You should own Int'l stocks for the same reason Bogle says you shouldn't

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danielc
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You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

I just want to make a quick point:

Jack Bogle's main argument for not owning ex-US stocks is that companies in the S&P 500 have significant business outside the US, so you get global diversification anyway. --- Well, that's fair enough. But by the same token, ex-US large cap companies are also global and they derive much of their revenue from the US. Toyota sells more cars in the US than in Japan. If all these giant mega companies are "global" anyway, what difference does it make where the company is domiciled? Why would you put all your money in GM, Ford, Exxon, and Coca-Cola and ignore Toyota, Volkswagen, Shell, and Nestlé?

Just my $0.02
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by rkhusky »

The title is misleading. Bogle didn't say that you shouldn't own Int'l, just that you don't need to (as the text of the post says).
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Portfolio7 »

As someone who owns close to the global mix....

I get the argument and tend to agree with it... but I think the 'US only' contingent still has a pretty good set of justifications for staying the course, including the fact that the vast majority of them will be spending US dollars in retirement, and that the US is still over 50% of global equity with the strongest ownership protections and capital regulations in the world.

You make your choice and you take your chances, but I don't believe there is a single right answer... only a variety of reasonable answers.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Sufferlandrian »

Portfolio7 wrote: Mon Dec 09, 2019 8:19 am You make your choice and you take your chances, but I don't believe there is a single right answer... only a variety of reasonable answers.
Well said!
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by bgf »

Portfolio7 wrote: Mon Dec 09, 2019 8:19 am As someone who owns close to the global mix....

I get the argument and tend to agree with it... but I think the 'US only' contingent still has a pretty good set of justifications for staying the course, including the fact that the vast majority of them will be spending US dollars in retirement, and that the US is still over 50% of global equity with the strongest ownership protections and capital regulations in the world.

You make your choice and you take your chances, but I don't believe there is a single right answer... only a variety of reasonable answers.
"United States went down by 26 in rank for the Strength of investor protection from 2007 to 2017. Its latest rank is 31 out of 137 countries for 2017.
For 2017, New Zealand was ranked 1 whereas Haiti was the country with the lowest rank of 137."

https://tcdata360.worldbank.org/indicat ... =2007,2017
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by stan1 »

There's also a generation of investors heavily represented in the demographics of this forum who based on birth year, retirement year, and life expectancy are locked into a specific sequence of returns that appears to heavily favor the US over the rest of the world (over age 70). Will a 30 year old investor see the same sequence of returns? Unknown. Pull out Microsoft, Apple, Amazon and Google/Alphabet from the S&P 500 and domestic returns get much closer to international.

How many 100% US equity investors over age 70 would recommend their grandchildren in their 20s also be 100% US equity? Some would hold their ground, but my guess is many would begrudgingly agree their grandchildren should hold some international equities. Maybe not Total World market cap weight but something between zero and market cap weight.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Brianmcg321 »

Did we really need to start another thread?
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by asif408 »

Brianmcg321 wrote: Mon Dec 09, 2019 8:32 am Did we really need to start another thread?
We didn't have to, but it does make for good entertainment. I'll get my popcorn ready and wait for about 6-7 pages of back and forth until it gets locked.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Portfolio7 »

bgf wrote: Mon Dec 09, 2019 8:24 am
Portfolio7 wrote: Mon Dec 09, 2019 8:19 am As someone who owns close to the global mix....

I get the argument and tend to agree with it... but I think the 'US only' contingent still has a pretty good set of justifications for staying the course, including the fact that the vast majority of them will be spending US dollars in retirement, and that the US is still over 50% of global equity with the strongest ownership protections and capital regulations in the world.

You make your choice and you take your chances, but I don't believe there is a single right answer... only a variety of reasonable answers.
"United States went down by 26 in rank for the Strength of investor protection from 2007 to 2017. Its latest rank is 31 out of 137 countries for 2017.
For 2017, New Zealand was ranked 1 whereas Haiti was the country with the lowest rank of 137."

https://tcdata360.worldbank.org/indicat ... =2007,2017
Thanks for the update. I should have said 'among the strongest'. I honestly don't think it changes the argument much for either side.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by lazyday »

Portfolio7 wrote: Mon Dec 09, 2019 8:19 amYou make your choice and you take your chances, but I don't believe there is a single right answer... only a variety of reasonable answers.
There are some unreasonable answers.

