"You're More Internationally Diversified Than You (Probably) Realize"

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Da5id
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Da5id »

US equities are roughly 40% of world market cap. Why buy 40% of the haystack when you can buy the whole haystack?
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by whodidntante »

Vulcan wrote: Sat Feb 23, 2019 1:08 pm
Carlos Danger wrote: Fri Feb 22, 2019 9:06 pm International hasn't given much in the way of true diversification, and has been a dog w/r/t returns. Why settle for it when the picture looking out 3 decades, enough to cover our entire working/savings phase, looks WORSE and I can get international exposure through the sales/revenue of U.S.-based corporations?
Do you expect US to represent increasingly larger share of the global cap over the next 30 years?
Maybe the American stock market will just outpace all other countries in perpetuity for reasons or for luck. American exceptionalism except for cars.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Trader Joe »

Taylor Larimore wrote: Fri Feb 22, 2019 7:06 pm Bogleheads:

Morningstar is featuring an article titled: You're More Internationally Diversified Than You (Probably) Realize

You're More International Diversified Than You (Probably) Realize

This sentence caught my eye: Shareholders of major U.S. stock market index funds have about 40% foreign exposure, as measured by corporate revenues.

Question: If a Total U.S. Stock Market Index Fund ALREADY holds the equivalent of 40% in international stocks, Why bother holding a separate international fund?

I will appreciate your thoughts.

Thank you and best wishes.
Taylor
Thank you for the article Taylor. Why bother indeed. I am 100% invested in the U.S. market and I am very happy with my decision.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by jhawktx »

randomguy wrote: Sat Feb 23, 2019 12:44 am
CFM300 wrote: Sat Feb 23, 2019 12:30 am
Taylor Larimore wrote: Fri Feb 22, 2019 7:06 pm Question: If a Total U.S. Stock Market Index Fund ALREADY holds the equivalent of 40% in international stocks, Why bother holding a separate international fund?
Because I want to invest in...

Toyota, Samsung, Anheuser-Busch Inbev, Honda, LG, Unilever, GSK, Alibaba, Royal Dutch Shell, Nestle, HSBC, Hyundai, Vodafone, Tencent, Siemens, TSMC, China Mobile, etc.
It will be amusing to read the threads the next time we have a 5-10 year period where international crushes the US. Granted maybe this time is different and the US will always outperform:)
Well, when that happens the US will still be ahead for the 20 year period
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Da5id »

whodidntante wrote: Sat Feb 23, 2019 4:01 pm Maybe the American stock market will just outpace all other countries in perpetuity for reasons or for luck. American exceptionalism except for cars.
And US market cap will asymptotically approach 100% of world market cap. Because reasons.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Da5id »

jhawktx wrote: Sat Feb 23, 2019 4:15 pm
randomguy wrote: Sat Feb 23, 2019 12:44 am It will be amusing to read the threads the next time we have a 5-10 year period where international crushes the US. Granted maybe this time is different and the US will always outperform:)
Well, when that happens the US will still be ahead for the 20 year period
How can you possibly say that without knowing the magnitude of the overperformance?
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Vulcan »

willthrill81 wrote: Sat Feb 23, 2019 3:22 pmMany were using valuation based arguments to predict 3-4% returns for the U.S. back in 2011. My strategy allows me to be completely ambivalent to such issues, which is reassuring in a way that's hard to describe.
More ambivalent than global market cap buy and hold?
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by z3r0c00l »

So if I have IBM I don't need Microsoft?
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by willthrill81 »

Vulcan wrote: Sat Feb 23, 2019 4:23 pm
willthrill81 wrote: Sat Feb 23, 2019 3:22 pmMany were using valuation based arguments to predict 3-4% returns for the U.S. back in 2011. My strategy allows me to be completely ambivalent to such issues, which is reassuring in a way that's hard to describe.
More ambivalent than global market cap buy and hold?
What makes you think that global market cap weighting is ambivalent with regard to country risk? 50% of such a holding is in one country.
“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: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Vulcan »

willthrill81 wrote: Sat Feb 23, 2019 4:25 pm
Vulcan wrote: Sat Feb 23, 2019 4:23 pm
willthrill81 wrote: Sat Feb 23, 2019 3:22 pmMany were using valuation based arguments to predict 3-4% returns for the U.S. back in 2011. My strategy allows me to be completely ambivalent to such issues, which is reassuring in a way that's hard to describe.
More ambivalent than global market cap buy and hold?
What makes you think that global market cap weighting is ambivalent with regard to country risk? 50% of such a holding is in one country.
Perhaps we are using different definitions of "ambivalent"?

