Should I abandon the Total International Stock Index Fund for greener pastures?

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lostdog
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by lostdog » Tue Jun 18, 2019 8:22 am

happytrades wrote:
Mon Jun 17, 2019 10:06 pm
I have spent 10 years on this site. For a laymen, I am pretty well informed. Read lots of books. The funny thing is I have decided to go with a simple vanguard portfolio allocation to the extent that I can. I can't do it completely because of imbedded capital gains in other investments. Overall, my results have been pretty good. But here is the thing. Unless you are obsessed with these issues, there are better ways to spend your time. I came to this personal realization to adopt the asset allocation of one of the life strategy portfolios. I figured that the people at Vanguard are much smarter than me and that if I followed a low cost portfolio that they have adopted, I would do pretty well -- much better than the vast majority of investors that are searching for the perfect portfolio.

I think it was said by a 19th century German general that the enemy of a good plan is dream of a perfect plan.

What do you know that the specialists at Vanguard don't know?

Do yourself a favor, pick something that is simple and that will allow you to sleep at night, and focus on other things.
I agree. I would rather take my advice from Vanguard vs arm chair experts.

I sleep well at night now. I know I won't be hand wringing when international will start to out perform. I'll still be sleeping well with a smirk on my face.
Last edited by lostdog on Tue Jun 18, 2019 8:59 am, edited 3 times in total.
I don't invest looking in the rear view mirror and I know absolutely nothing about the future.

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JoMoney
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by JoMoney » Tue Jun 18, 2019 8:22 am

bgf wrote:
Tue Jun 18, 2019 7:42 am
yes, you should. in fact, i think everyone should. we should shut down all the other stock markets. no need for any stock market other than the exchanges here in the US.

everyone else is just silly investing in all those other companies.
It would certainly remove the barriers that are different expenses, taxes, accounting principles, legal protections, currencies, etc...
Then our arguments would be limited "tilting" to or away from different stock "risk factors" like large-cap/small-cap, REIT and MLP tax complications, share classes with limited float, poor liquidity, voting restrictions, etc...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

lostdog
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by lostdog » Tue Jun 18, 2019 8:31 am

rascott wrote:
Tue Jun 18, 2019 8:17 am
Amazing how quickly people forget that the SP500 lost 1% per YEAR for the entire decade prior to this one. I've long been about 25-30% Intl....and have been considering moving to 40% after reading Vanguard (and other) research.
And it will happen again.
I don't invest looking in the rear view mirror and I know absolutely nothing about the future.

bgf
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by bgf » Tue Jun 18, 2019 9:17 am

JoMoney wrote:
Tue Jun 18, 2019 8:22 am
bgf wrote:
Tue Jun 18, 2019 7:42 am
yes, you should. in fact, i think everyone should. we should shut down all the other stock markets. no need for any stock market other than the exchanges here in the US.

everyone else is just silly investing in all those other companies.
It would certainly remove the barriers that are different expenses, taxes, accounting principles, legal protections, currencies, etc...
Then our arguments would be limited "tilting" to or away from different stock "risk factors" like large-cap/small-cap, REIT and MLP tax complications, share classes with limited float, poor liquidity, voting restrictions, etc...
it is an interesting thought. if there were one exchange for the entire world, who here would still only invest in US-based companies?
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

stan1
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by stan1 » Tue Jun 18, 2019 9:34 am

At the level of each individuals choices age and asset allocation also matters.

- If you are 75 with a 30% equity and 70% bond portfolio -- fine go all US.
- If you are 25 put your money into education and getting pay raises so you can save more later.
- If you have a six figure pension or $10M do whatever you want for whatever reasons you want to choose. You don't need to justify your decision to anyone but yourself.
- If you are a 45 year old early retiree with $2M (or a 50 year old IT worker expected to be laid off in the next recession) I'd suggest studying diversification thoroughly and would not try to maximize return.

lostdog
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by lostdog » Tue Jun 18, 2019 9:40 am

bgf wrote:
Tue Jun 18, 2019 9:17 am
JoMoney wrote:
Tue Jun 18, 2019 8:22 am
bgf wrote:
Tue Jun 18, 2019 7:42 am
yes, you should. in fact, i think everyone should. we should shut down all the other stock markets. no need for any stock market other than the exchanges here in the US.

everyone else is just silly investing in all those other companies.
It would certainly remove the barriers that are different expenses, taxes, accounting principles, legal protections, currencies, etc...
Then our arguments would be limited "tilting" to or away from different stock "risk factors" like large-cap/small-cap, REIT and MLP tax complications, share classes with limited float, poor liquidity, voting restrictions, etc...
it is an interesting thought. if there were one exchange for the entire world, who here would still only invest in US-based companies?
Very good point. They would have to cherry pick and build their own funds.
I don't invest looking in the rear view mirror and I know absolutely nothing about the future.

columbia
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by columbia » Tue Jun 18, 2019 9:43 am

stan1 wrote:
Tue Jun 18, 2019 9:34 am
At the level of each individuals choices age and asset allocation also matters.