It’s a bad idea to have 100% of equity in the US, unless you have reasons that are not financial in nature.

Some Bogleheads are taking on severe concentration risk, and their portfolios are likely to suffer.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by nisiprius »

John C. Bogle never said that you shouldn't.

1) He said that he didn't think it was necessary to own any international stocks, and

2) Sometime in the time frame when international stocks were doing well and emerging markets were doing even better, he said that if you did choose to own them, you should limit them to 20% of your stock holdings. I can't find an actual direct quotation from Bogle, and the link to W. Pfau in this posting has expired, but... a poster quote Pfau's notes on a 2012 speech:
Wade Pfau’s summary of Mr. Bogle’s comments:

He has never been much into international stock funds. He has a home country bias, as he thinks U.S. companies dominate and the economic system and financial institutions are most stable here. He is not a fan of taking currency risk. Nonetheless, he does not view emerging markets as excessively risky at the current time, and he doesn’t necessarily think that his views about international stocks are appropriate for everyone. He suggests limiting international equity holdings to 20% of the portfolio at most. He doesn’t see high prospects for European countries either. Perhaps 10% in developed markets and 10% in emerging markets for that 20% international allocation.
This accords exactly with my memory of what Bogle has said in interviews.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by JoMoney »

FWIW, I don't think Mr. Bogle ever framed it as that being the "main reason".
But to answer your question, the biggest difference the domicile makes can be answered by the prospectus of an international fund and the risks listed in it. Different accounting and SEC standards/authorities, currency differences, and your legal ability to enforce your claim on the shares (assuming they even represent the same claim on a company) is diminished. You seem to suggest that the list of companies you rattled off are roughly equivalent, No need to take on the additional risks when you already have a representative sample without the additional risks.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Portfolio7 »

lazyday wrote: Mon Dec 09, 2019 9:07 am
Portfolio7 wrote: Mon Dec 09, 2019 8:19 amYou make your choice and you take your chances, but I don't believe there is a single right answer... only a variety of reasonable answers.
There are some unreasonable answers.

It’s a bad idea to have 100% of equity in the US, unless you have reasons that are not financial in nature.

Some Bogleheads are taking on severe concentration risk, and their portfolios are likely to suffer.
There are always unreasonable answers, and that's a misunderstanding of the point I was making.

So, why is it a bad idea? Stating it doesn't make it so, and a lot of very bright people have argued both sides of this discussion. I think most people own international due to Markowitz theoretical framework, but application of theory to reality always involves some translation, and not everyone buys his conclusions.

Based on what evidence do you come to the conclusion that their portfolios are likely to suffer?

One could argue that historically, an international tilt has been nuetral to a portfolio, slightly helpful, or has been a significant drag, depending on the time frames chosen. I haven't seen many suggestions that it was an unalloyed benefit.
Last edited by Portfolio7 on Mon Dec 09, 2019 9:45 am, edited 1 time in total.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by columbia »

Aside from investing in low cost funds (which are likely to be index-based), it’s not clear why people on the Internet are intent on telling random strangers what they should do with their money.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by harvestbook »

stan1 wrote: Mon Dec 09, 2019 8:27 am There's also a generation of investors heavily represented in the demographics of this forum who based on birth year, retirement year, and life expectancy are locked into a specific sequence of returns that appears to heavily favor the US over the rest of the world (over age 70). Will a 30 year old investor see the same sequence of returns? Unknown. Pull out Microsoft, Apple, Amazon and Google/Alphabet from the S&P 500 and domestic returns get much closer to international.

