Why Mr. Bogle prefers U.S stocks

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Taylor Larimore
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Why Mr. Bogle prefers U.S stocks

Post by Taylor Larimore » Sun Jul 28, 2019 1:42 pm

Bogleheads:

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:
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."
6. We save and spend in U.S. currency.

In Mr. Bogle's Forward to my latest book, The Bogleheads' Guide to The Three-Fund Portfolio, Mr. Bogle wrote:
"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."
Best wishes.
Taylor
Last edited by Taylor Larimore on Sun Jul 28, 2019 9:36 pm, edited 1 time in total.
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Re: Why Mr. Bogle prefers U.S stocks

Post by abuss368 » Sun Jul 28, 2019 1:54 pm

Taylor -

I believe that Mr. Bogle’s forward to your book clarified and cleared up a lot of questions. International May start to outperform and no one knows what the future may brings.

Stay the course as over the long term it may not matter much.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Sun Jul 28, 2019 2:03 pm

Yes, Taylor. The British Pound is the world's reserve currency, Britannia rules the waves, and the sun never sets on the British Empire. Why invest anywhere outside of the U.K.? You know how terribly unruly those colonists across the pond are. Keep calm and carry on, God Save the King, Sail on Britannia, Keep a Stiff Upper Lip, and keep investing in UK shares.
A fool and his money are good for business.

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Re: Why Mr. Bogle prefers U.S stocks

Post by abuss368 » Sun Jul 28, 2019 2:12 pm

nedsaid wrote:
Sun Jul 28, 2019 2:03 pm
Yes, Taylor. The British Pound is the world's reserve currency, Britannia rules the waves, and the sun never sets on the British Empire. Why invest anywhere outside of the U.K.? You know how terribly unruly those colonists across the pond are. Keep calm and carry on, God Save the King, Sail on Britannia, Keep a Stiff Upper Lip, and keep investing in UK shares.
That was definitely a unique post! It had effect!
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Re: Why Mr. Bogle prefers U.S stocks

Post by abuss368 » Sun Jul 28, 2019 2:13 pm

stan1 wrote:
Sun Jul 28, 2019 2:10 pm
Shouldn't that be "Why Mr. Bogle preferred U.S. stocks"

Maybe he would feel differently if asked today? Or would if asked in 5 or 10 years?

Otherwise its about as relevant as "Why Mr. Geo. Washington preferred slavery"
Mr. Bogle’s thoughts would probably be the same today. The forward to Taylor’s book was written a year or so ago.
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Re: Why Mr. Bogle prefers U.S stocks

Post by Forester » Sun Jul 28, 2019 2:20 pm

Why is SCV / SC tilting frowned upon when the US total market of 5,000 stocks behaves identically to the DOW 30 (small & mid cap is swamped by mega cap), yet tilting to the US away from the global benchmark is given a free pass. It's a little inconsistent.

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Re: Why Mr. Bogle prefers U.S stocks

Post by zaboomafoozarg » Sun Jul 28, 2019 2:23 pm

My AA has always been around 30-40% international, but I'd have way more money if I was 100% US.

Not gonna change it though, I'm good with where I'm at.

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Re: Why Mr. Bogle prefers U.S stocks

Post by rossington » Sun Jul 28, 2019 2:26 pm

Taylor,
Thanks for providing more clarification of Mr. Bogle's thoughts on international (and thanks for responding to my post to you last week regarding this). The reasoning makes perfect sense to me even now in 2019. (I hope this thread does not go off the rails... :wink: )
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: Why Mr. Bogle prefers U.S stocks

Post by spectec » Sun Jul 28, 2019 2:28 pm

zaboomafoozarg wrote:
Sun Jul 28, 2019 2:23 pm
My AA has always been around 30-40% international, but I'd have way more money if I was 100% US.

Not gonna change it though, I'm good with where I'm at.
Virtually the same here (with respect to the conclusion).

My AA is around 0% international, but I'd have way less money if I were not 100% US.