I use a dictionary one:

"having or showing simultaneous and contradictory attitudes or feelings toward something or someone"
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by willthrill81 »

Vulcan wrote: Sat Feb 23, 2019 4:29 pm
willthrill81 wrote: Sat Feb 23, 2019 4:25 pm
Vulcan wrote: Sat Feb 23, 2019 4:23 pm
willthrill81 wrote: Sat Feb 23, 2019 3:22 pmMany were using valuation based arguments to predict 3-4% returns for the U.S. back in 2011. My strategy allows me to be completely ambivalent to such issues, which is reassuring in a way that's hard to describe.
More ambivalent than global market cap buy and hold?
What makes you think that global market cap weighting is ambivalent with regard to country risk? 50% of such a holding is in one country.
Perhaps we are using different definitions of "ambivalent"?

I use a dictionary one:

"having or showing simultaneous and contradictory attitudes or feelings toward something or someone"
I was viewing it more in terms of this definition: "being unable to choose between two (usually opposing) courses of action." I do not feel that I can make a good a priori choice in the U.S./international argument, so I instead take an approach that does not require me to make that choice.
“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: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Vulcan »

willthrill81 wrote: Sat Feb 23, 2019 4:34 pm
Vulcan wrote: Sat Feb 23, 2019 4:29 pm
willthrill81 wrote: Sat Feb 23, 2019 4:25 pm
Vulcan wrote: Sat Feb 23, 2019 4:23 pm
willthrill81 wrote: Sat Feb 23, 2019 3:22 pmMany were using valuation based arguments to predict 3-4% returns for the U.S. back in 2011. My strategy allows me to be completely ambivalent to such issues, which is reassuring in a way that's hard to describe.
More ambivalent than global market cap buy and hold?
What makes you think that global market cap weighting is ambivalent with regard to country risk? 50% of such a holding is in one country.
Perhaps we are using different definitions of "ambivalent"?

I use a dictionary one:

"having or showing simultaneous and contradictory attitudes or feelings toward something or someone"
I was viewing it more in terms of this definition: "being unable to choose between two (usually opposing) courses of action." I do not feel that I can make a good a priori choice in the U.S./international argument, so I instead take an approach that does not require me to make that choice.
Do you mean to say that because you only hold stocks part of the time it doesn't matter what country they are?
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by willthrill81 »

Vulcan wrote: Sat Feb 23, 2019 4:40 pm
willthrill81 wrote: Sat Feb 23, 2019 4:34 pm
Vulcan wrote: Sat Feb 23, 2019 4:29 pm
willthrill81 wrote: Sat Feb 23, 2019 4:25 pm
Vulcan wrote: Sat Feb 23, 2019 4:23 pm
More ambivalent than global market cap buy and hold?
What makes you think that global market cap weighting is ambivalent with regard to country risk? 50% of such a holding is in one country.
Perhaps we are using different definitions of "ambivalent"?

I use a dictionary one:

"having or showing simultaneous and contradictory attitudes or feelings toward something or someone"
I was viewing it more in terms of this definition: "being unable to choose between two (usually opposing) courses of action." I do not feel that I can make a good a priori choice in the U.S./international argument, so I instead take an approach that does not require me to make that choice.
Do you mean to say that because you only hold stocks part of the time it doesn't matter what country they are?
I only buy the stock funds, whether they are U.S. or international, that have had the highest relative performance over the past 7 months. So I don't have to try to determine a fixed split between U.S. and international.

I will not go into further details into my strategy nor my reasons for it here in order to keep this thread on track.
“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: "You're More Internationally Diversified Than You (Probably) Realize"

Post by bluquark »

Da5id wrote: Sat Feb 23, 2019 4:16 pm
whodidntante wrote: Sat Feb 23, 2019 4:01 pm Maybe the American stock market will just outpace all other countries in perpetuity for reasons or for luck. American exceptionalism except for cars.
And US market cap will asymptotically approach 100% of world market cap. Because reasons.
It’s conceivable that US stock total return will outperform indefinitely without changing market cap, via dividends and buybacks. It’s also possible for US market cap to be much higher just because more companies are public and more of GDP goes to investors as opposed to workers and taxes in the US, even though US GDP itself isn’t higher (which is most of why US market cap is so high today already, and this trend could go even further). So I don’t think this particular unsustainabilty argument is convincing on its own.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Da5id »