How many 100% US equity investors over age 70 would recommend their grandchildren in their 20s also be 100% US equity? Some would hold their ground, but my guess is many would begrudgingly agree their grandchildren should hold some international equities. Maybe not Total World market cap weight but something between zero and market cap weight.
This. Bogle and Buffet lived through the American Century and this colors all their advice, rightly or wrongly. I doubt Bogle would have said this if he lived through the 1800s or 2000s. Another form of recency bias, even if the recency in this case covers a long period.

I prefer his advice to "Buy the haystack" and not worry about what flags the straws fall under.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Forester »

I feel that only owning US stocks is a bigger active bet, than owning the world with factor tilts.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by bgf »

Portfolio7 wrote: Mon Dec 09, 2019 8:53 am
bgf wrote: Mon Dec 09, 2019 8:24 am
Portfolio7 wrote: Mon Dec 09, 2019 8:19 am As someone who owns close to the global mix....

I get the argument and tend to agree with it... but I think the 'US only' contingent still has a pretty good set of justifications for staying the course, including the fact that the vast majority of them will be spending US dollars in retirement, and that the US is still over 50% of global equity with the strongest ownership protections and capital regulations in the world.

You make your choice and you take your chances, but I don't believe there is a single right answer... only a variety of reasonable answers.
"United States went down by 26 in rank for the Strength of investor protection from 2007 to 2017. Its latest rank is 31 out of 137 countries for 2017.
For 2017, New Zealand was ranked 1 whereas Haiti was the country with the lowest rank of 137."

https://tcdata360.worldbank.org/indicat ... =2007,2017
Thanks for the update. I should have said 'among the strongest'. I honestly don't think it changes the argument much for either side.
yea, i think if one is rationalizing one broad, cheap investment strategy over another by digging down into the finer details of corporate legal structures between individual countries that they are wasting their time. every time i hear someone say offhand that the US is the best in the world at something, it irks me. im sure there are things where thats true, but generally speaking, the odds aren't good that it is the case. there are a lot of other countries out there...
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Bluce »

harvestbook wrote: Mon Dec 09, 2019 9:45 am
stan1 wrote: Mon Dec 09, 2019 8:27 am There's also a generation of investors heavily represented in the demographics of this forum who based on birth year, retirement year, and life expectancy are locked into a specific sequence of returns that appears to heavily favor the US over the rest of the world (over age 70). Will a 30 year old investor see the same sequence of returns? Unknown. Pull out Microsoft, Apple, Amazon and Google/Alphabet from the S&P 500 and domestic returns get much closer to international.

How many 100% US equity investors over age 70 would recommend their grandchildren in their 20s also be 100% US equity? Some would hold their ground, but my guess is many would begrudgingly agree their grandchildren should hold some international equities. Maybe not Total World market cap weight but something between zero and market cap weight.
This. Bogle and Buffet lived through the American Century and this colors all their advice, rightly or wrongly. I doubt Bogle would have said this if he lived through the 1800s or 2000s. Another form of recency bias, even if the recency in this case covers a long period.

I prefer his advice to "Buy the haystack" and not worry about what flags the straws fall under.
I read in some book, the title long forgotten, that the US stock market during the 20th century has returned 1-2% more than global historical averages.

Will it continue forever? IMO, doubtful. We are no longer the most economically-free country in the world -- which would probably be the driving force for above-average returns.

Having said that, after owning int'l stock funds for 25 years, I sold my last dedicated int'l fund earlier this year. At age 69, I doubt any of this is going to change my life (or bond-heavy portfolio). :shock:
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by lazyday »

Portfolio7 wrote: Mon Dec 09, 2019 9:43 amSo, why is it a bad idea?
Briefly, 100% US is a bad idea for similar reasons that it’s a bad idea to invest 100% in Tesla. Uncompensated concentration risk.
Based on what evidence do you come to the conclusion that their portfolios are likely to suffer?
Ex-US stocks are likely to return more than US stocks. For example, see Research Affiliates predictions, which give detailed methodology. Or the Vanguard 2020 paper, though much of the methodology is proprietary. See “FIGURE II-4” b: https://pressroom.vanguard.com/nonindex ... k_2020.pdf

A 100% US portfolio has higher risk but lower expected return than a global portfolio.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by nedsaid »

stan1 wrote: Mon Dec 09, 2019 8:27 am There's also a generation of investors heavily represented in the demographics of this forum who based on birth year, retirement year, and life expectancy are locked into a specific sequence of returns that appears to heavily favor the US over the rest of the world (over age 70). Will a 30 year old investor see the same sequence of returns? Unknown. Pull out Microsoft, Apple, Amazon and Google/Alphabet from the S&P 500 and domestic returns get much closer to international.

