International Funds Still Relevant in a Simple Portfolio?

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KYDoc
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International Funds Still Relevant in a Simple Portfolio?

Post by KYDoc » Sun Dec 30, 2018 10:38 pm

I'm curious about how you all feel about International fund exposure these days? I recently did some tax loss harvesting from my Vanguard Total International Index Fund, reducing my exposure to that sector from about 15% to 3%. I'm at the point now where I was planning on buying back into the fund but am second guessing my strategy.

On one hand, I don't want to let recent performance bias my decision. I have always had an International allocation in my portfolio and there's something to be said about not letting recent events spook you from your plan. On the other hand, it has been 9 years (2009) since the International market has outpaced the S&P 500 by more than a couple percentage points and if you look at the last decade of performance, it seems that US stocks and International stocks are pretty closely correlated with the main difference being that an all-US portfolio dwarfs the International portfolio over that time period.

I know that there have been advocates of an all-US portfolio (Bogle, Buffett) and there have been time periods where an International portfolio has outpaced an all-US portfolio (2002-2007) but watching the International markets drag down my performance over the last decade is making me rethink things. On the other hand, this might be an ideal time to increase allocation to International equities after almost a decade of sluggish performance. I am aware that the Vanguard Life Strategy Funds have been tilting towards International exposure recently.

What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
KYDoc (now residing in Alaska)

Silk McCue
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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Silk McCue » Sun Dec 30, 2018 10:52 pm

Staying the course. Equities are approx 60/40 US to International. I hope to be in the market a long time and want to participate in what it has to offer globally.

Cheers

UpperNwGuy
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Re: International Funds Still Relevant in a Simple Portfolio?

Post by UpperNwGuy » Sun Dec 30, 2018 10:55 pm

I plan to continue to hold international at about 20% of equities in a simple 60/40 portfolio.

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vineviz
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Re: International Funds Still Relevant in a Simple Portfolio?

Post by vineviz » Sun Dec 30, 2018 10:56 pm

I'm very happy to have over 40% of my equities in non-US stocks. Every analysis I've done suggests this is pretty close to optimal.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

k3vb0t
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Re: International Funds Still Relevant in a Simple Portfolio?

Post by k3vb0t » Sun Dec 30, 2018 10:58 pm

Flip it around: at the end of 2007 (where you said int'l portfolio outpaced US-based), would you have reassessed your US holdings and dropped them down significantly?

Probably not is my guess, and you would have missed out on the massive run since then.

I understand the sentiment though - int'l has pulled my performance down not insignificantly. But I do want global exposure and figure, things being down just allows me to accumulate more shares at lower prices than before.

I am also 60/40 US/Int'l, and have another 25+ years in the market. Overall portfolio is 85/15 stocks/bonds.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by kolea » Sun Dec 30, 2018 11:47 pm

KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
International was never part of my master plan, but I altered my plan based on arguments on this forum and now have a US/ex-US ratio of about 75/25. However I am starting to rethink that and am looking for an exit strategy from international.

I was never completely convinced that it was really anything more than a currency play, in which International perks up when the US dollar is weak. The US economy and ex-US are just way to intertwined to be uncorrelated. The overall performance of international reminds me of a tilt towards small-cap-value: sometimes it works, but you have to pick the right epoch to see a benefit. Plus the economic performance of various global markets is very dependent upon politics - Trump can tweet who knows what and some market will be impacted. So, until the international playing field becomes more level, I am thinking of a way to disengage. Not sure what that will be, or when.
Kolea (pron. ko-lay-uh). Golden plover.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Peter Foley » Mon Dec 31, 2018 12:00 am

I've updated some of my numbers over the past couple days and my international exposure has not changed much. It is roughly 15% of my equities, 7.5% of my total. I'm comfortable with that even with international's long term under performance relative to US.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by ofcmetz » Mon Dec 31, 2018 12:08 am

Don't change your allocation based on recent performance. International may or not be a better investment than US stocks, but their PE's are certainly lower so you at least get more earnings for your buck. If you have an allocation, then stick with it unless your reasons for that allocation have changed. In invested in Total International, some here do not. We all have good reasons for doing it either way, but that reason shouldn't be recent performance.
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Re: International Funds Still Relevant in a Simple Portfolio?

