which dumbfounded me. Either everyone agrees and is blithely investing half, a majority, or all their money in the most corrupt place on Earth, or that poster is spinning a yarn that no one cared to call them out on.

I’ll state it again: I think we do a disservice to new investors who come here looking for advice on their AA and whether to invest in international without explaining to them that international markets are not the same as domestic and that they all fall on a spectrum of transparency, corruption, etc. We treat these markets as if they carried no additional risk from this activity which is disingenuous. And then when I or other posters bring it up it’s hand waived with the cursory explanation that it’s “already priced in,” which brings us full circle to my original question upthread, to wit, how does one price in rampant wholesale market manipulation year to year? Especially in ten-year forecasts?

Why this topic is so taboo here is puzzling. Why the ad hominem attacks are encouraged is telling, and yes, “sad,” to borrow a phrase.
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Re: Vanguard says international will beat US stocks in next decade

Post by naha66 »

vineviz says " but this board is FULL of people who are dramatically underweighting international equities with allocations of 25% or less.

Yes count me as one of the "FULL of people". The first year I had a 401K available to me was 1986 their was no international fund in the plan. I changed jobs in mid 90's still no international in the new plan. I just stuck to same plan til I retired in 2014 65/35 . I'm sure glad i did, maybe I got lucky but if I had added international 1986 I would have had a lot less money at retirement time. I did a rough calculation using portfolio visualizer and I came out ahead by about 25% by not having international. That's not dog food. Sometimes YOU smart people overthink things.
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Re: Vanguard says international will beat US stocks in next decade

Post by Tycoon »

samsdad wrote: Mon Dec 24, 2018 9:06 am No one else stepped up to the plate (that’s a baseball reference) which dumbfounded me. Either everyone agrees and is blithely investing half, a majority, or all their money in the most corrupt place on Earth, or that poster is spinning a yarn that no one cared to call them out on.
Or, some recongnize that it's pointless to argue with those that have anchored their thoughts.
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Re: Vanguard says international will beat US stocks in next decade

Post by tibbitts »

naha66 wrote: Mon Dec 24, 2018 9:29 am vineviz says " but this board is FULL of people who are dramatically underweighting international equities with allocations of 25% or less.

Yes count me as one of the "FULL of people". The first year I had a 401K available to me was 1986 their was no international fund in the plan. I changed jobs in mid 90's still no international in the new plan. I just stuck to same plan til I retired in 2014 65/35 . I'm sure glad i did, maybe I got lucky but if I had added international 1986 I would have had a lot less money at retirement time. I did a rough calculation using portfolio visualizer and I came out ahead by about 25% by not having international. That's not dog food. Sometimes YOU smart people overthink things.
And there are any number of strategies you could have employed to come out 25% or more ahead, given hindsight.
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Re: Vanguard says international will beat US stocks in next decade

Post by munemaker »

The reason Vanguard and others who make such predictions are saying international will outperform over the next decade is due to valuations. The PE of foreign stocks is much lower than domestic stocks.

Over weighting based on valuations? No because it smacks of market timing. Just make your portfolio mirror the world market.
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Re: Vanguard says international will beat US stocks in next decade

Post by samsdad »

Tycoon wrote: Mon Dec 24, 2018 9:38 am Or, some recongnize that it's pointless to argue with those that have anchored their thoughts.
I’ve also said before that if the US was scoring like China on the corruption continuum that I’d happily entertain investing elsewhere. Why wouldn’t I? But perhaps Vespasian was right and “pecunia non olet.”
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Re: Vanguard says international will beat US stocks in next decade

Post by Vulcan »

samsdad wrote: Mon Dec 24, 2018 9:06 am I’ll state it again: I think we do a disservice to new investors who come here looking for advice on their AA and whether to invest in international without explaining to them that international markets are not the same as domestic and that they all fall on a spectrum of transparency, corruption, etc. We treat these markets as if they carried no additional risk from this activity which is disingenuous. And then when I or other posters bring it up it’s hand waived with the cursory explanation that it’s “already priced in,” which brings us full circle to my original question upthread, to wit, how does one price in rampant wholesale market manipulation year to year? Especially in ten-year forecasts?
The same way things always get priced in: by adjusting P relative to E.