bluquark wrote: Sat Feb 23, 2019 5:43 pm
Da5id wrote: Sat Feb 23, 2019 4:16 pm
whodidntante wrote: Sat Feb 23, 2019 4:01 pm Maybe the American stock market will just outpace all other countries in perpetuity for reasons or for luck. American exceptionalism except for cars.
And US market cap will asymptotically approach 100% of world market cap. Because reasons.
It’s conceivable that US stock total return will outperform indefinitely without changing market cap, via dividends and buybacks. It’s also possible for US market cap to be much higher just because more companies are public and more of GDP goes to investors as opposed to workers and taxes in the US, even though US GDP itself isn’t higher (which is most of why US market cap is so high today already, and this trend could go even further). So I don’t think this particular unsustainabilty argument is convincing on its own.
OK, sure, that is reasonable. Though VXUS does pay a 50% higher dividend right now than VTI. But still, if the sure knowledge of that permanent out performance is baked into the P/E unclear that the end result is "you should buy US". And nothing is in perpetuity,
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Vulcan »

willthrill81 wrote: Sat Feb 23, 2019 4:47 pm
Vulcan wrote: Sat Feb 23, 2019 4:40 pm
willthrill81 wrote: Sat Feb 23, 2019 4:34 pm
Vulcan wrote: Sat Feb 23, 2019 4:29 pm
willthrill81 wrote: Sat Feb 23, 2019 4:25 pm
What makes you think that global market cap weighting is ambivalent with regard to country risk? 50% of such a holding is in one country.
Perhaps we are using different definitions of "ambivalent"?

I use a dictionary one:

"having or showing simultaneous and contradictory attitudes or feelings toward something or someone"
I was viewing it more in terms of this definition: "being unable to choose between two (usually opposing) courses of action." I do not feel that I can make a good a priori choice in the U.S./international argument, so I instead take an approach that does not require me to make that choice.
Do you mean to say that because you only hold stocks part of the time it doesn't matter what country they are?
I only buy the stock funds, whether they are U.S. or international, that have had the highest relative performance over the past 7 months. So I don't have to try to determine a fixed split between U.S. and international.

I will not go into further details into my strategy nor my reasons for it here in order to keep this thread on track.
That is fine so long as we are clear in that instead of using valuations to predict performance you use performance to predict performance, whereas with market cap buy and hold approach an investor is not trying to predict anything at all.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Taylor Larimore »

Jags4186 wrote: Sat Feb 23, 2019 11:06 am Taylor,

Why own the US Total Stock Market and International Total Market when you can own the Total World Market in one fund? Or are you betting on the US to outperform the rest of the world? Are you making the case for less diversification?
Jags4186:

I answered this question in my "Three-Fund Portfolio" post. I updated it for you here.

Best wishes.
Taylor
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by PackersFan12 »

https://www.youtube.com/watch?v=P54trh0Rre8

I used to hold the Total International Stock Market index, though I grew tired of the lagging performance, so I got out of it. I'm 100% in US equities. I keep going back and forth as to whether I want to get back into international. If I do choose to get back in, it will be for diversification purposes only. I'm struggling to see how anyone can feel particularly bullish about Europe and most of the Asian countries in the long term.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Old_Dollar »

Taylor Larimore wrote: Fri Feb 22, 2019 7:06 pm Bogleheads:

Morningstar is featuring an article titled: You're More Internationally Diversified Than You (Probably) Realize

You're More International Diversified Than You (Probably) Realize

This sentence caught my eye: Shareholders of major U.S. stock market index funds have about 40% foreign exposure, as measured by corporate revenues.

Question: If a Total U.S. Stock Market Index Fund ALREADY holds the equivalent of 40% in international stocks, Why bother holding a separate international fund?

I will appreciate your thoughts.

Thank you and best wishes.
Taylor
Is it possible that the reverse is also true for international funds? E.g. A developed international fund has some percentage of U.S. exposure as measured by corporate revenue? That would most likely be the case with large companies in non-US developed nations who receive a great deal of revenue from the U.S.

Toyota, Nestle, Siemens, and BP are all obvious examples of international companies that certainly receive a great deal of revenue from the U.S.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by 2015 »

There will always be some new keystroke pusher attempting to persuade me that my perfect, simple, low fee 3 fund portfolio is...(oh my, heaven forbid!!!)...Wrong(!!!). Always wanting me to do something when picking a strategy and doing absolutely nothing 99% of the time leads to superior returns. The other 1% of the time I simply rebalance and let the miracle of compounding take care of the rest. I couldn't be paid to read M*.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by lostdog »

BWildt wrote: Sat Feb 23, 2019 7:22 pm https://www.youtube.com/watch?v=P54trh0Rre8

I used to hold the Total International Stock Market index, though I grew tired of the lagging performance, so I got out of it. I'm 100% in US equities. I keep going back and forth as to whether I want to get back into international. If I do choose to get back in, it will be for diversification purposes only. I'm struggling to see how anyone can feel particularly bullish about Europe and most of the Asian countries in the long term.
I know, recency bias is a tough one to escape.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by lostdog »

Taylor Larimore wrote: Sat Feb 23, 2019 7:21 pm
Jags4186 wrote: Sat Feb 23, 2019 11:06 am Taylor,

Why own the US Total Stock Market and International Total Market when you can own the Total World Market in one fund? Or are you betting on the US to outperform the rest of the world? Are you making the case for less diversification?
Jags4186:

I answered this question in my "Three-Fund Portfolio" post. I updated it for you here.