Not gonna change it though. I'm good with where I am.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Sun Jul 28, 2019 2:29 pm

abuss368 wrote:
Sun Jul 28, 2019 2:12 pm
nedsaid wrote:
Sun Jul 28, 2019 2:03 pm
Yes, Taylor. The British Pound is the world's reserve currency, Britannia rules the waves, and the sun never sets on the British Empire. Why invest anywhere outside of the U.K.? You know how terribly unruly those colonists across the pond are. Keep calm and carry on, God Save the King, Sail on Britannia, Keep a Stiff Upper Lip, and keep investing in UK shares.
That was definitely a unique post! It had effect!
Two points. One is about home country bias. Second, things change. The US emerged relatively unscathed after WWII with the worlds best and largest industrial base and with the world's largest navy. The Brits mostly cut their empire loose after the war. King George died at a relatively young age and his daughter, Elizabeth, succeed him to the throne. Also the Royal Navy shrank and shrank and shrank during the post War years, it had trouble retaking the Falkland Islands and now is even smaller than it was back then.

There is also my what if John Bogle was born in Japan essay. It was a bit over the top but made points about home country bias. Ironically, the UK Stock Market has actually been a very good place to invest, better than Japan. A UK investor would likely have been better off with a UK only portfolio during the post-war years. Don't think the German and Japanese stock markets did so well during WWII but of course experience dramatic recovery right along with economic recovery. The point is, don't put all your eggs in one basket, even if that basket is your home country.

Maybe I will write an essay about John Bogle being born in the United Kingdom. It would take some time to write as I would have to do some UK market history for both stocks and bonds. A British John Bogle would probably have done better than a Japanese Bogle but I in my essay endowed Mr. Bogle with incredible foresight. That is what is fun about fiction, you can do most anything you want.
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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Sun Jul 28, 2019 3:00 pm

spectec wrote:
Sun Jul 28, 2019 2:28 pm
zaboomafoozarg wrote:
Sun Jul 28, 2019 2:23 pm
My AA has always been around 30-40% international, but I'd have way more money if I was 100% US.

Not gonna change it though, I'm good with where I'm at.
Virtually the same here (with respect to the conclusion).

My AA is around 0% international, but I'd have way less money if I were not 100% US.

Not gonna change it though. I'm good with where I am.
+1

It did indeed make a substantial financial difference.

I think even some of us who were listening to Bogle and staying away from ex-US indexing were surprised by how poorly it has performed over the last 20-30 years. I still don't fully understand it, and can't say I expected it to be this bad.

Also, not sure how much of it is the performance of these stock markets in their native currencies vs USD conversion rates, how much is the effect of extra foreign taxes, or other overheads and inefficiencies of ex-US index funds. The bottom line is that it has been truly bleak. Very little return with a lot of volatility over decades now.

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Re: Why Mr. Bogle prefers U.S stocks

Post by hagridshut » Sun Jul 28, 2019 3:17 pm

This is one subject where I respectfully disagree with Mr. Bogle. More than a decade ago, my 401(k)'s stock allocation was roughly 80/20 U.S./International. I have gradually moved that allocation over the course of years to 60/40 U.S./International, where it will stay. U.S. stocks have had a fantastic run since 2009, mostly driven by the technology sector, which makes me feel good. However, I will not allow the recency bias I feel to override what I know from history: the future rarely looks like the past.
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."
Both the United Kingdom and Japan could have also claimed this in the past. There is no guarantee that the U.S. will continue to enjoy this distinction.
2. "In 2008 foreign sales represented 48 percent of all sales for the firms in the Standard & Poor's 500 Index."
If the U.S.-derived sales of firms represented in VXUS (Vanguard Total International ex-US ETF) were 50% of their revenue, would that justify excluding U.S. companies from a portfolio?
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."
There is also currency risk in being 100% invested in USD-denominated securities. The U.S. Dollar is the relatively stable global reserve currency, today. Will that be true years from now? Nobody knows.
4. "While few funds that follow global strategies have operated for a full decade, the evidence so far is not very inspiring."
Recent bias!
5. Political instability remains a threat and adds a layer of substantial additional risk."
Given the events of the past 2 and 1/2 years, growing political instability in the U.S. is a risk. Given that this is controversial, I will say no more :o
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Re: Why Mr. Bogle prefers U.S stocks

Post by 3Fund4Life » Sun Jul 28, 2019 3:29 pm

Taylor,

Thank you for summarizing Mr. Bogle’s position on foreign holdings. We have followed his advice over the past 10 years (despite being advised otherwise by our VG CFP) and limited our international AA to no more than 10% of equity holdings (“if you must”).