- If you are 75 with a 30% equity and 70% bond portfolio -- fine go all US.
- If you are 25 put your money into education and getting pay raises so you can save more later.
- If you have a six figure pension or $10M do whatever you want for whatever reasons you want to choose. You don't need to justify your decision to anyone but yourself.
- If you are a 45 year old early retiree with $2M (or a 50 year old IT worker expected to be laid off in the next recession) I'd suggest studying diversification thoroughly and would not try to maximize return.

“You don’t need to justify your decision to anyone but yourself” always applies.

stan1
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by stan1 » Tue Jun 18, 2019 9:53 am

columbia wrote:
Tue Jun 18, 2019 9:43 am
stan1 wrote:
Tue Jun 18, 2019 9:34 am
At the level of each individuals choices age and asset allocation also matters.

- If you are 75 with a 30% equity and 70% bond portfolio -- fine go all US.
- If you are 25 put your money into education and getting pay raises so you can save more later.
- If you have a six figure pension or $10M do whatever you want for whatever reasons you want to choose. You don't need to justify your decision to anyone but yourself.
- If you are a 45 year old early retiree with $2M (or a 50 year old IT worker expected to be laid off in the next recession) I'd suggest studying diversification thoroughly and would not try to maximize return.

“You don’t need to justify your decision to anyone but yourself” always applies.
True, but it might easier to do so without coming to the internet for validation if you have a six figure pension or $10M.

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mrspock
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by mrspock » Tue Jun 18, 2019 11:18 am

22twain wrote:
Tue Jun 18, 2019 7:23 am
The title of this thread reminded me of a long-ago book on a completely different subject:

"The Grass Is Always Greener Over the Septic Tank"

Might be a useful bit of financial wisdom, too. 8-)
It could be.... or might not apply here at all. So far for 10 years running it’s the latter.

BWildt
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by BWildt » Tue Jun 18, 2019 11:23 am

Is it possible to have too much diversification in a mutual fund? This is just an anecdotal observation, but it seems like the Total International Stock index never seems to fire on all cylinders because if one area of the index is doing well, there's another area of the index that does poorly, which largely results in a wash. The index is basically trading at the same level as in 2006, and while it's possible that it outperforms Total Stock/S&P 500 in the coming decade, I get the feeling it will be because it will suck less than Total Stock/S&P 500; not because it will be a genuine bull market.

columbia
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by columbia » Tue Jun 18, 2019 11:42 am

BWildt wrote:
Tue Jun 18, 2019 11:23 am
Is it possible to have too much diversification in a mutual fund? This is just an anecdotal observation, but it seems like the Total International Stock index never seems to fire on all cylinders because if one area of the index is doing well, there's another area of the index that does poorly, which largely results in a wash. The index is basically trading at the same level as in 2006, and while it's possible that it outperforms Total Stock/S&P 500 in the coming decade, I get the feeling it will be because it will suck less than Total Stock/S&P 500; not because it will be a genuine bull market.
That last part is an accurate description of 2000-2009.

H-Town
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by H-Town » Tue Jun 18, 2019 11:45 am

glass3 wrote:
Mon Jun 17, 2019 1:02 pm
Just checking with others about international investments. Despite what economists speculate (and I emphasize that word) for the future, international fund returns over past decade, and more, have been disappointing, to say the least. Right now, my advisor has me at 40% Vanguard Total International Stock Index Fund in the stock portion of my investments; while there is evidence that international funds (especially growth, and managed, not index) can outpace U.S. in some years/time periods, there is no evidence that any total international stock index fund (Vanguard or other since they have not been around that long) can, over any significant time period, do better than the U.S. market. I believe in investing in the Total Stock Market (U.S.) Index Fund (and that is where the rest of my stock portfolio is invested), but why should we think that the similar fund for international investments will follow similar investment rules when the rest of the world is most definitely less predictable to even the smartest economists (and even the home U.S. market is "mostly" predictable only for the best!). In fact, if you look at the return of the Total International Stock Index Fund performance since 2010, or so, it has returned the same as the Total Bond Market Fund, and I have bonds only for protection! I want to cut my international exposure from 40% to 25-30% and put this the Vanguard International Growth Fund. Any errors in logic here?
Been there, done that. But until you have a true understanding of diversification and its benefits, you would be still chasing after performance and fighting a losing battle.