Post by pascalwager » Mon Dec 31, 2018 1:17 am

I recently reduced my international holdings to 30% after 23 years of holding 45 to 50%. I've personally come to believe that international investing is probably a lost cause and will generally provide inferior stock returns compared to the US. When, and if, it does outperform the US, I expect that both asset classes will probably have poor returns and the difference won't be impressive--and I'll probably be deceased anyway.

Vanguard Portfolio Watch considers international allocations of 30 to 50% to be reasonable, so my new AA is more of an adjustment or compromise than a clean break with academic theory. Also, the lower currency risk is probably suitable for a retiree. However, it would be easy to reduce even more to 22%, leaving only my taxable international holdings with decades of capital gains. I could also stop reinvesting distributions back into these investments.

Is my action based on recent performance? Well, yes, if 23 years is considered recent.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by oldcomputerguy » Mon Dec 31, 2018 5:58 am

I'm still holding 30% of my equity in international. This was my initial allocation, and I have no plans to change it.
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Re: International Funds Still Relevant in a Simple Portfolio?

Post by ignition » Mon Dec 31, 2018 6:08 am

I have about 99% international but that's because I'm from Belgium and our country is tiny :) . I hold the markets more or less according to market cap weight so about 55-60% US. I do think Ex-US has a chance of performing better the coming years if you look at valuations.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by tmcc » Mon Dec 31, 2018 6:32 am

In all seriousness, if you consider just how bad International (FTSE Developed ex US) has been and how people are starting to consider puking their 20%+ losses (myself included), that might mean its time to double down

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by nisiprius » Mon Dec 31, 2018 6:57 am

I don't know if they were ever relevant.

I don't see anything that has changed and I am staying the course.

I've been at 20-25% international exposure in my stocks since 2005.

I don't know what has driven changes in the conventional wisdom, from Burton Malkiel recommending 16% international in 1990 to 50% nowadays. I don't think it's anything objective about the world or the markets.

I have watched Vanguard's Portfolio Watch change from giving me a (literally red!) warning when I accidentally let it climb too high 20.5%, to the current situation where it gives me a gentle "consider" because it is below 30%. In short, I've stayed the course, but Vanguard's recommendations haven't.

I really believe that, whatever percentage international is chosen, staying the course at that percentage, whatever it is, is more important than what the percentage is. People with 0% international shouldn't add international now, or at least should do it very gradually over a period of years. People with total global cap weight, i.e. 50% international, should cut it now, or at least should do it very gradually over a period of years.

I've seen no evidence that international stocks have ever made much difference one way or the other. As for the future, it's the future; in the United States, "we were all going direct to Heaven, we were all going direct the other way." The least problematical prediction is persistence.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by columbia » Mon Dec 31, 2018 7:05 am

If one has sunk nearly half their equities abroad, there’s a psychological incentive to continue to that believe that was and will be a good idea.

I don’t know if it was or will be. To each their own.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by michaeljc70 » Mon Dec 31, 2018 7:20 am

Staying the course. You say you don't want recency bias to impact your decision, but I didn't really see other reasons for making a change. Bonds haven't exactly performed great the last year or two, but I am not going to be jumping in and out of asset classes due to recent performance (unless it falls under normal portfolio rebalancing).

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by chw » Mon Dec 31, 2018 7:21 am

I'm staying the course at 20% of equities. Jack has advised over the years that if one must invest internationally, this is generally a good exposure to international for US investors. Many US companies derive profits internationally, thus giving you close to the global weighting to equities many here try to achieve. I see no reason to change this exposure and expect that international may outperform US equities over the next 10 years, but no one really knows.

I recently did some tax loss harvesting in my taxable account of some international positions, and expect to rebalance to my 20% exposure in January during my annual rebalance.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by ReformedSpender » Mon Dec 31, 2018 7:24 am

KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
On the other hand, it has been 9 years (2009) since the International market has outpaced the S&P 500 by more than a couple percentage points and if you look at the last decade of performance, it seems that US stocks and International stocks are pretty closely correlated with the main difference being that an all-US portfolio dwarfs the International portfolio over that time period.
Stay the course ‘cus nobody knows nothing.