As I look back over the last 10 years, the performance of this slice of our portfolio is less than inspiring. Further, it seems like internationals introduce an unnecessary and disproportionate tax drag annually, since the dividends are high relative to US equities (we hold in taxable for the foreign tax credit like many).

I have even thought of transitioning our international AA in our Roths to mitigate the tax drag, but then cringe at the idea of potentially stunting growth in our Roth’s over the long haul. The only reason this is even a consideration is because of the anemic growth of our international holdings over the last decade - we wouldn’t even suffer a large capital gains hit.

His reasoning always seemed sound and it’s helpful to hear it again from time to time. I am patriotic and try to buy everything made in USA, if possible. I guess this extends to our investments.

Thanks again for your succinct post.
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Re: Why Mr. Bogle prefers U.S stocks

Post by junior » Sun Jul 28, 2019 3:30 pm

spectec wrote:
Sun Jul 28, 2019 2:28 pm
zaboomafoozarg wrote:
Sun Jul 28, 2019 2:23 pm
My AA has always been around 30-40% international, but I'd have way more money if I was 100% US.

Not gonna change it though, I'm good with where I'm at.
Virtually the same here (with respect to the conclusion).

My AA is around 0% international, but I'd have way less money if I were not 100% US.

Not gonna change it though. I'm good with where I am.
Stocks are not money.

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Re: Why Mr. Bogle prefers U.S stocks

Post by columbia » Sun Jul 28, 2019 3:40 pm

junior wrote:
Sun Jul 28, 2019 3:30 pm
spectec wrote:
Sun Jul 28, 2019 2:28 pm
zaboomafoozarg wrote:
Sun Jul 28, 2019 2:23 pm
My AA has always been around 30-40% international, but I'd have way more money if I was 100% US.

Not gonna change it though, I'm good with where I'm at.
Virtually the same here (with respect to the conclusion).

My AA is around 0% international, but I'd have way less money if I were not 100% US.

Not gonna change it though. I'm good with where I am.
Stocks are not money.
They are if you sell them. 😀

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Re: Why Mr. Bogle prefers U.S stocks

Post by JPM » Sun Jul 28, 2019 3:58 pm

I admit that I am not a finance expert, but it seems to me that not only has US GDP per capita been substantially higher than that of the other developed countries, but its GDP growth rate has been higher as well. Since 1990 US GDP in constant dollars had risen c 100% and Germany's, the EU's best performer, has risen about 60% in constant national prices terms since 1990. More rapid GDP growth should translate into better price performance of the stock indices which should reflect growth rates over a 25-30 year period when said index is made up of the leading companies in the respective economies, or so it seems to me.

Emerging markets have been thought to be a good bet for the future as their growth rates are expected to be higher, and as long as worldwide political stability and prosperity continue, that should work out over a long time horizon.

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Re: Why Mr. Bogle prefers U.S stocks

Post by AnalogKid22 » Sun Jul 28, 2019 4:06 pm

Here’s Kevin O’Leary mentioning that the S&P500 has 46% in foreign revenue: https://youtu.be/uran2Ev4I34

This is up from 44% in 2017.
Last edited by AnalogKid22 on Sun Jul 28, 2019 4:06 pm, edited 1 time in total.

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Re: Why Mr. Bogle prefers U.S stocks

Post by Sandtrap » Sun Jul 28, 2019 4:06 pm

nedsaid wrote:
Sun Jul 28, 2019 2:03 pm
Yes, Taylor. The British Pound is the world's reserve currency, Britannia rules the waves, and the sun never sets on the British Empire. Why invest anywhere outside of the U.K.? You know how terribly unruly those colonists across the pond are. Keep calm and carry on, God Save the King, Sail on Britannia, Keep a Stiff Upper Lip, and keep investing in UK shares.
Wow!
Great flow!
j :D
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Re: Why Mr. Bogle prefers U.S stocks

Post by lostdog » Sun Jul 28, 2019 4:08 pm

Vanguard suggests 40% international stock Index.

https://investor.vanguard.com/investing ... -investing

They use this allocation in there target retirement and life strategy funds.
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Re: Why Mr. Bogle prefers U.S stocks

Post by sambb » Sun Jul 28, 2019 4:12 pm

Sandtrap wrote:
Sun Jul 28, 2019 4:06 pm
nedsaid wrote:
Sun Jul 28, 2019 2:03 pm
Yes, Taylor. The British Pound is the world's reserve currency, Britannia rules the waves, and the sun never sets on the British Empire. Why invest anywhere outside of the U.K.? You know how terribly unruly those colonists across the pond are. Keep calm and carry on, God Save the King, Sail on Britannia, Keep a Stiff Upper Lip, and keep investing in UK shares.
Wow!
Great flow!
j :D
Thanks for this, great point.