lostdog
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by lostdog » Tue Jun 18, 2019 12:12 pm

These threads end up being performance chasers/future predictors vs logical diversified investors. Love it.
I don't invest looking in the rear view mirror and I know absolutely nothing about the future.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by jeffyscott » Tue Jun 18, 2019 12:16 pm

If I were making this change, I would do it by first just moving the 40% to international growth and then sell foreign when or if it rises above 40%, but buy only if it falls below the new target of 30% or whatever.
Time is your friend; impulse is your enemy. - John C. Bogle

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rmelvey
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by rmelvey » Tue Jun 18, 2019 12:25 pm

I know it's not the "right" thing to do but I have had all of my equity exposure in the US for years. I sleep better and have had better performance :happy

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Phineas J. Whoopee
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Phineas J. Whoopee » Tue Jun 18, 2019 2:08 pm

BWildt wrote:
Tue Jun 18, 2019 11:23 am
Is it possible to have too much diversification in a mutual fund? This is just an anecdotal observation, but it seems like the Total International Stock index never seems to fire on all cylinders because if one area of the index is doing well, there's another area of the index that does poorly, which largely results in a wash. The index is basically trading at the same level as in 2006, and while it's possible that it outperforms Total Stock/S&P 500 in the coming decade, I get the feeling it will be because it will suck less than Total Stock/S&P 500; not because it will be a genuine bull market.
That depends on what you mean by the here-contested word diversification, and what you want to accomplish.

If you want to outperform a total market index you have to own only parts of it, but that opens the risk of underperforming, too. If a person could accurately predict the future that would be a no-brainer. Lots of people get confused by hindsight bias and think they can predict the future in the same way they could have predicted the past if they had tried. In advance, of course.

What do you mean by diversification, and what are you trying to accomplish?

PJW

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by DesertDiva » Tue Jun 18, 2019 2:25 pm

Do you an Investment Policy Statement? My IPS states that I will maintain 15-20% in International, adjusting only when it's time to rebalance.
Stay the course.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by RandomWord » Tue Jun 18, 2019 2:48 pm

I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?

If the US continues to outperform international, so it's valuation metrics like PE keep going up, you could look at that and say "aha, I was right! The trend continues! There must be something special about the US, even if I can't explain what it is." But you could also say "Wow, the US just keeps getting more and more overvalued. Like any bubble, the more it inflates the harder it will crash."

Conversely, falls down to match the trend of international, or even below. You could say "classic reversion to the mean, it's better to diversify across the world by market cap, just like you diversify between individual stocks". Or "the US is on sale, just like it was in 2002 and 2009. Time to load up, because now you don't even have the valuation reason to put money into international."

I honestly think that all of those are perfectly reasonable arguments. It seems like no matter what happens, people on both sides will keep doing what they did before, and no one will learn anything.

This bugs me. The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.

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Phineas J. Whoopee
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Phineas J. Whoopee » Tue Jun 18, 2019 2:55 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?
...
With respect to me, your question is flawed, because my international holdings are not meant to enhance my portfolio's return. I regard myself as a risk manager, not a return maximizer.

Oh, and, welcome to the forum.

PJW

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by vineviz » Tue Jun 18, 2019 3:38 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.
Actually, neither the length nor depth of so-called "US outperformance" is even remotely sufficient to falsify a claim that the difference is anything but random chance.

For instance, over the past 50 years US stocks have outperformed international stocks in 292 months and underperformed in 301 months. And the recent past is similar: US stocks have outperformed in just 18 of the past 36 months.

US had an unusually large streak of outperformance from 2013 to 2016, but it's not at all uncommon for international to outperform US stocks by a similar amount. It's not at all dissimilar to flipping a coin: flip it enough and you are bound to get a streak of four or five heads in a row.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Bluce » Tue Jun 18, 2019 3:55 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?

< SNIP >

This bugs me. The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.
From one of the scholarly books (don't remember which one), going by memory:

It said that the annualized return of global stocks, going back 2,000 years, was around 6% not counting inflation. Since 1926 the S&P has averaged about 10% -- with an average 3% annual inflation included.

So they asked: Why has the US outperformed 2,000 years of global returns by one percent, and will this last forever?

So, no answer, just another question. :?:

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Phineas J. Whoopee
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Phineas J. Whoopee » Tue Jun 18, 2019 4:04 pm

Bluce wrote:
Tue Jun 18, 2019 3:55 pm
...
It said that the annualized return of global stocks, going back 2,000 years, was around 6% not counting inflation. Since 1926 the S&P has averaged about 10% -- with an average 3% annual inflation included.