China currently represents approx 3% of Vanguards Total World Stock Index fund (VTWSX).
All emerging markets combined amount to less than 10% of it.

I do not believe anybody is saying international investing is "the same" as domestic or that various countries do not have their own unique risks.
But, incidentally, home country bias also comes with its unique risks (since everyone's home country is unique).
Especially over the long term.

World market cap investing is unique in that you assume you know nothing anyone else doesn't.
Any deviation from it assumes you have a unique (or very rare) insight into how the future of the world will unfold.

As an American by choice I am already betting pretty large on America. Pardon me if I want to diversify where I can.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: Vanguard says international will beat US stocks in next decade

Post by Hustlinghustling »

samsdad wrote: Mon Dec 24, 2018 9:06 am Unbelievable. I’ve posted before that I have no doubt that the US isn’t perfect, free from corruption, etc. but apparently I have to state that every single time I ask about this. Perhaps I’ll add it to my signature if I find it worthwhile to stick around here.

I’ve posted before where, for example, the communist party in China manipulates the heck out of the market there, citing Forbes and Fortune articles—that I didn’t write—but for some reason it’s me that is xenophobic etc., for bringing it up.

I didn’t write the World Economic Forum’s Global Competiviness Report either, nor am I related in any way to Transparency International. I never even knew TI existed till yesterday after doing some research after the poster above made the absolutely ridiculous remark that dollar for dollar US is the most corrupt place on the planet. (I wonder if Messrs. Larimore and Lindauer would agree.) No one else stepped up to the plate (that’s a baseball reference) which dumbfounded me. Either everyone agrees and is blithely investing half, a majority, or all their money in the most corrupt place on Earth, or that poster is spinning a yarn that no one cared to call them out on.

I’ll state it again: I think we do a disservice to new investors who come here looking for advice on their AA and whether to invest in international without explaining to them that international markets are not the same as domestic and that they all fall on a spectrum of transparency, corruption, etc. We treat these markets as if they carried no additional risk from this activity which is disingenuous. And then when I or other posters bring it up it’s hand waived with the cursory explanation that it’s “already priced in,” which brings us full circle to my original question upthread, to wit, how does one price in rampant wholesale market manipulation year to year? Especially in ten-year forecasts?

Why this topic is so taboo here is puzzling. Why the ad hominem attacks are encouraged is telling, and yes, “sad,” to borrow a phrase.
Even on your own transparency list, US is "only" 16th. Above it at 13? Hong Kong, a CHINESE market. There are 15 other countries ranked higher than the US according to your own source which you still won't invest in simply because they've been tainted as likely to be market manipulators and corrupt because they're "foreign"

Nevermind the fact that valuations account for political risks. Nevermind the fact US has a lengthy track record of rampant market manipulation and intervention themselves. Nevermind the fact that you won't invest into Canada, Singapore or Switzerland because CHINA of all places has corruption (...come again??)

I personally don't care if you or others invest market weight on International. A reasonable argument could be made not to based on costs and currency risks.

Problem lies in that espousing this binary US vs non-US view of the world as essentially safe/corrupt, transparent/opaque, free market/market manipulators, etc is - to borrow your phrase - "doing a disservice to new investors".
Last edited by Hustlinghustling on Mon Dec 24, 2018 10:54 am, edited 1 time in total.
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Re: Vanguard says international will beat US stocks in next decade

Post by Vulcan »

Hustlinghustling wrote: Mon Dec 24, 2018 10:24 am I personally don't care if you or others invest market weight on International. A reasonable argument could be made not to based on costs and currency risks.

Problem lies in that espousing this binary US vs non-US view of the world as essentially safe/corrupt, transparent/opaque, free market/market manipulators, etc is - to borrow your phrase - "doing a disservice to new investors".
+1

In some sense this is not unlike saying that suggesting total US market cup investing is a disservice to new investors who are better off sticking to S&P 500 because mid and small caps are riskier.