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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Sun Jul 28, 2019 4:16 pm

My bark is worse than my bite, I am still primarily a US Investor. About 70% of my stocks and about 90% of my bonds are US. So I am not down on the United States as a place to invest, I just believe that it is prudent in invest beyond our borders. Pretty much all single country markets are top heavy with certain industry sectors, adding a slice of International to an otherwise all-US portfolio does give you better sector diversification. Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.

I keep warning Bogleheads about performance chasing, which preference for US Stocks is. Back in 2007, it was said that International Stocks performed a bit better than US Stocks with low correlation to the US Market. What a difference 12 years makes! Pretty much, in the aftermath of the 2008-2009 financial crisis, the US was the least dirty shirt in the laundry hamper. It was a flight to quality phenomenon. US economic growth has been faster here than in Europe and that is another big factor. The very strong US Dollar is yet another cause of this.
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Re: Why Mr. Bogle prefers U.S stocks

Post by samsoes » Sun Jul 28, 2019 4:29 pm

I don't think he prefers any type of stock anymore.

Golly, I sure hope what lies beyond doesn't require investing of any sort. If so, it would fall into the Catholic definition of Purgatory, for sure. :shock:

Rest in peace, Mr. Bogle!
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Re: Why Mr. Bogle prefers U.S stocks

Post by pokebowl » Sun Jul 28, 2019 4:34 pm

I have to ask, was this thread started with the sole purpose to cause this community to scream over each other for 20+ pages? :|
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Re: Why Mr. Bogle prefers U.S stocks

Post by PackersFan12 » Sun Jul 28, 2019 4:55 pm

Just going to put this here...

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

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Re: Why Mr. Bogle prefers U.S stocks

Post by vineviz » Sun Jul 28, 2019 5:01 pm

hagridshut wrote:
Sun Jul 28, 2019 3:17 pm
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."
Both the United Kingdom and Japan could have also claimed this in the past. There is no guarantee that the U.S. will continue to enjoy this distinction.
It’s worth noting that what Bogle said is not true now ( and probably wasn’t when he said it): the US ranks around sixth in economic productivity and shows no signs of rising in the ranks.
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Re: Why Mr. Bogle prefers U.S stocks

Post by columbia » Sun Jul 28, 2019 5:05 pm

nedsaid wrote:
Sun Jul 28, 2019 4:16 pm
My bark is worse than my bite, I am still primarily a US Investor. About 70% of my stocks and about 90% of my bonds are US. So I am not down on the United States as a place to invest, I just believe that it is prudent in invest beyond our borders. Pretty much all single country markets are top heavy with certain industry sectors, adding a slice of International to an otherwise all-US portfolio does give you better sector diversification. Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.

I keep warning Bogleheads about performance chasing, which preference for US Stocks is. Back in 2007, it was said that International Stocks performed a bit better than US Stocks with low correlation to the US Market. What a difference 12 years makes! Pretty much, in the aftermath of the 2008-2009 financial crisis, the US was the least dirty shirt in the laundry hamper. It was a flight to quality phenomenon. US economic growth has been faster here than in Europe and that is another big factor. The very strong US Dollar is yet another cause of this.
Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.
I get that.

What are those companies? Assuming that you use a broad-based international fund, how many of those 7000+ ex-US companies do you *need* to achieve the above?

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Re: Why Mr. Bogle prefers U.S stocks

Post by Trader Joe » Sun Jul 28, 2019 5:06 pm

Taylor Larimore wrote:
Sun Jul 28, 2019 1:42 pm
Bogleheads:

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 condense five of his reasons here:
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:
"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."
Best wishes.
Taylor
Thank you very much for posting this Taylor. Mr. Bogle's reasons for preferring United States stock is as relevant today as it has been in the past. This is a very important reminder to everyone. Best of luck.