Best wishes.
Taylor
"Cash:

I have considered simplifying The Three Fund Portfolio to a Two Fund Portfolio (Total World + Total Bond Market). However, keeping Total U.S. Stock Market and Total International Stock Market separate has several advantages (edited 2-23-2019).

Lower (combined) Expense Ratios (Admiral Shares): Total Stock Market (VTSAX) = 0.04%; Total International (VTIAX) = 0.11%; Total World (VTWAX) = 0.10%.

Lower Turnover (hidden costs): Total Stock Market = 3.4%; Total International = 3.4%; Total World Admiral 8.9%.

Better diversification (lower risk): Total U.S. Stock Market and Total International (combined) hold 9,900 stocks. Total World holds 8,125.

Flexibility: The best allocation between U.S. Total Stock Market and Total International is very controversial. Separate stock funds allow investors to choose their desired allocation.

Best wishes.
Taylor"


I would say all of these are negligible.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by PackersFan12 »

lostdog wrote: Sat Feb 23, 2019 7:52 pm
BWildt wrote: Sat Feb 23, 2019 7:22 pm https://www.youtube.com/watch?v=P54trh0Rre8

I used to hold the Total International Stock Market index, though I grew tired of the lagging performance, so I got out of it. I'm 100% in US equities. I keep going back and forth as to whether I want to get back into international. If I do choose to get back in, it will be for diversification purposes only. I'm struggling to see how anyone can feel particularly bullish about Europe and most of the Asian countries in the long term.
I know, recency bias is a tough one to escape.
Is reversion to the mean a guarantee?
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by 3-20Characters »

lostdog wrote: Sat Feb 23, 2019 7:54 pm
Taylor Larimore wrote: Sat Feb 23, 2019 7:21 pm
Jags4186 wrote: Sat Feb 23, 2019 11:06 am Taylor,

Why own the US Total Stock Market and International Total Market when you can own the Total World Market in one fund? Or are you betting on the US to outperform the rest of the world? Are you making the case for less diversification?
Jags4186:

I answered this question in my "Three-Fund Portfolio" post. I updated it for you here.

Best wishes.
Taylor
"Cash:

I have considered simplifying The Three Fund Portfolio to a Two Fund Portfolio (Total World + Total Bond Market). However, keeping Total U.S. Stock Market and Total International Stock Market separate has several advantages (edited 2-23-2019).

Lower (combined) Expense Ratios (Admiral Shares): Total Stock Market (VTSAX) = 0.04%; Total International (VTIAX) = 0.11%; Total World (VTWAX) = 0.10%.

Lower Turnover (hidden costs): Total Stock Market = 3.4%; Total International = 3.4%; Total World Admiral 8.9%.

Better diversification (lower risk): Total U.S. Stock Market and Total International (combined) hold 9,900 stocks. Total World holds 8,125.

Flexibility: The best allocation between U.S. Total Stock Market and Total International is very controversial. Separate stock funds allow investors to choose their desired allocation.

Best wishes.
Taylor"


I would say all of these are negligible.
Not negligible (see red)
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by bluquark »

Taylor Larimore wrote: Sat Feb 23, 2019 7:21 pm
Jags4186 wrote: Sat Feb 23, 2019 11:06 am Taylor,

Why own the US Total Stock Market and International Total Market when you can own the Total World Market in one fund? Or are you betting on the US to outperform the rest of the world? Are you making the case for less diversification?
Jags4186:

I answered this question in my "Three-Fund Portfolio" post. I updated it for you here.
Thanks. I think this line of argument was defensible back when it was investor shares, but is it still strong enough in this weakened form?
Lower (combined) Expense Ratios (Admiral Shares): Total Stock Market (VTSAX) = 0.04%; Total International (VTIAX) = 0.11%; Total World (VTWAX) = 0.10%.
At 55/45, the two-fund difference is 0.03%. This is less than the difference between VTSAX and Fidelity Zero. But nobody is saying to abandon Vanguard for Fidelity over this, or that everyone should slice Total International into EU/Pacific/EM/Canada to shave a similar amount of basis points there.
Lower Turnover (hidden costs): Total Stock Market = 3.4%; Total International = 3.4%; Total World Admiral 8.9%.
I have no idea how bad this is. Can we estimate how much these hidden costs amount to in basis point terms, and understand why the turnover has been bad and whether this problem is likely to continue?
Better diversification (lower risk): Total U.S. Stock Market and Total International (combined) hold 9,900 stocks. Total World holds 8,125.
This difference is almost certainly in the smallest holdings in the indices. The holding numbers are actively misleading -- the diversification comparison needs to be by market cap rather than number of stocks. Everyone knows that VTSAX is only ~25% more diversified than S&P500 despite having 7 times the holdings.
Flexibility: The best allocation between U.S. Total Stock Market and Total International is very controversial. Separate stock funds allow investors to choose their desired allocation.
"Controversial" is not a reason. And a common Boglehead line of argument is that flexibility and choice is a bad thing, and simplicity and handing over control better allows staying the course.



So, overall, the case against VTWAX is A) a valid but negligible ER argument, B) two quantitative metrics which in the form presented are meaningless, and C) a "flexibility" argument which I think is actually cuts in favor of VTWAX. As I mentioned earlier, world market cap is the default position of portfolio theory so the home bias case requires the high standard of evidence to overcome it, and I'm just not seeing it here.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by bgf »

BWildt wrote: Sat Feb 23, 2019 7:22 pm https://www.youtube.com/watch?v=P54trh0Rre8

I used to hold the Total International Stock Market index, though I grew tired of the lagging performance, so I got out of it. I'm 100% in US equities. I keep going back and forth as to whether I want to get back into international. If I do choose to get back in, it will be for diversification purposes only. I'm struggling to see how anyone can feel particularly bullish about Europe and most of the Asian countries in the long term.
i think your best bet is to just go ahead and pick a handful of the best performing US stocks over the next 20 years or so and just invest in them.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by PackersFan12 »

bgf wrote: Sat Feb 23, 2019 8:36 pm
BWildt wrote: Sat Feb 23, 2019 7:22 pm https://www.youtube.com/watch?v=P54trh0Rre8

I used to hold the Total International Stock Market index, though I grew tired of the lagging performance, so I got out of it. I'm 100% in US equities. I keep going back and forth as to whether I want to get back into international. If I do choose to get back in, it will be for diversification purposes only. I'm struggling to see how anyone can feel particularly bullish about Europe and most of the Asian countries in the long term.
i think your best bet is to just go ahead and pick a handful of the best performing US stocks over the next 20 years or so and just invest in them.
Part of me would rather do that actually.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by arcticpineapplecorp. »

Carlos Danger wrote: Fri Feb 22, 2019 9:06 pm International hasn't given much in the way of true diversification, and has been a dog w/r/t returns. Why settle for it when the picture looking out 3 decades, enough to cover our entire working/savings phase, looks WORSE and I can get international exposure through the sales/revenue of U.S.-based corporations? Plus I can always change my mind later if suddenly something drastic happens and the future does not look so bleak for the aforementioned nations?
These are the most interesting points:
1. "has been" does not equal "will be". The past is not prologue. We should never forget that.
2. "looking out 3 decades"??? who is forecasting the returns of international stock markets 3 decades from now? If they did, would they be worth a damn? People can't accurately predict a few years in to the future let alone 30 years.
3. Changing your mind AFTER the future stops looking bleak for international means you got in AFTER things turned. Therefore you didn't get to buy at lower prices if you're waiting for sunny days again.

The future expected returns of international are believed higher than U.S. This is probably due to the risk you've mentioned (problems other countries face) and uncertainty you also mentioned (will it ever turn around?) but the goal of investing is to pay a cheaper price, not a more dear one. Buy low, not high. If you believe in buying low, you'd be buying international not U.S. right now.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by arcticpineapplecorp. »

Aside from the comments about Jack Bogle who believed
dollar-based liabilities should be supported by dollar-based assets.
This is the most relevant part:
The question arises: How do the sources of a revenue stream affect a stock's returns? For example, if a company based in the U.S. generates 50% of its sales at home and the other 50% in Europe, will its stock move in tandem with the stock of a European company that shares its industry and revenue mix? Or, will the location of their domiciles send those two stocks scurrying in different directions?

You got me. Morningstar has yet to study that subject, and because the global data are only now becoming available, neither have many academic researchers. (No doubt some have, but my admittedly brief Internet search yielded no results. If you know of such a study, please let drop me a line.) This field has not been well-explored.