So they asked: Why has the US outperformed 2,000 years of global returns by one percent, and will this last forever?
...
I'm not picking on you personally, Bluce. You merely reported what somebody said.

I can't find copies of the Journal from two millennia ago.

How could anyone possibly compute stock returns through a vast period of time when business ownership wasn't organized as stock?

PJW

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by rascott » Tue Jun 18, 2019 4:20 pm

Bluce wrote:
Tue Jun 18, 2019 3:55 pm
RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?

< SNIP >

This bugs me. The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.
From one of the scholarly books (don't remember which one), going by memory:

It said that the annualized return of global stocks, going back 2,000 years, was around 6% not counting inflation. Since 1926 the S&P has averaged about 10% -- with an average 3% annual inflation included.

So they asked: Why has the US outperformed 2,000 years of global returns by one percent, and will this last forever?

So, no answer, just another question. :?:

2,000 years?!?

How on earth is that possibly calculated?

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by jibantik » Tue Jun 18, 2019 4:21 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?
...
I do not claim anything, I take the null position (market cap). This likely the position of many people who invest in international. So, your question is not a valid question for us, there is nothing to prove or disprove.

You'd have to ask the slice and dicers, the ones who chase performance and speculate. I will say though, I doubt anything _logical_ could be used to persuade such people, as they are often terribly afflicted with American exceptionalism bias or recency bias.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by visualguy » Tue Jun 18, 2019 4:23 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind?
It would require significant changes for the better in Europe, Japan, and China, and/or significant changes for the worse in the US. For example, folks like Elon Musk doing their thing outside of the US instead of coming to the US, and in general a reversal of the tremendous brain drain from other countries that the US keeps enjoying. New technologies and industries being commercialized by publicly-traded companies outside the US a lot more than we see today where the US dominates. China transforming in a way that makes their public markets a good way to tap into the growth there. Japan finding a way to reverse their demographic decline.

These are all things which are possible in the long run, but not within my investment time horizon, unfortunately, so I don't invest in the ex-US index.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Lee_WSP » Tue Jun 18, 2019 4:27 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
This bugs me. The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.
WW2. Europe & the rest of the world was left completely devastated while the US was left largely intact and the big winner. Until someone knocks the US off the top of the heap, we will continue to dominate economically & militarily.

And since investing in China is not a great strategy due to governance concerns, and since basically my whole life relies upon the US doing well, I'm just all in on America.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Bluce » Tue Jun 18, 2019 4:44 pm

Phineas J. Whoopee wrote:
Tue Jun 18, 2019 4:04 pm
Bluce wrote:
Tue Jun 18, 2019 3:55 pm
...
It said that the annualized return of global stocks, going back 2,000 years, was around 6% not counting inflation. Since 1926 the S&P has averaged about 10% -- with an average 3% annual inflation included.

So they asked: Why has the US outperformed 2,000 years of global returns by one percent, and will this last forever?
...
I'm not picking on you personally, Bluce. You merely reported what somebody said.

I can't find copies of the Journal from two millennia ago.

How could anyone possibly compute stock returns through a vast period of time when business ownership wasn't organized as stock?

PJW
Good point, and I have no answers.

These various tidbits of stuff that stick in my (old) mind, I should write them down and the source when I read them. But I never have. :(

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by RandomWord » Tue Jun 18, 2019 4:54 pm

vineviz wrote:
Tue Jun 18, 2019 3:38 pm
RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.
Actually, neither the length nor depth of so-called "US outperformance" is even remotely sufficient to falsify a claim that the difference is anything but random chance.

For instance, over the past 50 years US stocks have outperformed international stocks in 292 months and underperformed in 301 months. And the recent past is similar: US stocks have outperformed in just 18 of the past 36 months.

US had an unusually large streak of outperformance from 2013 to 2016, but it's not at all uncommon for international to outperform US stocks by a similar amount. It's not at all dissimilar to flipping a coin: flip it enough and you are bound to get a streak of four or five heads in a row.
When you phrase it that way it does make international sound better. But I don't think it's a useful metric. To take an extreme example, you could have a portfolio that underperforms 11 months of the year, but still ends up ahead overall. Most people don't care about an individual month's return.

I'm looking at the graph of rolling 10-year returns from this article: http://awealthofcommonsense.com/2019/01 ... al-stocks/. You have to go all the way back to the 70's/80s to find a time when international really outperformed the US, and that was entirely the Japan bubble. Since then, the US has almost always outperformed international, and even when it underperformed it wasn't by much. And of course, the US also massively outperformed in the first half of the 20th century too, although that's easier to explain from world events.