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Re: Why Mr. Bogle prefers U.S stocks

Post by EddyB » Sun Jul 28, 2019 5:10 pm

Trader Joe wrote:
Sun Jul 28, 2019 5:06 pm
Taylor Larimore wrote:
Sun Jul 28, 2019 1:42 pm
Bogleheads:

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 condense five of his reasons here:
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:
"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."
Best wishes.
Taylor
Thank you very much for posting this Taylor. Mr. Bogle's reasons for preferring United States stock is as relevant today as it has been in the past. This is a very important reminder to everyone. Best of luck.
If these supposed reasons are known and publicized, why aren’t they priced in?

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Re: Why Mr. Bogle prefers U.S stocks

Post by jibantik » Sun Jul 28, 2019 5:13 pm

Well at least at point one its clearly laid out that we are dealing with American exceptionalism bias.

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Re: Why Mr. Bogle prefers U.S stocks

Post by EvanRude » Sun Jul 28, 2019 5:14 pm

Our AA goal is 55% equities (65% US/35% ex-US), 40% fixed income (70% US/30% ex-US) and 5% short term reserves.

Reading this thread caused me to question whether we are truly comparing apples to apples when comparing the returns of US and ex-US funds. The ex-US funds, say VTIAX Total Intl Stock Mkt Index, are net of some amount of foreign tax paid (1099-DIV Box 7) which can be credited or deducted from US taxes each year. The US funds are gross before any tax.

When it is stated that over a given period of time the US returned 700+% while international returned 230+%, is the tax credit part of the stated return for ex-US? Probably not.

How, in fact, are ex-US mutual funds taxed? How can this difference be accounted for in comparisons of US and ex-US equity funds?

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zaboomafoozarg
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Re: Why Mr. Bogle prefers U.S stocks

Post by zaboomafoozarg » Sun Jul 28, 2019 5:32 pm

pokebowl wrote:
Sun Jul 28, 2019 4:34 pm
I have to ask, was this thread started with the sole purpose to cause this community to scream over each other for 20+ pages? :|
Regardless, we all know that's what is going to happen :D

Perhaps the slogan "many roads to Dublin" will be updated to "many roads to New York".
Last edited by zaboomafoozarg on Sun Jul 28, 2019 5:37 pm, edited 2 times in total.

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Re: Why Mr. Bogle prefers U.S stocks

Post by oldzey » Sun Jul 28, 2019 5:33 pm

"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

LFS1234
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Re: Why Mr. Bogle prefers U.S stocks

Post by LFS1234 » Sun Jul 28, 2019 5:35 pm

Fifty years ago, the conventional wisdom regarding foreign stocks would have been more averse. There would still have been generations of older people around who had first-hand memories of World Wars I and II, closed borders, massive wealth destruction, and wholesale confiscations of assets owned by foreigners and fellow citizens alike.

These types of events have occurred from time to time throughout history. They are still occurring today, although perhaps not in places we'd like to visit. We might like to think that "this time is different" and "never again". But how realistic is that? Especially for people with a very long investment time horizon? Human beings will be human beings, and one of the quickest paths to riches, unfortunately, still is to take somebody else's stuff.

"Friendly" countries also erect barriers against each other. See posts on this web site regarding the difficulties of US citizens in dealing with many types of non-US investments. See other posts pointing out how treacherous it can be for some foreign investors to own US stocks in ways that potentially could subject them to huge US estate taxes even if they have no other ties with the US and even though they may be of quite limited means. These types of complicated, counter-intuitive, discriminatory rules are nothing new; consider for example the "interest equalization tax" implemented in the US during the time of JFK, for the express purpose of making it less attractive for US citizens to invest overseas and more attractive for them to bring their money home.

Rules can change drastically and with little or no notice, both in the US and elsewhere. In your home country, at least you may have a political voice, especially when combined with those of others similarly situated. In somebody else's country, the local populists may just consider you to be a rich foreigner who is taking advantage of the locals and who ought to be expropriated.

Foreign investments can make sense; I have some. But the analysis required in making them is considerably more complicated than that which would be required for making a similar investment in your (developed) home country.