I do not see anyone here making this argument though.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: Vanguard says international will beat US stocks in next decade

Post by Chuffly »

Hustlinghustling wrote: Mon Dec 24, 2018 10:24 am
samsdad wrote: Mon Dec 24, 2018 9:06 am Unbelievable. I’ve posted before that I have no doubt that the US isn’t perfect, free from corruption, etc. but apparently I have to state that every single time I ask about this. Perhaps I’ll add it to my signature if I find it worthwhile to stick around here.

I’ve posted before where, for example, the communist party in China manipulates the heck out of the market there, citing Forbes and Fortune articles—that I didn’t write—but for some reason it’s me that is xenophobic etc., for bringing it up.

I didn’t write the World Economic Forum’s Global Competiviness Report either, nor am I related in any way to Transparency International. I never even knew TI existed till yesterday after doing some research after the poster above made the absolutely ridiculous remark that dollar for dollar US is the most corrupt place on the planet. (I wonder if Messrs. Larimore and Lindauer would agree.) No one else stepped up to the plate (that’s a baseball reference) which dumbfounded me. Either everyone agrees and is blithely investing half, a majority, or all their money in the most corrupt place on Earth, or that poster is spinning a yarn that no one cared to call them out on.

I’ll state it again: I think we do a disservice to new investors who come here looking for advice on their AA and whether to invest in international without explaining to them that international markets are not the same as domestic and that they all fall on a spectrum of transparency, corruption, etc. We treat these markets as if they carried no additional risk from this activity which is disingenuous. And then when I or other posters bring it up it’s hand waived with the cursory explanation that it’s “already priced in,” which brings us full circle to my original question upthread, to wit, how does one price in rampant wholesale market manipulation year to year? Especially in ten-year forecasts?

Why this topic is so taboo here is puzzling. Why the ad hominem attacks are encouraged is telling, and yes, “sad,” to borrow a phrase.
Even on your own transparency list, US is "only" 16th. Above it at 13? Hong Kong, a CHINESE market. There are 15 other countries ranked higher than the US according to your own source which you still won't invest in simply because they've been tainted as likely to be market manipulators and corrupt because they're "foreign"

Nevermind the fact that valuations for the most part account for political risks. Nevermind the fact US has a lengthy track record of rampant market manipulation and intervention themselves. Nevermind the fact that you won't invest into Canada, Singapore or Switzerland because CHINA of all places has corruption (...come again??)

I personally don't care if you or others invest market weight on International. A reasonable argument could be made not to based on costs and currency risks.

Problem lies in that espousing this binary US vs non-US view of the world as essentially safe/corrupt, transparent/opaque, free market/market manipulators, etc is - to borrow your phrase - "doing a disservice to new investors".
To add another point to several good ones you made, it's a bit odd to focus exclusively on the market manipulations in other countries, when the US has been through a period in which the Federal Reserve artificially suppressed interest rates for nearly a decade. Especially when it stated that one of its intended purposes was to hold them low to inflate asset prices to create a "wealth effect". And it's pretty evident that it was distorting the prices, given how commonly the "TINA" argument (comparison of us stocks to bonds) was trotted out to justify the purchase of U.S. stocks in the face of elevated valuations.

I'm not sure how one decides that this market manipulation is better than the market manipulations carried out in other countries, and that the current hefty valuation premium the market is giving to U.S. equities properly prices or underprices its superiority.
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Re: Vanguard says international will beat US stocks in next decade

Post by willthrill81 »

vineviz wrote: Mon Dec 24, 2018 2:29 am
samsdad wrote: Sun Dec 23, 2018 11:56 pm
fennewaldaj wrote: Sun Dec 23, 2018 11:10 pm
samsdad wrote: Sun Dec 23, 2018 3:31 pm I've been trying to figure out how Vanguard (or anyone else) figures out the valuations of securities in countries where the local government actively manipulates their market in differing amounts year to year? Do they have some sort of proprietary corruption algorithm? Do they have phone calls with the local political committee chairs?
I think Vanguard tries to account for this in part by looking for more attractive valuations for EM to consider it fairly valued
Perhaps. I just find it fascinating that on a forum where people debate, at length, whether to invest in some fund or not based upon a difference of a few basis points or because one follows the CRSP index vs the Russell, etc. there is very little discussion about just how much it’s costing to invest in EM or developed based upon local market corruption, etc. I fear it’s because there’s no way to accurately gauge it in terms of a “corruption drag” like we might talk about a “tax drag” and hang a percentage on it.
I invest to make money, not as a way to demonstrate my personal prejudices.
Please don't start beating that drum again. It has been firmly established repeatedly that there are perfectly logical reasons for investing solely in the U.S. as well as global market cap weighting.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Vanguard says international will beat US stocks in next decade