I'd argue this is like flipping a coin 30 times (once for every year since 1990) and having it come up heads about 25 out of 30 times. It's possible that this is just random chance. But it's also possible that something is fishy about that coin.

(For what it's worth, I have been investing in international too. I'm just frustrated at how long it has continued to underperform.)

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Lee_WSP » Tue Jun 18, 2019 4:57 pm

RandomWord wrote:
Tue Jun 18, 2019 4:54 pm
vineviz wrote:
Tue Jun 18, 2019 3:38 pm
RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.
Actually, neither the length nor depth of so-called "US outperformance" is even remotely sufficient to falsify a claim that the difference is anything but random chance.

For instance, over the past 50 years US stocks have outperformed international stocks in 292 months and underperformed in 301 months. And the recent past is similar: US stocks have outperformed in just 18 of the past 36 months.

US had an unusually large streak of outperformance from 2013 to 2016, but it's not at all uncommon for international to outperform US stocks by a similar amount. It's not at all dissimilar to flipping a coin: flip it enough and you are bound to get a streak of four or five heads in a row.
When you phrase it that way it does make international sound better. But I don't think it's a useful metric. To take an extreme example, you could have a portfolio that underperforms 11 months of the year, but still ends up ahead overall. Most people don't care about an individual month's return.

I'm looking at the graph of rolling 10-year returns from this article: http://awealthofcommonsense.com/2019/01 ... al-stocks/. You have to go all the way back to the 70's/80s to find a time when international really outperformed the US, and that was entirely the Japan bubble. Since then, the US has almost always outperformed international, and even when it underperformed it wasn't by much. And of course, the US also massively outperformed in the first half of the 20th century too, although that's easier to explain from world events.

I'd argue this is like flipping a coin 30 times (once for every year since 1990) and having it come up heads about 25 out of 30 times. It's possible that this is just random chance. But it's also possible that something is fishy about that coin.

(For what it's worth, I have been investing in international too. I'm just frustrated at how long it has continued to underperform.)
Riding his coattails...

International did better because in the previous month, the returns were negative. If international went negative & then snapped back to where it used to be, of course it would outperform the US in the year it returned to 'normalcy'.

International is boom & bust, IMO. No thank you.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by 2pedals » Tue Jun 18, 2019 5:12 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I honestly think that all of those are perfectly reasonable arguments. It seems like no matter what happens, people on both sides will keep doing what they did before, and no one will learn anything.
Well, some people will change and try to outsmart the market when they think they know more now than before based on past experiences or what they read in Wall Street Journal or Barron's. In reality they know no more than the other guy on the other side of the stock exchange.

“Nobody knows nothing.” Theses are the words that Vanguard founder, Jack Bogle, heard from a financial services industry veteran when Mr. Bogle first started in the industry and it had a profound effect on Jack.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by RandomWord » Tue Jun 18, 2019 5:13 pm

Phineas J. Whoopee wrote:
Tue Jun 18, 2019 2:55 pm
RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?
...
With respect to me, your question is flawed, because my international holdings are not meant to enhance my portfolio's return. I regard myself as a risk manager, not a return maximizer.

Oh, and, welcome to the forum.

PJW
Thanks.

Has international reduced your risk? It seems like international usually crashes just as much as the US during major market crashes. Maybe some specific countries have added useful diversification (eg, Australia) but good luck cherry picking the right country. Bonds, or gold, have historically been the better way to reduce risk.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Lee_WSP » Tue Jun 18, 2019 5:17 pm

RandomWord wrote:
Tue Jun 18, 2019 5:13 pm
Phineas J. Whoopee wrote:
Tue Jun 18, 2019 2:55 pm
RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?
...
With respect to me, your question is flawed, because my international holdings are not meant to enhance my portfolio's return. I regard myself as a risk manager, not a return maximizer.

Oh, and, welcome to the forum.

PJW
Thanks.

Has international reduced your risk? It seems like international usually crashes just as much as the US during major market crashes. Maybe some specific countries have added useful diversification (eg, Australia) but good luck cherry picking the right country. Bonds, or gold, have historically been the better way to reduce risk.
International has a very high correlation to the US. I would have to agree that the historical evidence does not show a great reason for having international stocks at all. However, based on pure numbers, having international is more diversified than having only US.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by abuss368 » Tue Jun 18, 2019 5:24 pm

Stay the course!
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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by UpsetRaptor » Tue Jun 18, 2019 5:31 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?

If the US continues to outperform international, so it's valuation metrics like PE keep going up, you could look at that and say "aha, I was right! The trend continues! There must be something special about the US, even if I can't explain what it is." But you could also say "Wow, the US just keeps getting more and more overvalued. Like any bubble, the more it inflates the harder it will crash."