One can thank the likes of FAANG for the majority of the US outperformance the past several years. Look how tech heavy the weighting in indices were by mid 2018. If you believe this group or sector will continue to outperform, higher US allocation may be the right call. Personally, I am sticking with and even increasing my international allocation. I prefer to buy low and international equities are just that, low; offering a nice dividend yield to boot.

At the end of the day, international stocks have outperformed before and will outperform again. All In my opinion of course

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

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by indexonlyplease » Mon Dec 31, 2018 7:37 am

nisiprius wrote:
Mon Dec 31, 2018 6:57 am
I don't know if they were ever relevant.

I don't see anything that has changed and I am staying the course.

I've been at 20-25% international exposure in my stocks since 2005.

I don't know what has driven changes in the conventional wisdom, from Burton Malkiel recommending 16% international in 1990 to 50% nowadays. I don't think it's anything objective about the world or the markets.

I have watched Vanguard's Portfolio Watch change from giving me a (literally red!) warning when I accidentally let it climb too high 20.5%, to the current situation where it gives me a gentle "consider" because it is below 30%. In short, I've stayed the course, but Vanguard's recommendations haven't.

I really believe that, whatever percentage international is chosen, staying the course at that percentage, whatever it is, is more important than what the percentage is. People with 0% international shouldn't add international now, or at least should do it very gradually over a period of years. People with total global cap weight, i.e. 50% international, should cut it now, or at least should do it very gradually over a period of years.

I've seen no evidence that international stocks have ever made much difference one way or the other. As for the future, it's the future; in the United States, "we were all going direct to Heaven, we were all going direct the other way." The least problematical prediction is persistence.
I am thinking the same about international. I will reballance in January. This year I have to move a large sum of money because my AA drifted far to fixed income. But I am thinking of just letting the internationals ride (20% of stocks) and rebalance into the total stock fund only. But not sure yet. Also, will start looking at quarterly reballance if needed. Its a lot easy to move some money every quarter then lots of money In January.

This is why I advised my college part time working son to invest into Vanguard target Dated Fund in his Roth. No decision for him. The pros at Vanguard are making the choice for him. Lets see if they are correct one day.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Lastrun » Mon Dec 31, 2018 7:51 am

pascalwager wrote:
Mon Dec 31, 2018 1:17 am
I recently reduced my international holdings to 30% after 23 years of holding 45 to 50%. I've personally come to believe that international investing is probably a lost cause and will generally provide inferior stock returns compared to the US. When, and if, it does outperform the US, I expect that both asset classes will probably have poor returns and the difference won't be impressive--and I'll probably be deceased anyway.

Vanguard Portfolio Watch considers international allocations of 30 to 50% to be reasonable, so my new AA is more of an adjustment or compromise than a clean break with academic theory. Also, the lower currency risk is probably suitable for a retiree. However, it would be easy to reduce even more to 22%, leaving only my taxable international holdings with decades of capital gains. I could also stop reinvesting distributions back into these investments.

Is my action based on recent performance? Well, yes, if 23 years is considered recent.
The sole reason for international to me was diversification and perhaps a desire to adhere to the concept of the market portfolio. I have a very similar thought process as you, then I read this (below) from Vanguards target date fund white paper, stare at a Callan table for a while, and stay the course that my 20% allocation is the least cost for the diversification benefit.


Our research has shown that allocations of 20% non-U.S. equities have provided about 85% of the maximum diversification benefit. Higher amounts such as 30% and 40% have provided more than 95% of this benefit. Allocations exceeding 40% would not have historically added significant additional diversification benefits, particularly when costs are taken into account. We believe non-U.S. equity allocations between 20% and full market-cap can be appropriate.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by indexonlyplease » Mon Dec 31, 2018 7:56 am

Question:

When looking at the year to date return does this include dividends.
Also, I see Schwab Total International pays a 2.97% dividend. I believe this is a good dividend even though the fund is down over 13%.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by samsdad » Mon Dec 31, 2018 8:09 am

I don’t do international.

But you thought it a good idea at some point, or
at least you were persuaded that it was. Why? What changed? Did you really believe it in the first place?

If you thought it was a good idea to hold it solely because of the possibility that it’d outperform, well, that’s still a possibility.

If you thought it provided some diversification benefit that was meaningful enough for you, I’d venture to guess that at 3% of your portfolio it ain’t doing much of that anymore. I’d say at 15% it was, at best, borderline, no pun intended.

