We are sometimes confused to learn that Mr. Bogle suggests 100% United States stocks and 0% percent international stocks (although up to 20% international is OK). He explains his reasons in 25 pages in his book, Common Sense on Mutual Funds. I will condensesix of his reasons here:
6. We save and spend in U.S. currency.1. "Here in the United States we have, at least at the moment, the most productive economy, the greatest innovation, the most hospitable legal environment, and the fines capital markets on the globe."
2. "In 2008 foreign sales represented 48 percent of all sales for the firms in the Standard & Poor's 500 Index."
3. "A full market-weighted global strategy involves a very heavy layer of one particular risk that an equity investor never need assume: currency risk."
4. "While few funds that follow global strategies have operated for a full decade, the evidence so far is not very inspiring."
5. Political instability remains a threat and adds a layer of substantial additional risk."
In Mr. Bogle's Forward to my latest book, The Bogleheads' Guide to The Three-Fund Portfolio, Mr. Bogle wrote:
Best wishes."In my first book, published in 1994, I wrote that a long-term investor need not allocate any of his or her assets to non-U.S. stocks. But if they disagreed, I argued, they should limit their holding to 20% of their stock portion, given the significant extra risks involved (such as currency risk and sovereign risk).
My opinion was based on my expectation that the American economy would continue to grow over the long term, and that the market value of U.S. corporation would grow faster that the values of non-U.S corporations. Since 1994, as it was to happen, the U.S. S&P 500 Index was to rise by 743%, while the EAFE (Europe, Australasia, and Far East) Index of non-U.S. stocks rose by 237%.
That I was right is beside the point. It may have been luck. But now the U.S. stocks have dominated for nearly 25, it may well be time for reversion to the mean, with non-U.S. stock leading the way rather than following. Who really knows? No one knows what tomorrow may bring. But I'm inclined to stick by my earlier conclusion that holding of non-U.S. stock should be limited to no more that 20% of equities."