When the papers are released, I suspect that their findings will be, "It depends."

For one, the studies will be difficult to conduct. No two companies have identical revenue streams, and no matter how closely their businesses resemble one another's, there are still large discrepancies, which must somehow be considered in the calculations. Controlling for all relevant effects will be a chore indeed--and will make the resulting estimates loose rather than precise.
So the article while making the point that 40% of revenue comes from international says it doesn't know how that revenue affects a stock's returns. Shouldn't we answer that question before changing strategy?

Finally, to answer Taylor's question "Why bother holding a separate international fund?",

Answer: Because otherwise, you'd have to re-write the Bogleheads Guide to Investing! (pages 100-101)
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Teriyaki
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Teriyaki »

arcticpineapplecorp. wrote: Sat Feb 23, 2019 9:39 pm
Carlos Danger wrote: Fri Feb 22, 2019 9:06 pm International hasn't given much in the way of true diversification, and has been a dog w/r/t returns. Why settle for it when the picture looking out 3 decades, enough to cover our entire working/savings phase, looks WORSE and I can get international exposure through the sales/revenue of U.S.-based corporations? Plus I can always change my mind later if suddenly something drastic happens and the future does not look so bleak for the aforementioned nations?
These are the most interesting points:
1. "has been" does not equal "will be". The past is not prologue. We should never forget that.
2. "looking out 3 decades"??? who is forecasting the returns of international stock markets 3 decades from now? If they did, would they be worth a damn? People can't accurately predict a few years in to the future let alone 30 years.
3. Changing your mind AFTER the future stops looking bleak for international means you got in AFTER things turned. Therefore you didn't get to buy at lower prices if you're waiting for sunny days again.

The future expected returns of international are believed higher than U.S. This is probably due to the risk you've mentioned (problems other countries face) and uncertainty you also mentioned (will it ever turn around?) but the goal of investing is to pay a cheaper price, not a more dear one. Buy low, not high. If you believe in buying low, you'd be buying international not U.S. right now.
Exactly! I'm surprised that so many people feel like investing by looking into the rear view mirror is a good idea.
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Dialectical Investor
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Dialectical Investor »

Taylor Larimore wrote: Fri Feb 22, 2019 7:06 pm
Question: If a Total U.S. Stock Market Index Fund ALREADY holds the equivalent of 40% in international stocks, Why bother holding a separate international fund?

(color added)
There is no reason to answer the question until the assertion it supposes is evidenced.

Consider if I asked this question: If traveling to Dublin, Ohio, is equivalent to traveling to Dublin, Ireland, why travel to Dublin, Ireland? I think it would be expected of me to provide evidence that the two really are equivalent.

In the article, the evidence provided for the assertion is... There is no evidence:
Assessing Performance
The question arises: How do the sources of a revenue stream affect a stock's returns? For example, if a company based in the U.S. generates 50% of its sales at home and the other 50% in Europe, will its stock move in tandem with the stock of a European company that shares its industry and revenue mix? Or, will the location of their domiciles send those two stocks scurrying in different directions?

You got me. Morningstar has yet to study that subject, and because the global data are only now becoming available, neither have many academic researchers. (No doubt some have, but my admittedly brief Internet search yielded no results. If you know of such a study, please let drop me a line.) This field has not been well-explored.
JustinR
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by JustinR »

What US exposure does total international have?
cjking
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by cjking »

Teriyaki wrote: Sat Feb 23, 2019 10:00 am Let me be clear: If the percentage of U.S. stocks in your portfolio is higher than the share of U.S. from the total world stock market cap, you are effectively betting against the companies listed in the rest of the world. If I were a betting man, with U.S. valuations as high as they are, I would rather like to be on the other side of that bet.
World index average profits over the past ten years, as a percentage of current price: 4.3%
Same figure for US equities: 3.3%
Figure for world-ex-US: 5.3%

So people betting on the US are taking the 4.3% yield they should have started with, and chucked out the half of all holdings that had the higher yield. Personally, I have gone the other way with the chucking out.
SGM
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by SGM »

I have a little Total International and much more in Total Market. Portfolio turnover and lower ERs make a difference to me. I like the idea that I can control how much International I have. I need to tax loss harvest sometimes and International and bond funds sometimes are the only losses I have. I don't have a perfect system, but it is good enough for this retiree's purposes. Thanks Taylor for your post.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by bgf »

BWildt wrote: Sat Feb 23, 2019 9:04 pm
bgf wrote: Sat Feb 23, 2019 8:36 pm
BWildt wrote: Sat Feb 23, 2019 7:22 pm https://www.youtube.com/watch?v=P54trh0Rre8