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nedsaid
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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Sun Jul 28, 2019 5:35 pm

columbia wrote:
Sun Jul 28, 2019 5:05 pm
nedsaid wrote:
Sun Jul 28, 2019 4:16 pm
My bark is worse than my bite, I am still primarily a US Investor. About 70% of my stocks and about 90% of my bonds are US. So I am not down on the United States as a place to invest, I just believe that it is prudent in invest beyond our borders. Pretty much all single country markets are top heavy with certain industry sectors, adding a slice of International to an otherwise all-US portfolio does give you better sector diversification. Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.

I keep warning Bogleheads about performance chasing, which preference for US Stocks is. Back in 2007, it was said that International Stocks performed a bit better than US Stocks with low correlation to the US Market. What a difference 12 years makes! Pretty much, in the aftermath of the 2008-2009 financial crisis, the US was the least dirty shirt in the laundry hamper. It was a flight to quality phenomenon. US economic growth has been faster here than in Europe and that is another big factor. The very strong US Dollar is yet another cause of this.
Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.
I get that.

What are those companies? Assuming that you use a broad-based international fund, how many of those 7000+ ex-US companies do you *need* to achieve the above?
An International Index is market cap weighted just like the US Index, so you would get representation of the largest and most successful foreign companies in such an index. There is no precise number for how many companies you "need" but you would get exposure simply by pairing an International Stock Market Index with a US Stock Market Index. Just seems logical to me.

If you want a precise number, you need 203.245387368 foreign companies to achieve this. I can take it out to more decimal points if you would like. :wink:
A fool and his money are good for business.

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Re: Why Mr. Bogle prefers U.S stocks

Post by columbia » Sun Jul 28, 2019 5:38 pm

nedsaid wrote:
Sun Jul 28, 2019 5:35 pm
columbia wrote:
Sun Jul 28, 2019 5:05 pm
nedsaid wrote:
Sun Jul 28, 2019 4:16 pm
My bark is worse than my bite, I am still primarily a US Investor. About 70% of my stocks and about 90% of my bonds are US. So I am not down on the United States as a place to invest, I just believe that it is prudent in invest beyond our borders. Pretty much all single country markets are top heavy with certain industry sectors, adding a slice of International to an otherwise all-US portfolio does give you better sector diversification. Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.

I keep warning Bogleheads about performance chasing, which preference for US Stocks is. Back in 2007, it was said that International Stocks performed a bit better than US Stocks with low correlation to the US Market. What a difference 12 years makes! Pretty much, in the aftermath of the 2008-2009 financial crisis, the US was the least dirty shirt in the laundry hamper. It was a flight to quality phenomenon. US economic growth has been faster here than in Europe and that is another big factor. The very strong US Dollar is yet another cause of this.
Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.
I get that.

What are those companies? Assuming that you use a broad-based international fund, how many of those 7000+ ex-US companies do you *need* to achieve the above?
An International Index is market cap weighted just like the US Index, so you would get representation of the largest and most successful foreign companies in such an index. There is no precise number for how many companies you "need" but you would get exposure simply by pairing an International Stock Market Index with a US Stock Market Index. Just seems logical to me.

If you want a precise number, you need 203.245387368 foreign companies to achieve this. I can take it out to more decimal points if you would like. :wink:
You’d probably be fine with 50 or 100 or 500.

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nedsaid
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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Sun Jul 28, 2019 5:41 pm

columbia wrote:
Sun Jul 28, 2019 5:38 pm
nedsaid wrote:
Sun Jul 28, 2019 5:35 pm
columbia wrote:
Sun Jul 28, 2019 5:05 pm
nedsaid wrote:
Sun Jul 28, 2019 4:16 pm
My bark is worse than my bite, I am still primarily a US Investor. About 70% of my stocks and about 90% of my bonds are US. So I am not down on the United States as a place to invest, I just believe that it is prudent in invest beyond our borders. Pretty much all single country markets are top heavy with certain industry sectors, adding a slice of International to an otherwise all-US portfolio does give you better sector diversification. Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.

I keep warning Bogleheads about performance chasing, which preference for US Stocks is. Back in 2007, it was said that International Stocks performed a bit better than US Stocks with low correlation to the US Market. What a difference 12 years makes! Pretty much, in the aftermath of the 2008-2009 financial crisis, the US was the least dirty shirt in the laundry hamper. It was a flight to quality phenomenon. US economic growth has been faster here than in Europe and that is another big factor. The very strong US Dollar is yet another cause of this.
Plus, I want to own the best companies in the world, wherever they are headquartered. Lots of foreign companies do substantial business here in the United States.
I get that.