Post by vineviz »

willthrill81 wrote: Mon Dec 24, 2018 11:20 am It has been firmly established repeatedly that there are perfectly logical reasons for investing solely in the U.S. as well as global market cap weighting.
Nothing of the sort has been "firmly established", unless you mean that there is a group of US-only investors who are firmly entrenched in their world view. That I will concede, as they are unwaveringly vocal about it.

Anyone who thinks that future equity returns are uncertain and/or that diversification is important will maintain SOME exposure to international equities unless they have some sort of bias that precludes them from acting in their own best interest.

There is a perfectly reasonable argument to made for maintaining a global market weight allocation, and a perfectly reasonable argument to be made for allocating with some degree of home bias.

Even the most coherent arguments for avoiding international stocks (i.e. tax differentials and currency effects) have been well documented as being insufficient to fully explain the home bias phenomenon. There's nothing left but irrational preference. Such preferences might be reasonable, but they are anything but logical.
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Re: Vanguard says international will beat US stocks in next decade

Post by samsdad »

vineviz wrote: Mon Dec 24, 2018 12:43 pm
willthrill81 wrote: Mon Dec 24, 2018 11:20 am It has been firmly established repeatedly that there are perfectly logical reasons for investing solely in the U.S. as well as global market cap weighting.
Nothing of the sort has been "firmly established", unless you mean that there is a group of US-only investors who are firmly entrenched in their world view. That I will concede, as they are unwaveringly vocal about it.

Anyone who thinks that future equity returns are uncertain and/or that diversification is important will maintain SOME exposure to international equities unless they have some sort of bias that precludes them from acting in their own best interest.

There is a perfectly reasonable argument to made for maintaining a global market weight allocation, and a perfectly reasonable argument to be made for allocating with some degree of home bias.

Even the most coherent arguments for avoiding international stocks (i.e. tax differentials and currency effects) have been well documented as being insufficient to fully explain the home bias phenomenon. There's nothing left but irrational preference. Such preferences might be reasonable, but they are anything but logical.
Here’s what the irrational Securities and Exchange Commission Office of Investor Education and Advocacy says about international investing, in relevant part:
U.S. investors may already have investments that provide international exposure. In the United States, we have access to information and products from all over the world. Foreign companies can achieve the status of household names in the United States without public awareness that these companies are domiciled outside of the United States, or they may conduct a majority of their business operations abroad. In addition, many U.S. companies are multinational corporations or have substantial foreign operations. Investors should conduct a review of their holdings, including any U.S.-registered mutual funds and ETFs, to determine whether the securities they own or are considering for purchase already provide them with international exposure.

...

While investing in any security requires careful consideration, international investing raises some special issues and risks. These include:

Access to different information. In some jurisdictions, the information provided by foreign companies is different than information provided by U.S. companies. The nature, amount and frequency of disclosures required under foreign law may also be different from that required of U.S. companies. In addition, foreign companies’ financial statements may be prepared using a different set of accounting standards than companies use in the United States. Information foreign companies publish may not be in English.

Moreover, the financial statements of publicly listed companies in the United States, whether based in the United States or abroad, must be audited by an independent public accounting firm subject to oversight by the Public Company Accounting Oversight Board (PCAOB). The financial statements of a foreign company that is not publicly listed in the United States may or may not be subject to analogous auditing and auditor oversight arrangements.

...