I used to hold the Total International Stock Market index, though I grew tired of the lagging performance, so I got out of it. I'm 100% in US equities. I keep going back and forth as to whether I want to get back into international. If I do choose to get back in, it will be for diversification purposes only. I'm struggling to see how anyone can feel particularly bullish about Europe and most of the Asian countries in the long term.
i think your best bet is to just go ahead and pick a handful of the best performing US stocks over the next 20 years or so and just invest in them.
Part of me would rather do that actually.
:D
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
Dandy
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Dandy »

That was Mr. Bogle's main argument I believe, for not favoring direct international equity investments . It does expose the investor to some of the international performance e.g. when international economies do well it should help US companies with a large global footprint and vice versa.

I don't think it is a great substitute for direct international equity investing.

I underweight International equities. I think down the road it looks as if the US will have a lot of economic competition so if I were younger I might consider a bit more exposure. But in the mid retirement years I don't see the need.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by DaufuskieNate »

Imagine that you are a U.S. citizen living in Japan. You have no intention to ever move back to the U.S. Do you invest 100% in Japanese companies? Probably not. Your background has exposed you to more than just living in Japan. Perhaps you understand the history of the Japanese market and you realize that our view of the future path of ANY market is dim. You probably invest in a more diversified manner. Maybe you have a tilt toward Japan, or the U.S., but you probably don't have everything in one market or the other.

Living in more than one country during your lifetime exposes you to different perspectives. You understand why investing only in U.S. auto companies is not the same as investing in the global automobile market, even though U.S. companies do business all over the world. Owning GM and Ford is not the same as owning them in combination with VW, BMW, Toyota, etc. The bailouts in the wake of the financial crisis, or the oil crisis of the 70's where U.S. auto companies were caught flat-footed should be adequate evidence.

Now, the U.S. market is large and diversified. It is understandable that for many a 100% U.S. portfolio is familiar and diversified enough. No problem. Just don't think that you truly have an internationally diversified portfolio.
lostdog
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by lostdog »

Teriyaki wrote: Sun Feb 24, 2019 1:49 am
arcticpineapplecorp. wrote: Sat Feb 23, 2019 9:39 pm
Carlos Danger wrote: Fri Feb 22, 2019 9:06 pm International hasn't given much in the way of true diversification, and has been a dog w/r/t returns. Why settle for it when the picture looking out 3 decades, enough to cover our entire working/savings phase, looks WORSE and I can get international exposure through the sales/revenue of U.S.-based corporations? Plus I can always change my mind later if suddenly something drastic happens and the future does not look so bleak for the aforementioned nations?
These are the most interesting points:
1. "has been" does not equal "will be". The past is not prologue. We should never forget that.
2. "looking out 3 decades"??? who is forecasting the returns of international stock markets 3 decades from now? If they did, would they be worth a damn? People can't accurately predict a few years in to the future let alone 30 years.
3. Changing your mind AFTER the future stops looking bleak for international means you got in AFTER things turned. Therefore you didn't get to buy at lower prices if you're waiting for sunny days again.

The future expected returns of international are believed higher than U.S. This is probably due to the risk you've mentioned (problems other countries face) and uncertainty you also mentioned (will it ever turn around?) but the goal of investing is to pay a cheaper price, not a more dear one. Buy low, not high. If you believe in buying low, you'd be buying international not U.S. right now.
Exactly! I'm surprised that so many people feel like investing by looking into the rear view mirror is a good idea.
Agree. For some they throw the basic rules out the window.
columbia
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by columbia »

One can get a nice slice of global exposure in one fund, while avoiding what I consider the most suspect countries:
https://www.ishares.com/us/products/239 ... -world-etf

It’s US exposure is only slightly higher than the 60/40 split Vanguard offers in Target Date and LifeStrategy funds.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by abuss368 »

BWildt wrote: Sat Feb 23, 2019 7:22 pm https://www.youtube.com/watch?v=P54trh0Rre8

I used to hold the Total International Stock Market index, though I grew tired of the lagging performance, so I got out of it. I'm 100% in US equities. I keep going back and forth as to whether I want to get back into international. If I do choose to get back in, it will be for diversification purposes only. I'm struggling to see how anyone can feel particularly bullish about Europe and most of the Asian countries in the long term.
It has been a challenge to stay invested with international stocks. Hopefully the additional diversification benefit will pay off. We live in an increasingly global business world.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by abuss368 »

Taylor Larimore wrote: Fri Feb 22, 2019 7:06 pm Bogleheads:

Morningstar is featuring an article titled: You're More Internationally Diversified Than You (Probably) Realize

You're More International Diversified Than You (Probably) Realize

This sentence caught my eye: Shareholders of major U.S. stock market index funds have about 40% foreign exposure, as measured by corporate revenues.