Conversely, falls down to match the trend of international, or even below. You could say "classic reversion to the mean, it's better to diversify across the world by market cap, just like you diversify between individual stocks". Or "the US is on sale, just like it was in 2002 and 2009. Time to load up, because now you don't even have the valuation reason to put money into international."

I honestly think that all of those are perfectly reasonable arguments. It seems like no matter what happens, people on both sides will keep doing what they did before, and no one will learn anything.

This bugs me. The US has been outperforming international for so long now, despite ever higher valuations, that it's hard to justify that as just random variance. Something else is going on, and I'd like to know what it is.
The US has outperformed all-world for centuries now. 200 years ago the US was not even a top 10 economy, and even the late 19th century was still behind Britain. Sure, there's some periods within there where it flips, but the long run trend has been clear.

What are the true basic reasons behind those facts, and if those reasons are changing, is a very interesting discussion but unfortunately always devolves into politics, and the resulting quagmire gets rightfully locked.

For me, a VTSAX guy, to change my mind would take something beyond a 5 or 10 year period of international outperformance, which we've seen a number of times in the past couple centuries but hasn't changed the trend. It'd take 1-2 decades of international outperformance in conjuntion with some large-scale demographic/governmental changes which...well again, kindof devolves into politics.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by vineviz » Tue Jun 18, 2019 5:51 pm

RandomWord wrote:
Tue Jun 18, 2019 4:54 pm
When you phrase it that way it does make international sound better. But I don't think it's a useful metric. To take an extreme example, you could have a portfolio that underperforms 11 months of the year, but still ends up ahead overall. Most people don't care about an individual month's return.
Perhaps they don't (and shouldn't). Nonetheless, this does get to the heart of the original question: how likely is the the recent outperformance of US stocks relative to international stocks merely due to random chance?

The only logical answer is "very likely"/
RandomWord wrote:
Tue Jun 18, 2019 4:54 pm
You have to go all the way back to the 70's/80s to find a time when international really outperformed the US, and that was entirely the Japan bubble.
Not really. From 2001 to 2011, Vanguard Total International Stock Market Index (VGTSX) produced a gain that was 67% greater than Vanguard Total US Stock Market Index (VTSMX). And Vanguard Emerging Markets Stock Index (VEIEX) produced a gain that was 489% greater than the US fund.

Image

I could find other examples that would make international investing look FABULOUS and just as many examples that would make it look TERRIBLE. If we aren't careful, we can very easily fixate on the examples to confirm our prior beliefs. This is called confirmation bias, and few cognitive errors are as deadly in investing as this one. We're all susceptible to it, which is why we need processes to mitigate its impact.

The human brain has such a well-honed ability to spot patterns in nature that it doesn't even need those patterns to actually exist in order to spot them!

Any sort of objective analysis reveals two things about international diversification: US and non-US stocks have roughly the same expected returns, very similar expected volatility, and a correlation that is less than perfectly positive. That's really all you need to know in order to conclude that there are, with certainty, benefits to international diversification. Are there also costs associated with those benefits? No doubt, and each investor can weigh the costs and benefits for themselves if they want to.

It seems to me that there is a wide range of quite reasonable ex-US equity allocations for a US-based investor, and I'd estimate that range as being roughly from about 25% to about 75% based on the research I've consumed. Anecdotally, investors who chose allocations outside that range seem to me to be more likely to depend on emotional and/or political motives than on empirical or theoretical evidence.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by fennewaldaj » Tue Jun 18, 2019 6:10 pm

To me the thing that really sealed the deal on having a high ex US allocation was The returns from 1900 for the whole world since 1900 detailed in the credit Suisse global investment year book. What I took from it is that having a global allocation means you always did fine even if your specific country did not. There results even account for some market closures. The US may continue to outperform as it did in the last century or it may not. It does not really matter to me as I should do ok in either case. Of course the next 50 years may look worse for global capitalism than the last 119 years did but there is only so much you can prepare for.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by UpperNwGuy » Tue Jun 18, 2019 6:13 pm

Hey, OP! What did you finally decide to do after hearing all this (contradictory) good advice?