Political, economic and social events. Depending on the country or region, it can be more difficult for individual investors to obtain information about and comprehensively analyze all the political, economic and social factors that influence a particular foreign market. These factors may provide diversification from a domestically-focused portfolio, but they may also contribute to the risk of international investing.

...

Legal remedies. Where investors purchase a security can affect whether they have, and where they can pursue, legal remedies against the foreign company or any other foreign-based entities involved in a transaction. Investors should be mindful of this when either buying or selling securities on foreign securities exchanges or otherwise outside the United States or entering into securities transactions with parties located outside the United States. In these situations, investors may not have the ability to seek certain legal remedies in U.S. courts as private plaintiffs. Moreover, even if investors sue successfully in a U.S. court, they may not be able to collect on a U.S. judgment against a foreign company, entity or person. Investors may have to rely on legal remedies that are available in the home country, if any.

The SEC’s law enforcement authority with respect to fraudulent conduct protects investors and markets within the United States and protects against fraudulent conduct outside the United States that has a foreseeable substantial effect within the United States. SEC action, however, may or may not lead to the investor receiving funds to redress any fraud. In addition, the SEC may face legal and other obstacles to obtaining information that it would need for investigations or litigation if the information is located in a foreign country.

...

Different market operations. Foreign markets may operate differently from the major U.S. trading markets. For example, there may be different time periods for clearance and settlement of securities transactions. Some foreign markets may not report securities trades within the same period as U.S. markets. Rules providing for the safekeeping of shares held by foreign custodian banks or depositories may differ from those in the United States. If a foreign custodian has credit problems or fails, shares purchased in a foreign market may have different levels of protection than provided under the laws of the United States.
https://www.sec.gov/reportspubs/investo ... sthtm.html
I didn’t make this stuff up. The SEC did. And no, I’m not sitting on some sort of binary “US good!/international bad!” position, which I why I’ve used the words “spectrum, continuum, scale” and the like here and previously. Many others aren’t either.

Truth be told, I wouldn’t be as “firmly entrenched” if I could just stop dragging my knuckles on the ground once in awhile. But you probably knew that already.
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Re: Vanguard says international will beat US stocks in next decade

Post by s8r »

It baffles me how patriotic many US investors seem to be when it comes to asset allocation.

For example, stocks in my small home country have beaten US stocks since probably the 1960s. Also, there is less corruption than in the US. In fact, my country is the most stable, best governed, safest and freest in the world according to some recent studies I could find.

But I still would not even think of having an equity home-bias. Not even a small one. No way. That would be an emotional, patriotic decision with little logic behind it. Now, I know I am comparing big apples to very small oranges with the above example, but many US investors should really sit down and think for a while how silly these debates often seem through the eyes of non-US investors. :happy

Global market cap is the most logical strategy I can think of. It is the "vanilla" Boglehead allocation.
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Re: Vanguard says international will beat US stocks in next decade

Post by sassy_penguin »

s8r wrote: Mon Dec 24, 2018 4:46 pm It baffles me how patriotic many US investors seem to be when it comes to asset allocation.

For example, stocks in my small home country have beaten US stocks since probably the 1960s. Also, there is less corruption than in the US. In fact, my country is the most stable, best governed, safest and freest in the world according to some recent studies I could find.

But I still would not even think of having an equity home-bias. Not even a small one. No way. That would be an emotional, patriotic decision with little logic behind it. Now, I know I am comparing big apples to very small oranges with the above example, but many US investors should really sit down and think for a while how silly these debates often seem through the eyes of non-US investors. :happy

Global market cap is the most logical strategy I can think of. It is the "vanilla" Boglehead allocation.
How hard is it for an American to get citizenship in this utopia? haha.
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Re: Vanguard says international will beat US stocks in next decade

Post by munemaker »

s8r wrote: Mon Dec 24, 2018 4:46 pm It baffles me how patriotic many US investors seem to be when it comes to asset allocation.
I don't think it has anything to do with patriotism. The US is the biggest economy in the world and many global companies are headquartered here. We have a good regulatory structure. The US stock market has been outperforming non US for a long time. Well respected investors such as Jack Bogle and Warren Buffet have advised us to limited our investments to the US market.