How many 100% US equity investors over age 70 would recommend their grandchildren in their 20s also be 100% US equity? Some would hold their ground, but my guess is many would begrudgingly agree their grandchildren should hold some international equities. Maybe not Total World market cap weight but something between zero and market cap weight.
A couple good points made above. First that the US Market has high weightings in High Tech/Internet stocks and the FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks. A bet on the US is a bet on High Tech and that has worked out very well. Second, there is recency bias at work here, US has been on a tear compared to International since 2009. I will make a third point and that is the strength of the US Dollar since the 2008-2009 financial crisis as the US was the least dirty shirt in the laundry hamper. I don't expect the US Large Growth/Tech & Internet/FAANG/US vs. International/Strong US Dollar trends to go on forever.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Elysium »

The real question is not whether to invest in US Equities vs Intl Equities, but to invest in Equities at all.

That's the question. Why should anyone invest in Equities. We know the answer because it is a necessary evil, but in reality no one enjoys risking their capital by lending your hard earned savings to corporations that you have no control over.

Let's put it this way, if saving money through riskless US Savings bonds or FDIC insured CDs were enough to meet our retirement needs, then why should anyone take the risk of providing capital to mega-corporations that you have no insight into. That itself is a huge leap of faith, in the capital markets system, that taking on some systemic risk will provide you with a positive earnings over and beyond riskless savings that is needed to meet your goals.

To then extend that faith to invest overseas on companies that you have even less information on, much rather subject to country risks, currency risks, political risks, corporate governance and ethical risks, are asking for even bigger faith in unknown systems.

The question then is, two steps, first why invest in equities, and once you have decided that may be a risk you must take given the greater risk or not meeting the goals, then the second question is whether taking on additional overseas risk is really needed. Is there a real need to further diversify away US systemic risk? If so, the theory behind Total Stock market diversifies away all non-systemic risk is flawed, but we know it isn't.

Once you have diversified across the US markets, you have eliminated non-systemic risks, therefore it meets sufficient need to take risks goals. Beyond that, there is no need to take risk, rather a personal appetite for exposure to more risks.

The question then really is how much risk exposure do we need in order to meet our goals. If goal is to take the least amount of risk needed to meet the goals, once you have accomplished that, everything else is a preference.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by schooner »

nisiprius wrote: Mon Dec 09, 2019 9:29 am John C. Bogle never said that you shouldn't.

1) He said that he didn't think it was necessary to own any international stocks, and

2) Sometime in the time frame when international stocks were doing well and emerging markets were doing even better, he said that if you did choose to own them, you should limit them to 20% of your stock holdings. I can't find an actual direct quotation from Bogle, and the link to W. Pfau in this posting has expired, but... a poster quote Pfau's notes on a 2012 speech:
Wade Pfau’s summary of Mr. Bogle’s comments:

He has never been much into international stock funds. He has a home country bias, as he thinks U.S. companies dominate and the economic system and financial institutions are most stable here. He is not a fan of taking currency risk. Nonetheless, he does not view emerging markets as excessively risky at the current time, and he doesn’t necessarily think that his views about international stocks are appropriate for everyone. He suggests limiting international equity holdings to 20% of the portfolio at most. He doesn’t see high prospects for European countries either. Perhaps 10% in developed markets and 10% in emerging markets for that 20% international allocation.
This accords exactly with my memory of what Bogle has said in interviews.
That is a real argument of semantics! Bogle wasn't a fan of international. You can play around with the words but the the record is pretty clear about his reticence.