Right now you’ve harvested some losses and are sitting with an international allocation that’s pretty much meaningless to your overall returns going forward.

I’d do some soul searching before jumping back in, because jumping in and out and back is a sure way of maximizing losses.

When I first got here, I spent a lot of time thinking about whether I could hold international long term and decided I couldn’t for many reasons. I feel the same about bonds at my current age. So I never held them because I didn’t want to jump in and out.

I sleep well, even if I’m missing out on x, y, and z from not holding them. I might change my mind in the future. But I’ve yet to see any good reasons to do so.

Why don’t you take your time and think about it for awhile? Ignore the market in the meantime.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by balbrec2 » Mon Dec 31, 2018 8:39 am

kolea wrote:
Sun Dec 30, 2018 11:47 pm
KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
International was never part of my master plan, but I altered my plan based on arguments on this forum and now have a US/ex-US ratio of about 75/25. However I am starting to rethink that and am looking for an exit strategy from international.

I was never completely convinced that it was really anything more than a currency play, in which International perks up when the US dollar is weak. The US economy and ex-US are just way to intertwined to be uncorrelated. The overall performance of international reminds me of a tilt towards small-cap-value: sometimes it works, but you have to pick the right epoch to see a benefit. Plus the economic performance of various global markets is very dependent upon politics - Trump can tweet who knows what and some market will be impacted. So, until the international playing field becomes more level, I am thinking of a way to disengage. Not sure what that will be, or when.
+1 on the currency play. Look at the long term charts. US and Intl are highly correlated.
The main difference in performance has been from currencies relative strength.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by rudeboy » Mon Dec 31, 2018 8:45 am

Yes, they are still relevant.

If you want to buy low and sell high, you really do have to buy low.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by michaeljc70 » Mon Dec 31, 2018 8:49 am

balbrec2 wrote:
Mon Dec 31, 2018 8:39 am
kolea wrote:
Sun Dec 30, 2018 11:47 pm
KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
International was never part of my master plan, but I altered my plan based on arguments on this forum and now have a US/ex-US ratio of about 75/25. However I am starting to rethink that and am looking for an exit strategy from international.

I was never completely convinced that it was really anything more than a currency play, in which International perks up when the US dollar is weak. The US economy and ex-US are just way to intertwined to be uncorrelated. The overall performance of international reminds me of a tilt towards small-cap-value: sometimes it works, but you have to pick the right epoch to see a benefit. Plus the economic performance of various global markets is very dependent upon politics - Trump can tweet who knows what and some market will be impacted. So, until the international playing field becomes more level, I am thinking of a way to disengage. Not sure what that will be, or when.
+1 on the currency play. Look at the long term charts. US and Intl are highly correlated.
The main difference in performance has been from currencies relative strength.
There is around a 75% correlation (depends what period you look at) between Total World and Total US. Is that a lot? I guess it depends on your perspective.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Trader Joe » Mon Dec 31, 2018 8:50 am

KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
I'm curious about how you all feel about International fund exposure these days? I recently did some tax loss harvesting from my Vanguard Total International Index Fund, reducing my exposure to that sector from about 15% to 3%. I'm at the point now where I was planning on buying back into the fund but am second guessing my strategy.

On one hand, I don't want to let recent performance bias my decision. I have always had an International allocation in my portfolio and there's something to be said about not letting recent events spook you from your plan. On the other hand, it has been 9 years (2009) since the International market has outpaced the S&P 500 by more than a couple percentage points and if you look at the last decade of performance, it seems that US stocks and International stocks are pretty closely correlated with the main difference being that an all-US portfolio dwarfs the International portfolio over that time period.

I know that there have been advocates of an all-US portfolio (Bogle, Buffett) and there have been time periods where an International portfolio has outpaced an all-US portfolio (2002-2007) but watching the International markets drag down my performance over the last decade is making me rethink things. On the other hand, this might be an ideal time to increase allocation to International equities after almost a decade of sluggish performance. I am aware that the Vanguard Life Strategy Funds have been tilting towards International exposure recently.