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by stan1 » Tue Jun 18, 2019 6:16 pm

I'm about 1/3 international equities and 2/3 domestic. What would it take for me to go to market weight? Most importantly would be a big change in US government fiscal and monetary policies that have been favorable to US based businesses for decades. Why am I not 100% domestic? Because everything around me is foreign produced or owned, from my car to the shopping center down the street.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by stocknoob4111 » Tue Jun 18, 2019 6:25 pm

FIREchief wrote:
Tue Jun 18, 2019 1:59 am
I believe that the U.S. has superior laws, work ethic, regulatory oversight and other factors that have resulted in long term outperformance relative to total international.
Yeah, just look at all the brilliant regulatory oversight that almost caused the collapse of the entire global financial system in 2008, orchestrated and started right here in the good ole USA... LMAO! :oops: I think this line of thinking is what is called "home country bias"

I hold 20% International as I have no idea which sector will do the best and don't wish to put all my eggs in one basket. The US has had extended periods of underperformance relative to International several times in the past.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by FIREchief » Tue Jun 18, 2019 6:34 pm

stocknoob4111 wrote:
Tue Jun 18, 2019 6:25 pm
FIREchief wrote:
Tue Jun 18, 2019 1:59 am
I believe that the U.S. has superior laws, work ethic, regulatory oversight and other factors that have resulted in long term outperformance relative to total international.
Yeah, just look at all the brilliant regulatory oversight that almost caused the collapse of the entire global financial system in 2008, orchestrated and started right here in the good ole USA... LMAO! :oops: I think this line of thinking is what is called "home country bias"

I hold 20% International as I have no idea which sector will do the best and don't wish to put all my eggs in one basket. The US has had extended periods of underperformance relative to International several times in the past.
It appears that you accidentally deleted part of my post. I'll help you out here!! :P
FIREchief wrote:
Tue Jun 18, 2019 1:59 am
That's my opinion and I'm not for a moment suggesting that it should be anybody else's. 8-)
(I'm actually surprised it took this long....) :twisted:
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by RandomWord » Tue Jun 18, 2019 6:49 pm

vineviz wrote:
Tue Jun 18, 2019 5:51 pm
RandomWord wrote:
Tue Jun 18, 2019 4:54 pm
You have to go all the way back to the 70's/80s to find a time when international really outperformed the US, and that was entirely the Japan bubble.
Not really. From 2001 to 2011, Vanguard Total International Stock Market Index (VGTSX) produced a gain that was 67% greater than Vanguard Total US Stock Market Index (VTSMX). And Vanguard Emerging Markets Stock Index (VEIEX) produced a gain that was 489% greater than the US fund.

I could find other examples that would make international investing look FABULOUS and just as many examples that would make it look TERRIBLE. If we aren't careful, we can very easily fixate on the examples to confirm our prior beliefs. This is called confirmation bias, and few cognitive errors are as deadly in investing as this one. We're all susceptible to it, which is why we need processes to mitigate its impact.

The human brain has such a well-honed ability to spot patterns in nature that it doesn't even need those patterns to actually exist in order to spot them!

Any sort of objective analysis reveals two things about international diversification: US and non-US stocks have roughly the same expected returns, very similar expected volatility, and a correlation that is less than perfectly positive. That's really all you need to know in order to conclude that there are, with certainty, benefits to international diversification. Are there also costs associated with those benefits? No doubt, and each investor can weigh the costs and benefits for themselves if they want to.

It seems to me that there is a wide range of quite reasonable ex-US equity allocations for a US-based investor, and I'd estimate that range as being roughly from about 25% to about 75% based on the research I've consumed. Anecdotally, investors who chose allocations outside that range seem to me to be more likely to depend on emotional and/or political motives than on empirical or theoretical evidence.
I agree that confirmation bias is a huge problem. But, I don't think your counter-example proves much here either. Admittedly I was a bit loose when I said that that international hadn't "really" outperformed since the 80s. Of course there have been time periods when it has, and you found one (2002-2011, if I read your chart correctly). However, what happens if we extend that window: https://www.portfoliovisualizer.com/bac ... 0&total3=0 by just one year? (Portfolio 1 is US, Portfolio 2 is international developed):

(Sorry I'm having trouble uploading the image)

Suddenly the US is in the lead again. And the international developed had a bigger crash in the middle, too. We can play this game all day, cherry-picking whatever date ranges we want, but it's a whole lot easier to find date ranges where the US wins. And most people don't invest their money all at once, they put it in gradually. That's why I think the 10-year rolling returns chart is the most representative, and really shows the US outperformance.

(I will admit that in your example the international emerging was impressive, but those are even more swingy and prone to cherry-picking date ranges. You'd have to be exceptionally lucky to invest your money in a time period when emerging outperforms US, and get out before it crashes)

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by stocknoob4111 » Tue Jun 18, 2019 6:55 pm

what if we have a period similar to the 80s where International SIGNIFICANTLY beat US?