That being said, I am invested globally. However, the non-US stocks have been a drag on my portfolio's performance for years.

Again, For most it has nothing to do with patriotism.
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Re: Vanguard says international will beat US stocks in next decade

Post by Hustlinghustling »

samsdad wrote: Mon Dec 24, 2018 9:55 am I’ve also said before that if the US was scoring like China on the corruption continuum that I’d happily entertain investing elsewhere.
newsflash. on your own market transparency ranking, the US scored 16th. 3 countries worse than Hong Kong.

and if its not binary but a continuum as you claim, why choose the 16th best option and still paint the 15 countries AHEAD of the US as somehow more corrupt and too market manipulative to invest in.

That is the problem: this brush applied on everything simply not US that somehow equates Tunisian or Cambodian corporate governance with Swiss and Singapore’s. All corrupt, market manipulating foreigners where you can’t price in their impact! a little nuance please
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Re: Vanguard says international will beat US stocks in next decade

Post by fennewaldaj »

sassy_penguin wrote: Mon Dec 24, 2018 6:33 pm
s8r wrote: Mon Dec 24, 2018 4:46 pm It baffles me how patriotic many US investors seem to be when it comes to asset allocation.

For example, stocks in my small home country have beaten US stocks since probably the 1960s. Also, there is less corruption than in the US. In fact, my country is the most stable, best governed, safest and freest in the world according to some recent studies I could find.

But I still would not even think of having an equity home-bias. Not even a small one. No way. That would be an emotional, patriotic decision with little logic behind it. Now, I know I am comparing big apples to very small oranges with the above example, but many US investors should really sit down and think for a while how silly these debates often seem through the eyes of non-US investors. :happy

Global market cap is the most logical strategy I can think of. It is the "vanilla" Boglehead allocation.
How hard is it for an American to get citizenship in this utopia? haha.
I would assume this is one of the Scandinavian countries. Last I checked all of their stock markets have beat the US since the 60s. I think it kinda hard for US citizens to move there permanently.
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Re: Vanguard says international will beat US stocks in next decade

Post by MinhN »

I wouldn't say "will", but total emerging market funds completely obliterated the US stock market between the dotcom bubble and the 2008 financial crisis. It could happen again for non-US stocks. That's why I advocate investing in a global equity fund.
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Re: Vanguard says international will beat US stocks in next decade

Post by s8r »

fennewaldaj wrote: Mon Dec 24, 2018 10:45 pm
sassy_penguin wrote: Mon Dec 24, 2018 6:33 pm
s8r wrote: Mon Dec 24, 2018 4:46 pm It baffles me how patriotic many US investors seem to be when it comes to asset allocation.

For example, stocks in my small home country have beaten US stocks since probably the 1960s. Also, there is less corruption than in the US. In fact, my country is the most stable, best governed, safest and freest in the world according to some recent studies I could find.

But I still would not even think of having an equity home-bias. Not even a small one. No way. That would be an emotional, patriotic decision with little logic behind it. Now, I know I am comparing big apples to very small oranges with the above example, but many US investors should really sit down and think for a while how silly these debates often seem through the eyes of non-US investors. :happy

Global market cap is the most logical strategy I can think of. It is the "vanilla" Boglehead allocation.
How hard is it for an American to get citizenship in this utopia? haha.
I would assume this is one of the Scandinavian countries. Last I checked all of their stock markets have beat the US since the 60s. I think it kinda hard for US citizens to move there permanently.
Yes, I am referring to Finland (although it is not Scandinavian but Nordic). I think the Swedish stock market has done even better.

I would imagine US citizens are very welcome here.
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Re: Vanguard says international will beat US stocks in next decade

Post by SimplicityNow »

As Mr. Bogle would say.

Nobody knows nothing. (That includes Vanguard)
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Re: Vanguard says international will beat US stocks in next decade

Post by sassy_penguin »

Do VEMAX and VTIAX have much overlap? I see that 21.3% of VTIAX is Emerging Market. That would be ~1357 stocks. But VEMAX has ~4597 emerging market stocks. Are the ones in VTIAX likely just the largest 1357 by market cap from the longer list VEMAX has?