Question: If a Total U.S. Stock Market Index Fund ALREADY holds the equivalent of 40% in international stocks, Why bother holding a separate international fund?

I will appreciate your thoughts.

Thank you and best wishes.
Taylor
Hi Taylor -

What about the flip side? How much U.S. exposure does International stock market index funds have as measured by international corporate revenues to the U.S.?
John C. Bogle: “Simplicity is the master key to financial success."
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by oldzey »

Taylor Larimore wrote: Fri Feb 22, 2019 7:06 pm Bogleheads:

Morningstar is featuring an article titled: You're More Internationally Diversified Than You (Probably) Realize

You're More International Diversified Than You (Probably) Realize

This sentence caught my eye: Shareholders of major U.S. stock market index funds have about 40% foreign exposure, as measured by corporate revenues.

Question: If a Total U.S. Stock Market Index Fund ALREADY holds the equivalent of 40% in international stocks, Why bother holding a separate international fund?

I will appreciate your thoughts.

Thank you and best wishes.
Taylor
So, it would seem that my two-fund portfolio is actually a 3-fund portfolio in disguise! Simplicity! 8-)
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
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Dialectical Investor
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Dialectical Investor »

oldzey wrote: Sun Feb 24, 2019 10:08 am
So, it would seem that my two-fund portfolio is actually a 3-fund portfolio in disguise! Simplicity! 8-)
The article does not say that. It was added by the OP, without evidence.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by stemikger »

oldzey wrote: Fri Feb 22, 2019 10:56 pm
Taylor Larimore wrote: Fri Feb 22, 2019 7:06 pm Question: If a Total U.S. Stock Market Index Fund ALREADY holds the equivalent of 40% in international stocks, Why bother holding a separate international fund?
I don't bother - works for me! :beer
Me too! I took Jack's advice years ago and now I have my entire 401k balance in the Vanguard Balanced Index Fund. I sleep like a baby and ignore the market.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by MnD »

I try to avoid mixing investing with implicit, appeal to authority, familiarity and confirmation biases.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by DaufuskieNate »

Some of the reasons given for an all-U.S. portfolio:

Past returns show U.S. > International. Stock pickers do this. It's called technical analysis.

Economic outlook shows U.S. > International. Stock pickers do this. It's called fundamental analysis.

Risk favors U.S. over International. Stock pickers do this. They make risk/return evaluations of stocks all the time.

Familiarity. Stock pickers do this. They often focus their attention on a corner of the market in order to maximize their perceived competitive advantage.

Everything here is sounding like active management. Which is fine as long as you recognize it and look hard for the specific skills that you possess that allow you to make these active decisions.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by willthrill81 »

MnD wrote: Sun Feb 24, 2019 10:50 am I try to avoid mixing investing with implicit, appeal to authority, familiarity and confirmation biases.
I understand your point, but a 'U.S. only' investor could turn the tables on that and say that 'global market cap' proponents are the ones being impacted by 'appeal to authority', since so many 'experts' have been advocating that for so long, yet the strategy hasn't paid off for the last several decades. I'm not necessarily saying that I espouse this argument, but it's definitely not as cut-and-dried as many think it is.
Last edited by willthrill81 on Sun Feb 24, 2019 4:21 pm, edited 1 time in total.
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by SantaClaraSurfer »

When they write: "40% foreign exposure, as measured by corporate revenues."

That data point (corporate revenues) does NOT necessarily seem equivalent to having built the multi-national infrastructure to market, sell and grow an enterprise at global scale.

Seems to me that if your approach seeks exposure to those global enterprises (whether they are HQ'd in USA or abroad) you would want to make sure your index fund portfolio includes both the US-based and Non-US-based companies.

Otherwise you are counting solely on the foreign revenues for the US multi-nationals, which is not the same thing.
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Carlos Danger
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by Carlos Danger »

Looking at demographic trends going forward is not looking in the rear view mirror.

The cake has been baked, and the numbers aren't made up. We KNOW what the demographic future over the next few decades is for China, Korea, Western Europe, etc.
NibbanaBanana
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Re: "You're More Internationally Diversified Than You (Probably) Realize"

Post by NibbanaBanana »

Here's the distribution yields for the Vanguard index funds.

Total Stock Market 1.80
Total International Stock Market 2.88
S&P 500 1.84
Developed Markets Index 3.04
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