Here is an actual quote from an interview with Morningstar you are looking for:

"Many of these foreign nations, particularly emerging markets nations--which are, I think, around 20% of the non-U.S. index--are very risky, very interest-rate sensitive, governmentally not as strong or maybe capable of tipping over rather easily. I do tell people, feel free to disagree with me because I'm not always right, but I have 0% in non-U.S. I say you don't need to have non-U.S., but if you do, limit it to 20%. A lot of portfolios now have 25%, 35%, 45% in non-U.S. securities, and I think that's just too much."

source: https://www.morningstar.com/articles/88 ... -us-stocks
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Portfolio7 »

lazyday wrote: Mon Dec 09, 2019 10:25 am
Portfolio7 wrote: Mon Dec 09, 2019 9:43 amSo, why is it a bad idea?
Briefly, 100% US is a bad idea for similar reasons that it’s a bad idea to invest 100% in Tesla. Uncompensated concentration risk.
Based on what evidence do you come to the conclusion that their portfolios are likely to suffer?
Ex-US stocks are likely to return more than US stocks. For example, see Research Affiliates predictions, which give detailed methodology. Or the Vanguard 2020 paper, though much of the methodology is proprietary. See “FIGURE II-4” b: https://pressroom.vanguard.com/nonindex ... k_2020.pdf

A 100% US portfolio has higher risk but lower expected return than a global portfolio.
I believe the Tesla argument represents a misunderstanding of idiosyncratic stock risk. Tesla is a single stock, I think we'd all agree 100% Tesla is not diversified. Academics have argued over whether 15 or 50 or 200 stocks are enough to fully diversify away idiosyncratic risk. At 3800 or so, the US Total Market is fully diversified from that perspective.

I understand that relative PE ratios and other forms of valuation suggest opportunity in Int'l Markets (and i buy into that argument to some degree)... or they suggest over-valuation of US Markets. Or, past correlation relationships have changed. Any interpretation could be just as valid.

Market forecasts are not evidence. Expectations are far from guaranteed. An exploration of advanced methodologies would have to include the management team of LTCM back in 1987. Their success was less long-term than they'd hoped, and that's the tip of the iceberg when it comes to failed investment thesis. As for expectations, the US Market has defied expectations this entire decade.

The thing is, the number of decimated portfolios hanging on the cross of advanced methodologies are countless. If someone wants to purchase stock according to the Global equity mix, history and theory suggests that's reasonable. That's also true for a 100% US portfolio. Anywhere in between those two points may not be optimal, but it is 'reasonable'.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by lazyday »

Portfolio7 wrote: Mon Dec 09, 2019 12:44 pmI believe the Tesla argument represents a misunderstanding of idiosyncratic stock risk. Tesla is a single stock ....
100% US can be seen as taking idiosyncratic risk, but I prefer to say “concentration risk”.

If you invest 100% Tesla, 100% US, or 100% healthcare sector, you are taking on non-systemic risk which could be resolved with diversification. Concentration risk doesn’t require single stock investing.
Market forecasts are not evidence.
I have no problem with someone rejecting market forecasts. 100% US is still a bad portfolio even if you ignore all forecasts.
If someone wants to purchase stock according to the Global equity mix, history and theory suggests that's reasonable. That's also true for a 100% US portfolio.
Does theory really say that 100% US is reasonable? Would you say the same about 100% of equity in Healthcare?

For most issues we argue on Bogleheads, I see lots of grey area. Both sides have their points. But to me, 100% US is wrong like flat earthers are wrong. And in my opinion, and seemingly Vanguard's opinion, it’s not a great time to concentrate risk in the US.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

rkhusky wrote: Mon Dec 09, 2019 8:05 am The title is misleading. Bogle didn't say that you shouldn't own Int'l, just that you don't need to (as the text of the post says).
Fair enough. It was not my intention to mislead.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