Image Credit: https://www.fidelity.com/viewpoints/fin ... nal-stocks

Image

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by vineviz » Tue Jun 18, 2019 6:56 pm

RandomWord wrote:
Tue Jun 18, 2019 6:49 pm
(I will admit that in your example the international emerging was impressive, but those are even more swingy and prone to cherry-picking date ranges. You'd have to be exceptionally lucky to invest your money in a time period when emerging outperforms US, and get out before it crashes)
Or, you know, just stay globally diversified all the time.

If you're smart enough, you don't need to count on getting lucky.

I mean, I know which of these investors I'd prefer to be and it wouldn't have taken any market timing: just staying the course with a globally diversified equity portfolio instead of concentrating on just US large cap stocks.

Image
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Phineas J. Whoopee » Tue Jun 18, 2019 7:49 pm

RandomWord wrote:
Tue Jun 18, 2019 5:13 pm
Phineas J. Whoopee wrote:
Tue Jun 18, 2019 2:55 pm
RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?
...
With respect to me, your question is flawed, because my international holdings are not meant to enhance my portfolio's return. I regard myself as a risk manager, not a return maximizer.

Oh, and, welcome to the forum.

PJW
Thanks.

Has international reduced your risk? It seems like international usually crashes just as much as the US during major market crashes. Maybe some specific countries have added useful diversification (eg, Australia) but good luck cherry picking the right country. Bonds, or gold, have historically been the better way to reduce risk.
Hi RandomWord.

You appear to have misread my term risk manager as risk minimizer. They are not the same.

This is what I did, and a couple of years later I answered some questions about it. If you have more probably it would be better to ask them in the original thread, so everything stays together.

PJW

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by Willmunny » Tue Jun 18, 2019 9:50 pm

It's your money and no one knows the future. I am not modifying my US/Ex US allocation. I would suggest before making a decision, think long and hard and be honest with yourself with respect to the question of whether: (1) you truly believe US will outperform over the long haul; or (2) you are upset with missing out on the potential gains you would have had if you had been more concentrated in the US over the past decade, and you are trying to rationalize buying on recent price strength for fear of losing out on further gains.

I've never been a fan of buying on recent price strength. We can't buy the past. We can only buy the future.

Best of luck in whatever you decide.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by junior » Tue Jun 18, 2019 11:23 pm

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?
Get back to me between 2039 and 2049 when I might need to sell stocks to fund retirement. I care about how stocks will do over a period of two to three decades from now. Past performance is not very relevant, and my understanding is international stocks have really only under-performed the past decade or so.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by smectym » Wed Jun 19, 2019 1:08 am

FIREchief wrote:
Tue Jun 18, 2019 1:59 am
I believe that the U.S. has superior laws, work ethic, regulatory oversight and other factors that have resulted in long term outperformance relative to total international. I don't believe that any of this will change (to the negative) anytime soon. I thus remain 100% invested in US equities. That's my opinion and I'm not for a moment suggesting that it should be anybody else's. 8-)
And nor is anybody else for a moment trying to get you to change your opinion.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by FIREchief » Wed Jun 19, 2019 2:09 am

smectym wrote:
Wed Jun 19, 2019 1:08 am
FIREchief wrote:
Tue Jun 18, 2019 1:59 am
I believe that the U.S. has superior laws, work ethic, regulatory oversight and other factors that have resulted in long term outperformance relative to total international. I don't believe that any of this will change (to the negative) anytime soon. I thus remain 100% invested in US equities. That's my opinion and I'm not for a moment suggesting that it should be anybody else's. 8-)
And nor is anybody else for a moment trying to get you to change your opinion.

Well, except for that one guy.... :D
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by lostdog » Wed Jun 19, 2019 7:12 am

Were there threads in 2017 asking if it's a good idea to get back in the international index?
I don't invest looking in the rear view mirror and I know absolutely nothing about the future.

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Re: Should I abandon the Total International Stock Index Fund for greener pastures?

Post by bgf » Wed Jun 19, 2019 7:40 am

RandomWord wrote:
Tue Jun 18, 2019 2:48 pm
I have a question for people on both sides of this issue. What would it take to change your mind? Or to put it scientifically, what would it take to falsify your theory?
i invest in them because they exist.

but, i guess, more fundamental than that, is the assumption that long term compound returns are dominated by a few outlier companies that have extreme outperformance. i am assuming that the distribution of these long term compound returns will remain consistent.

if you begin with this assumption, that the majority of one's long term compound returns will be generated by just a few companies, your primary concern is to insure that you do in fact own those companies. this is what diversification means to me. it is how i define the term "diversification." i understand that my definition is far different from the definition proposed by modern financial theory. that doesn't bother me.

the question isn't US v. International for me. the question is, what is the easiest, cheapest means for me to invest in the most companies?
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