What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
I do not invest in international equities (or bonds). I invest in U.S. equities (and bonds) only.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by pokebowl » Mon Dec 31, 2018 1:05 pm

International funds are not relevant when the U.S markets are doing well, however when international markets are doing well versus the US, they matter a great deal. The trick is to know which future decades will benefit international versus the US. My blue telephone box is currently in the shop for repairs or I would tell you.
Nullius in verba.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by OkieIndexer » Mon Dec 31, 2018 1:09 pm

Historically since 1971 it's depended mostly on what happens with Japan stocks, and at this point China stocks too. From 1971-1994 (24 years!) World Ex-U.S. outperformed the S&P 500 by about 1% annualized due mostly to Japan's big bull run. Since 1995 international has underperformed, again due mostly to Japan's long bust (and somewhat China's long bust), and also due to the U.S. market's repeated bubbles with soft landings compared to other bubbles historically and around the world.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Daitokuji » Mon Dec 31, 2018 1:33 pm

I am at 60/40 US:International. Holding the course.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Taylor Larimore » Mon Dec 31, 2018 2:33 pm

KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
I'm curious about how you all feel about International fund exposure these days? I recently did some tax loss harvesting from my Vanguard Total International Index Fund, reducing my exposure to that sector from about 15% to 3%. I'm at the point now where I was planning on buying back into the fund but am second guessing my strategy.

What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
KYDoc:

Stay the course (assuming it is the right one).

You may find this post helpful:

How Much International? A Suggestion

Happy New Year!

Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by 2015 » Mon Dec 31, 2018 5:07 pm

As I posted in another thread, I've only recently come to the conclusion that all investing is nothing more than narrative, and that none of it is over until the fat lady sings (we're either burning up or decomposing in a pine box). I'm not convinced anything works, as all narrative regarding what to do today is entirely too recent and couldn't be more biased. Even if we base our choices on history, it's still narrative. Yet, what are the odds of success for any human who chases yield within a narrative environment? I would posit quite low. Behavior is the bedrock of investing, and that behavior has done more damage to performance throughout history than anything else.

Point is, pick something and stay there. Then leave things alone. All investing may boil nothing to more than the nature of life at risk. But at least get luck and the odds playing in your favor.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by willthrill81 » Mon Dec 31, 2018 5:11 pm

nisiprius wrote:
Mon Dec 31, 2018 6:57 am
I don't know if they were ever relevant.

I don't see anything that has changed and I am staying the course.

I've been at 20-25% international exposure in my stocks since 2005.

I don't know what has driven changes in the conventional wisdom, from Burton Malkiel recommending 16% international in 1990 to 50% nowadays. I don't think it's anything objective about the world or the markets.

I have watched Vanguard's Portfolio Watch change from giving me a (literally red!) warning when I accidentally let it climb too high 20.5%, to the current situation where it gives me a gentle "consider" because it is below 30%. In short, I've stayed the course, but Vanguard's recommendations haven't.

I really believe that, whatever percentage international is chosen, staying the course at that percentage, whatever it is, is more important than what the percentage is. People with 0% international shouldn't add international now, or at least should do it very gradually over a period of years. People with total global cap weight, i.e. 50% international, should cut it now, or at least should do it very gradually over a period of years.

I've seen no evidence that international stocks have ever made much difference one way or the other. As for the future, it's the future; in the United States, "we were all going direct to Heaven, we were all going direct the other way." The least problematical prediction is persistence.
+1

Very well said, as usual. :sharebeer
“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: International Funds Still Relevant in a Simple Portfolio?

Post by Mister A » Mon Dec 31, 2018 5:13 pm

Fidelity's article on international allocations has a nice chart under "Myth 1" suggesting international out-performance is highly cyclical.

https://www.fidelity.com/viewpoints/inv ... ting-myths

That's not to advocate market-timing, but rather to suggest that like anything else with a long time horizon, whatever your allocation may be, "international has been dragging my portfolio down for years" is precisely why you should not change course and lock that drag effect in.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by willthrill81 » Mon Dec 31, 2018 5:15 pm

michaeljc70 wrote:
Mon Dec 31, 2018 8:49 am
balbrec2 wrote:
Mon Dec 31, 2018 8:39 am
kolea wrote:
Sun Dec 30, 2018 11:47 pm
KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
International was never part of my master plan, but I altered my plan based on arguments on this forum and now have a US/ex-US ratio of about 75/25. However I am starting to rethink that and am looking for an exit strategy from international.