I feel pretty diversified since I only hold VTSAX+VTIAX. But a small part of me always wonders if I need to cut VEMAX in somehow.
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Re: Vanguard says international will beat US stocks in next decade

Post by Northern Flicker »

Do VEMAX and VTIAX have much overlap? I see that 21.3% of VTIAX is Emerging Market. That would be ~1357 stocks. But VEMAX has ~4597 emerging market stocks.
That 21.3% refers to market cap not number of stocks. And Vemax has China A-shares, VTIAX does not.
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Re: Vanguard says international will beat US stocks in next decade

Post by Kenkat »

s8r wrote: Tue Dec 25, 2018 3:16 am
fennewaldaj wrote: Mon Dec 24, 2018 10:45 pm
sassy_penguin wrote: Mon Dec 24, 2018 6:33 pm
s8r wrote: Mon Dec 24, 2018 4:46 pm It baffles me how patriotic many US investors seem to be when it comes to asset allocation.

For example, stocks in my small home country have beaten US stocks since probably the 1960s. Also, there is less corruption than in the US. In fact, my country is the most stable, best governed, safest and freest in the world according to some recent studies I could find.

But I still would not even think of having an equity home-bias. Not even a small one. No way. That would be an emotional, patriotic decision with little logic behind it. Now, I know I am comparing big apples to very small oranges with the above example, but many US investors should really sit down and think for a while how silly these debates often seem through the eyes of non-US investors. :happy

Global market cap is the most logical strategy I can think of. It is the "vanilla" Boglehead allocation.
How hard is it for an American to get citizenship in this utopia? haha.
I would assume this is one of the Scandinavian countries. Last I checked all of their stock markets have beat the US since the 60s. I think it kinda hard for US citizens to move there permanently.
Yes, I am referring to Finland (although it is not Scandinavian but Nordic). I think the Swedish stock market has done even better.

I would imagine US citizens are very welcome here.
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Re: Vanguard says international will beat US stocks in next decade

Post by Kenkat »

As I was looking over various 15 year returns of my funds this morning, it occurred to me that the recovery out of this recent bear market could very well be led by international and value. They’ve both been lagging for awhile now. We shall see I guess, who really knows for sure?
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Re: Vanguard says international will beat US stocks in next decade

Post by Northern Flicker »

The argument for a tilt to one’s home country is to minimize currency risk. With Finland being a Eurozone country, one could make the argument that a home currency tilt would involve all Eurozone countries.
Last edited by Northern Flicker on Tue Dec 25, 2018 6:41 pm, edited 1 time in total.
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Re: Vanguard says international will beat US stocks in next decade

Post by selters »

Badger1754 wrote: Sun Dec 23, 2018 12:37 pm Many "international" companies (Nestle, BP, Alibaba, just to name a few) are listed on US stock exchanges or have US ADRs and therefore are included in US indices like the S&P 500, which makes them part and parcel of portfolios containing "US stocks".
That ceased to be the case in something like 1997.
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Re: Vanguard says international will beat US stocks in next decade

Post by ReformedSpender »

Kenkat wrote: Tue Dec 25, 2018 1:13 pm As I was looking over various 15 year returns of my funds this morning, it occurred to me that the recovery out of this recent bear market could very well be led by international and value. They’ve both been lagging for awhile now. We shall see I guess, who really knows for sure?
That is my thought as well

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Re: Vanguard says international will beat US stocks in next decade

Post by willthrill81 »

vineviz wrote: Mon Dec 24, 2018 12:43 pmAnyone who thinks that future equity returns are uncertain and/or that diversification is important will maintain SOME exposure to international equities unless they have some sort of bias that precludes them from acting in their own best interest.
VTSAX has holdings in 3,639 companies. That's very diversified by any logical measure I've seen.

The underlying issue is how much value there is in reducing country risk and adding ~2,700 more companies (with Vanguard's ex-U.S. fund) to your portfolio with international investing given the additional costs and risks that come with international investing. Whether this is a good move is a subjective assessment, and it's inappropriate to say that someone is biased because their assessment is different from one's own.
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