JoMoney wrote: Mon Dec 09, 2019 9:32 am FWIW, I don't think Mr. Bogle ever framed it as that being the "main reason".
But to answer your question, the biggest difference the domicile makes can be answered by the prospectus of an international fund and the risks listed in it. Different accounting and SEC standards/authorities, currency differences, and your legal ability to enforce your claim on the shares (assuming they even represent the same claim on a company) is diminished. You seem to suggest that the list of companies you rattled off are roughly equivalent, No need to take on the additional risks when you already have a representative sample without the additional risks.
I can imagine that as an argument for emerging markets being more risky, but do you really think that Germany, Netherlands, Switzerland, and Japan (the home countries of the companies I rattled off) have much worse investor protections than the United States? I do think that Toyota is equivalent to Ford, Shell is equivalent to Exxon, and Nestlé is equivalent to Coca-Cola (for a reasonable definition of "equivalent").
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by UpperNwGuy »

danielc wrote: Mon Dec 09, 2019 1:57 pm
rkhusky wrote: Mon Dec 09, 2019 8:05 am The title is misleading. Bogle didn't say that you shouldn't own Int'l, just that you don't need to (as the text of the post says).
Fair enough. It was not my intention to mislead.
What exactly was your intention in starting this thread? We already have a couple of other active threads on the same topic.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by H-Town »

danielc wrote: Mon Dec 09, 2019 7:50 am I just want to make a quick point:

Jack Bogle's main argument for not owning ex-US stocks is that companies in the S&P 500 have significant business outside the US, so you get global diversification anyway. --- Well, that's fair enough. But by the same token, ex-US large cap companies are also global and they derive much of their revenue from the US. Toyota sells more cars in the US than in Japan. If all these giant mega companies are "global" anyway, what difference does it make where the company is domiciled? Why would you put all your money in GM, Ford, Exxon, and Coca-Cola and ignore Toyota, Volkswagen, Shell, and Nestlé?

Just my $0.02
I found that it's ironic that people would only buy Toyota and Honda, yet they would prefer to hold GM, Ford stocks over Toyota and Honda stocks. :mrgreen:
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Stef »

Switzerland and Canada have great stocks though.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

Elysium wrote: Mon Dec 09, 2019 11:25 am The real question is not whether to invest in US Equities vs Intl Equities, but to invest in Equities at all.

That's the question. Why should anyone invest in Equities. We know the answer because it is a necessary evil, but in reality no one enjoys risking their capital by lending your hard earned savings to corporations that you have no control over.
That is not even remotely what investing in equities is. What you described is called a bond.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

UpperNwGuy wrote: Mon Dec 09, 2019 2:09 pm What exactly was your intention in starting this thread? We already have a couple of other active threads on the same topic.
My intention was to raise a point that I think has not been brought up in other threads. Those who argue for ex-US investments usually argue for diversification. The common response to that point is that large US companies are really "global" companies, but ex-US stocks have some number of perceived problems. I think it is valuable to point out that large ex-US companies are global too. And if we are talking about a bunch of large global companies, why would you artificially slice your investment universe in half?
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Portfolio7 »

lazyday wrote: Mon Dec 09, 2019 1:34 pm
Portfolio7 wrote: Mon Dec 09, 2019 12:44 pmI believe the Tesla argument represents a misunderstanding of idiosyncratic stock risk. Tesla is a single stock ....
100% US can be seen as taking idiosyncratic risk, but I prefer to say “concentration risk”.

If you invest 100% Tesla, 100% US, or 100% healthcare sector, you are taking on non-systemic risk which could be resolved with diversification. Concentration risk doesn’t require single stock investing.
Market forecasts are not evidence.
I have no problem with someone rejecting market forecasts. 100% US is still a bad portfolio even if you ignore all forecasts.
If someone wants to purchase stock according to the Global equity mix, history and theory suggests that's reasonable. That's also true for a 100% US portfolio.
Does theory really say that 100% US is reasonable? Would you say the same about 100% of equity in Healthcare?

For most issues we argue on Bogleheads, I see lots of grey area. Both sides have their points. But to me, 100% US is wrong like flat earthers are wrong. And in my opinion, and seemingly Vanguard's opinion, it’s not a great time to concentrate risk in the US.
100% US is not idiosyncratic risk - by definition. Sorry, but there is no point discussing investing terms if you redefine their meaning.