I was never completely convinced that it was really anything more than a currency play, in which International perks up when the US dollar is weak. The US economy and ex-US are just way to intertwined to be uncorrelated. The overall performance of international reminds me of a tilt towards small-cap-value: sometimes it works, but you have to pick the right epoch to see a benefit. Plus the economic performance of various global markets is very dependent upon politics - Trump can tweet who knows what and some market will be impacted. So, until the international playing field becomes more level, I am thinking of a way to disengage. Not sure what that will be, or when.
+1 on the currency play. Look at the long term charts. US and Intl are highly correlated.
The main difference in performance has been from currencies relative strength.
There is around a 75% correlation (depends what period you look at) between Total World and Total US. Is that a lot? I guess it depends on your perspective.
Probably no other asset classes that aren't also stocks of some flavor have had that strong of a correlation with U.S. stocks. IIRC, the correlation has been growing stronger over time as well.

That being said, MPT has people far too concerned about asset correlations, IMHO. Historic correlations are about all that you can really use, and these have been known to change, sometimes substantially, from one time period to the next (e.g. correlation between stocks and bonds oscillating between positive, negative, and zero). I'm actually not much of a fan of MPT to tell you the truth.
“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: International Funds Still Relevant in a Simple Portfolio?

Post by overthought » Mon Dec 31, 2018 5:46 pm

Mister A wrote:
Mon Dec 31, 2018 5:13 pm
Fidelity's article on international allocations has a nice chart under "Myth 1" suggesting international out-performance is highly cyclical.

https://www.fidelity.com/viewpoints/inv ... ting-myths

That's not to advocate market-timing, but rather to suggest that like anything else with a long time horizon, whatever your allocation may be, "international has been dragging my portfolio down for years" is precisely why you should not change course and lock that drag effect in.
That same article also claims (under "Myth 5") that the average performance of active international funds is consistently 1% higher than the average performance of passive funds. Not enough details to back up that claim based on what I've seen elsewhere...

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Dottie57 » Mon Dec 31, 2018 5:56 pm

UpperNwGuy wrote:
Sun Dec 30, 2018 10:55 pm
I plan to continue to hold international at about 20% of equities in a simple 60/40 portfolio.
Same here.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Mister A » Mon Dec 31, 2018 6:20 pm

overthought wrote:
Mon Dec 31, 2018 5:46 pm
That same article also claims (under "Myth 5") that the average performance of active international funds is consistently 1% higher than the average performance of passive funds. Not enough details to back up that claim based on what I've seen elsewhere...
Sure, but I didn't cite that part. :wink:

There are 100 versions of that chart out there. My point was only what I said, that 0% and 50% are both perfectly good international allocations, but that trend chasing isn't a good reason to change it.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by nisiprius » Mon Dec 31, 2018 6:32 pm

indexonlyplease wrote:
Mon Dec 31, 2018 7:56 am
Question:

When looking at the year to date return does this include dividends.
Yes. All figures for return, like the 1-3-5-10-year numbers in fund literature, or growth charts, include dividends... and also are net of fund expenses.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by indexonlyplease » Mon Dec 31, 2018 6:43 pm

nisiprius wrote:
Mon Dec 31, 2018 6:32 pm
indexonlyplease wrote:
Mon Dec 31, 2018 7:56 am
Question:

When looking at the year to date return does this include dividends.
Yes. All figures for return, like the 1-3-5-10-year numbers in fund literature, or growth charts, include dividends... and also are net of fund expenses.
Sorrry I mean the 2.97% yield. Or is this considered part of dividend? and how is that taxed?

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by MotoTrojan » Mon Dec 31, 2018 7:39 pm

KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
I'm curious about how you all feel about International fund exposure these days? I recently did some tax loss harvesting from my Vanguard Total International Index Fund, reducing my exposure to that sector from about 15% to 3%. I'm at the point now where I was planning on buying back into the fund but am second guessing my strategy.

On one hand, I don't want to let recent performance bias my decision. I have always had an International allocation in my portfolio and there's something to be said about not letting recent events spook you from your plan. On the other hand, it has been 9 years (2009) since the International market has outpaced the S&P 500 by more than a couple percentage points and if you look at the last decade of performance, it seems that US stocks and International stocks are pretty closely correlated with the main difference being that an all-US portfolio dwarfs the International portfolio over that time period.