What are those companies? Assuming that you use a broad-based international fund, how many of those 7000+ ex-US companies do you *need* to achieve the above?
An International Index is market cap weighted just like the US Index, so you would get representation of the largest and most successful foreign companies in such an index. There is no precise number for how many companies you "need" but you would get exposure simply by pairing an International Stock Market Index with a US Stock Market Index. Just seems logical to me.

If you want a precise number, you need 203.245387368 foreign companies to achieve this. I can take it out to more decimal points if you would like. :wink:
You’d probably be fine with 50 or 100 or 500.
The numbers you gave are reasonable, as you add more and more stocks there is a certain diminishing diversification benefit. In all seriousness, 50 would probably do it.
A fool and his money are good for business.

sambb
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Re: Why Mr. Bogle prefers U.S stocks

Post by sambb » Sun Jul 28, 2019 5:58 pm

unclear why these types of threads are started except to cause controversy. I wish everyone good luck in whatever is chosen to invest.

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Re: Why Mr. Bogle prefers U.S stocks

Post by sambb » Sun Jul 28, 2019 5:58 pm

deleted

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Re: Why Mr. Bogle prefers U.S stocks

Post by AnalogKid22 » Sun Jul 28, 2019 6:03 pm

sambb wrote:
Sun Jul 28, 2019 5:58 pm
unclear why these types of threads are started except to cause controversy. I wish everyone good luck in whatever is chosen to invest.
I think it’s because international funds have been performing poorly while US continues to set records. International could take off at anytime, but, as long as the US leads there is FOMO.

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Re: Why Mr. Bogle prefers U.S stocks

Post by mrspock » Sun Jul 28, 2019 6:04 pm

Good quotes, it provides a good reference to those of us who constantly point to Bogle on this topic. These words have always lingered in my mind, and it’s why I’ve always been 100% US (with Buffets words along with them). I do not know what the future may bring, but the basis of his argument still feels like it’s relevant today.

That said, 20% probably won’t sink your retirement either way no matter how you land on this decision.

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Re: Why Mr. Bogle prefers U.S stocks

Post by UpperNwGuy » Sun Jul 28, 2019 6:27 pm

Like it or not, international stocks are a drag on a portfolio, and I don't see that changing anytime soon. Full disclosure: international stocks comprise about 20-25% of my portfolio. I often wish I were all-US stocks. I would never go to full market weight on international.

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nedsaid
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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Sun Jul 28, 2019 6:36 pm

UpperNwGuy wrote:
Sun Jul 28, 2019 6:27 pm
Like it or not, international stocks are a drag on a portfolio, and I don't see that changing anytime soon. Full disclosure: international stocks comprise about 20-25% of my portfolio. I often wish I were all-US stocks. I would never go to full market weight on international.
You have it about right. There actually seems to be very little difference in the range from 20% to 50%. I have almost 30% of my stocks in International.

The thing is, if the US retains its competitive advantages in the world economy, these arguments are pretty mute. It should make little difference whether you invest internationally or not. I believe in American exceptionalism but don't know that it will last. Hence my "Britannia Rules The Waves" post above. Things do change, the UK was in our position at one time. Just seems prudent to hedge your bets.
A fool and his money are good for business.

rascott
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Re: Why Mr. Bogle prefers U.S stocks

Post by rascott » Sun Jul 28, 2019 7:12 pm

I long carried 25% international. Now I'm down to probably sub 10%.

At some point I'll move back up to a higher level, but it'll mostly be EMs....and only after I start seeing any sign that those markets are gaining momentum. Yes, this is some manner of market timing, shrug.

I do think there is a good chance Intl will outperform US over the next decade or so....in just some type of reversion to the mean. But until we see non-negative interest rates and anything over anemic GDP growth in Europe/Japan, hard to see how/when that would possibly kick in. Valuations are much more attractive overseas.....but only EMs have any good GDP growth to go along with those valuations. Europe/Japan also have serious demographic challenges that dwarf what the US faces.