I know that there have been advocates of an all-US portfolio (Bogle, Buffett) and there have been time periods where an International portfolio has outpaced an all-US portfolio (2002-2007) but watching the International markets drag down my performance over the last decade is making me rethink things. On the other hand, this might be an ideal time to increase allocation to International equities after almost a decade of sluggish performance. I am aware that the Vanguard Life Strategy Funds have been tilting towards International exposure recently.

What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
If your AA changed due to TLH you may be doing it wrong.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by lostdog » Mon Dec 31, 2018 8:29 pm

pokebowl wrote:
Mon Dec 31, 2018 1:05 pm
International funds are not relevant when the U.S markets are doing well, however when international markets are doing well versus the US, they matter a great deal. The trick is to know which future decades will benefit international versus the US. My blue telephone box is currently in the shop for repairs or I would tell you.
Love the Dr. Who reference. :)
VT, BNDW and chill.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Northern Flicker » Mon Dec 31, 2018 8:55 pm

but their PE's are certainly lower so you at least get more earnings for your buck.
That’s not necessarily true. The future earnings are projected, not guaranteed, and the lower price with respect to projected earnings almost surely reflects the market’s aggregate view of greater uncertainty about whether the projected earnings will be realized.
Risk is not a guarantor of return.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Socal77 » Mon Dec 31, 2018 9:01 pm

I'm keeping a significant amount of my stock allocation in international. International index funds are at like 5-10 year lows or about flat right now.

But I understand where you're coming from.

It hasn't been easy watching domestic stocks way outperform.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by bluquark » Mon Dec 31, 2018 9:26 pm

The way I see it, “international” didn’t underperform, FAANG overperformed. It doesn’t make me feel any particular negativity about Europe or Japan to note that the US has a particular regional economic hub, Silicon Valley, which has had huge, market-driving returns. Rather, it makes me impressed with the past performance of tech and a bit nervous that I don’t want to put all my eggs in assuming this miracle will continue.
jalbert wrote:
Mon Dec 31, 2018 8:55 pm
but their PE's are certainly lower so you at least get more earnings for your buck
That’s not necessarily true. The future earnings are projected, not guaranteed, and the lower price with respect to projected earnings almost surely reflects the market’s aggregate view of greater uncertainty about whether the projected earnings will be realized.
Or it reflects that the markets remain frothy about FAANG continued growth, which cannot be predicted with any accuracy given the tendency towards S-curve adoption rates in tech. IMO there’s greater uncertainty about US projected earnings, and the market is currently choosing a point “in the middle” which could be much too high or much too low (in the last 10 years it has proven consistently much too low, which perhaps now could have caused the markets to finally overshoot?)

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by joe8d » Mon Dec 31, 2018 9:49 pm

Not Necessary, but no more than 20% if you do.
All the Best, | Joe

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by UpperNwGuy » Mon Dec 31, 2018 10:01 pm

bluquark wrote:
Mon Dec 31, 2018 9:26 pm
The way I see it, “international” didn’t underperform, FAANG overperformed.
Hello? Down 15% isn't underperforming? How low does it have to go before you will acknowledge that it underperformed? This has nothing to do with FAANG. It's about total return on an international stock fund.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by pascalwager » Mon Dec 31, 2018 10:03 pm

Taylor Larimore wrote:
Mon Dec 31, 2018 2:33 pm
KYDoc wrote:
Sun Dec 30, 2018 10:38 pm
I'm curious about how you all feel about International fund exposure these days? I recently did some tax loss harvesting from my Vanguard Total International Index Fund, reducing my exposure to that sector from about 15% to 3%. I'm at the point now where I was planning on buying back into the fund but am second guessing my strategy.

What are you all doing with your International allocation? Staying the course or making any revisions in your master plan?
KYDoc:

Stay the course (assuming it is the right one).

You may find this post helpful:

How Much International? A Suggestion

Happy New Year!

Taylor
Vanguard seems to have later raised the bottom of their "reasonable range" from 20% up to 30%. So, with Mr. Bogle at 20% and Vanguard now at 30%, I assume the revised compromise would be to split the difference and go with 25%.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by asif408 » Mon Dec 31, 2018 10:03 pm

OP,

I liquidated all my remaining US stock investments in early 2017 and haven't looked back. I own a small amount of US stocks as part of some commodities producers funds, but more than 90% of my investments are in ex-US developed and emerging markets. The better US stocks did over the years the more I sold them, until I got to the point where I just didn't see a compelling reason to own any of them anymore.

I don't recommend you do exactly what I do, but I do recommend if you believe in the principles taught here you either rebalance to you preferred international allocation or you even increase it. Because you will rarely succeed in investing by selling what has done poorly and buying more of what has done well. And just about the time most people give up on an investment is about the same time its performance usually turns. If you are going to hold international you have to prepare for long periods of underperformance. Otherwise you shouldn't own them.

Stick5vw
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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Stick5vw » Mon Dec 31, 2018 10:14 pm

I stick to market weighting as per the MSCI ACWI. Right now I think that means roughly 55% US, 36% International, and 9% EM.

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Stick5vw » Mon Dec 31, 2018 10:18 pm

Lastrun wrote:
Mon Dec 31, 2018 7:51 am
pascalwager wrote:
Mon Dec 31, 2018 1:17 am
I recently reduced my international holdings to 30% after 23 years of holding 45 to 50%. I've personally come to believe that international investing is probably a lost cause and will generally provide inferior stock returns compared to the US. When, and if, it does outperform the US, I expect that both asset classes will probably have poor returns and the difference won't be impressive--and I'll probably be deceased anyway.

Vanguard Portfolio Watch considers international allocations of 30 to 50% to be reasonable, so my new AA is more of an adjustment or compromise than a clean break with academic theory. Also, the lower currency risk is probably suitable for a retiree. However, it would be easy to reduce even more to 22%, leaving only my taxable international holdings with decades of capital gains. I could also stop reinvesting distributions back into these investments.

Is my action based on recent performance? Well, yes, if 23 years is considered recent.
The sole reason for international to me was diversification and perhaps a desire to adhere to the concept of the market portfolio. I have a very similar thought process as you, then I read this (below) from Vanguards target date fund white paper, stare at a Callan table for a while, and stay the course that my 20% allocation is the least cost for the diversification benefit.


Our research has shown that allocations of 20% non-U.S. equities have provided about 85% of the maximum diversification benefit. Higher amounts such as 30% and 40% have provided more than 95% of this benefit. Allocations exceeding 40% would not have historically added significant additional diversification benefits, particularly when costs are taken into account. We believe non-U.S. equity allocations between 20% and full market-cap can be appropriate.
Interesting. Can you share a link by any chance to the research that you cite above? Does the paper provide any guidance on the right split between developed international equities and emerging market equities?

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Re: International Funds Still Relevant in a Simple Portfolio?

Post by Ferdinand2014 » Tue Jan 01, 2019 12:08 am

I too have struggled with international allocation as many have on this forum.

I love the simplicity and optimism that Jack Bogle and Warren Buffett exude with a simple S&P 500 (or TSM) and short treasury (Buffett) - total bond (Bogle) allocation. Every time I allocate international because I am told by the consensus of experts to do so, I always question it and end up folding into an all US allocation. That I suspect is worse for my portfolio than just sticking with an all U.S. allocation and not fiddling. Currently I am 20% short treasuries and 80% equities split 80 U.S./20 Int. It's what my ISP says.
The S&P 500's largest U.S. based multinationals worldwide footprint with about 42% international exposure is the old ball and chain argument against international need. One interesting twist on this concept (to me anyway) was 2 separate research papers which supported the idea that the S&P 500 companies by virtue of natural business decisions create ebbs and flows that follow growing economies, currency benefits, trade barriers or lack of and therefore automatically grow and flow with the world economy to the best growth of the company. The conclusion was this created more diversification than would be assumed by the international footprint alone. Of course the contrary is true as well with international companies based outside the U.S. In addition, this research paper went on to say that it is the market sectors that determine diversification benefit more than the international vs U.S. argument. With that said although the market sectors are similar Int vs U.S., IT and industrials stand out in contrast at least recently.
All my babble aside, for me, it seems I would be better off with an all U.S. allocation because my crazy brain loves the simplicity of 2 simple index funds and constantly moving in and out of international will likely kill my portfolio way more than missing out on international.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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