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Re: Why Mr. Bogle prefers U.S stocks

Post by PackersFan12 » Sun Jul 28, 2019 7:22 pm

rascott wrote:
Sun Jul 28, 2019 7:12 pm
I long carried 25% international. Now I'm down to probably sub 10%.

At some point I'll move back up to a higher level, but it'll mostly be EMs....and only after I start seeing any sign that those markets are gaining momentum. Yes, this is some manner of market timing, shrug.

I do think there is a good chance Intl will outperform US over the next decade or so....in just some type of reversion to the mean. But until we see non-negative interest rates and anything over anemic GDP growth in Europe/Japan, hard to see how/when that would possibly kick in. Valuations are much more attractive overseas.....but only EMs have any good GDP growth to go along with those valuations. Europe/Japan also have serious demographic challenges that dwarf what the US faces.
It's incredibly hard to feel bullish/optimistic on Japan and Europe. And they make up roughly 60% of the total international index.

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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Sun Jul 28, 2019 7:28 pm

nedsaid wrote:
Sun Jul 28, 2019 6:36 pm
UpperNwGuy wrote:
Sun Jul 28, 2019 6:27 pm
Like it or not, international stocks are a drag on a portfolio, and I don't see that changing anytime soon. Full disclosure: international stocks comprise about 20-25% of my portfolio. I often wish I were all-US stocks. I would never go to full market weight on international.
You have it about right. There actually seems to be very little difference in the range from 20% to 50%. I have almost 30% of my stocks in International.

The thing is, if the US retains its competitive advantages in the world economy, these arguments are pretty mute. It should make little difference whether you invest internationally or not. I believe in American exceptionalism but don't know that it will last. Hence my "Britannia Rules The Waves" post above. Things do change, the UK was in our position at one time. Just seems prudent to hedge your bets.
If there was a new US emerging out there, I would invest in it. Unfortunately, there isn't. It would certainly be nice if there was such a country from a stock index investment perspective. Maybe there will be some day, but that's something for the following generations to think about, not me.

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Re: Why Mr. Bogle prefers U.S stocks

Post by rapporteur » Sun Jul 28, 2019 7:36 pm

Dear Mr Larimore,

O tempores, o mores! In the OP you stated:
In Mr. Bogle's Forward to my latest book...
A book, as part of its 'front matter', may have a Foreword but not a Forward! Nor should a foreword be confused with a preface or a prologue, let alone a prolegomenon :-)

So much for arrant pedantry (google for the allusion to the alleged Churchill quote) :-)

Regards,

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Re: Why Mr. Bogle prefers U.S stocks

Post by lostdog » Sun Jul 28, 2019 9:04 pm

jibantik wrote:
Sun Jul 28, 2019 5:13 pm
Well at least at point one its clearly laid out that we are dealing with American exceptionalism bias.

Every few weeks these threads appear. Why?
VTWAX and chill.

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Re: Why Mr. Bogle prefers U.S stocks

Post by Whakamole » Sun Jul 28, 2019 9:06 pm

I'm waiting for the post on how we'll become millionaires by buying a cheaper car.

Random Walker
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Re: Why Mr. Bogle prefers U.S stocks

Post by Random Walker » Sun Jul 28, 2019 9:27 pm

Markets are efficient. All of the above facts cited about US and international markets, economies, regulatory structures, currencies, etc are already incorporated into prices. I think making a big bet on US relative to the rest of the world’s equities must involve one of the following:

1. Investor wants a safer investment with lower expected return. Markets price risk.
2. Investor is uninformed about market efficiency and confuses familiar with safe
3. Investor arrogantly thinks he knows something not already accounted for in prices.

A rational US investor might not go all the way to world market cap weighting. This would be for reasons such as costs and spending retirement dollars in US currency. But completely or nearly completely avoiding about half of the world’s market cap is one way or another missing out on potential diversification and not appreciating the ruthless efficiency of markets around the world.

Dave

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Re: Why Mr. Bogle prefers U.S stocks

Post by FlyingMoose » Sun Jul 28, 2019 9:34 pm

lostdog wrote:
Sun Jul 28, 2019 9:04 pm
jibantik wrote:
Sun Jul 28, 2019 5:13 pm
Well at least at point one its clearly laid out that we are dealing with American exceptionalism bias.

Every few weeks these threads appear. Why?
Those of us who have been 50% international want some reassurance that we should stay-the-course.

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