Again, asserting something does not make it so. Please show that 100% US is a bad portfolio. Until then, I think we're just talking past each other.

Lastly, the theory all depends on how you interpret it. John Bogle believed the US market was a sufficient approximation of 'The Market'. Some people believe that it's not complete until you add in Int'l funds. I think the definition was left pretty open. Clearly it does not include the world of investible assets by most reckoning, but maybe there are some purists out there who feel they have to own wheat, art, baseball cards, collectible automobiles and timber as well as global equities, I don't know. Note that if you want a truly diversified Global portfolio, you need to be prepared to hold at least 60% bonds, iirc.

The last point is as wrong as the flat earthers you describe. Its is wrong because it expresses a certainty you cannot rationally have. It may be "likely", and I might agree with that, but it is not a certain thing. Note also that you are speaking from a market timing standpoint. This is a distinctly non Boglehead viewpoint. I don't always disagree with market timing sentiment, but it's not support for a global investing, it's support for timing your AA.

Anyways, this discussion is going nowhere, so unless you have some data or something, I won't be responding again.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by TropikThunder »

UpperNwGuy wrote: Mon Dec 09, 2019 2:09 pm What exactly was your intention in starting this thread? We already have a couple of other active threads on the same topic.
I don’t begrudge anyone their investing choices, on either side of the issue, but you could ask the same question of those who start endless new “why should I invest in Int’l?” threads. Each one is predictably filled by the same half dozen US-only folks making the same “I agree cuz Bogle and Buffet said so” comments, and countered by the same half dozen pro-Int’l folks making the same “Int’l will outperform some day” comments.

Dozens of new threads (from people on both sides), hundreds of (not) new comments, rehashing the same arguments over and over again, breaking no new ground, and changing no one’s mind. Case in point is the recent “Two Fund Portfolio” thread, discussing one prolific poster’s decision to forego his Int’l holdings and go all-US. Hundreds of the same “good job!” accolades from US-only people, the same “you will probably regret this” from the other side, and a smattering of “it probably won’t matter either way”.
Last edited by TropikThunder on Mon Dec 09, 2019 4:01 pm, edited 1 time in total.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Elysium »

danielc wrote: Mon Dec 09, 2019 2:51 pm
Elysium wrote: Mon Dec 09, 2019 11:25 am The real question is not whether to invest in US Equities vs Intl Equities, but to invest in Equities at all.

That's the question. Why should anyone invest in Equities. We know the answer because it is a necessary evil, but in reality no one enjoys risking their capital by lending your hard earned savings to corporations that you have no control over.
That is not even remotely what investing in equities is. What you described is called a bond.
You missed the point completely. Investing in equities is a secondary decision. First you have retained earnings, whether it is from employment or business, the money you have left over is your savings. Next, you have an active decision to make regarding what to do with that capital. If there is no need to take on equity risk then you simply purchase FDIC insured CD or US Savings Bonds, not even taking on term risk with US Treasury bonds/notes. But, we do this because this is insufficient to meet our goals. Whether to extend that Equity investing risk beyond your shores to overseas market is a third decision which entails additional risks that requires further examination.

Some like Jack Bogle has examined those risks and concluded extending your equity investing to overseas market risks are not needed, when investing in US Equities is enough to meet the goals. The idea is to take on only the risks that are truly needed. If on the other hand someone were to view investing in equities as a sport (that may the case with some though it is not correct), then they may invest in anything and extend their risks everywhere.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by pdavi21 »

Yes, I suppose.

Random thought I just had. When people say the US is overvalued (which from a historically perspective, the valuations do seem to be higher), are they saying that GM, Ford, Exxon, and Coca-Cola have higher valuations than Toyota, Volkswagen, Shell, and Nestlé? I think a pretty strong argument for why valuation and factor based approaches (assuming they work at all) should be applied globally instead of by country could be made along these lines.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by rustymutt »

Brianmcg321 wrote: Mon Dec 09, 2019 8:32 am Did we really need to start another thread?

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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by lazyday »

TropikThunder wrote: Mon Dec 09, 2019 3:51 pmDozens of new threads (from people on both sides), hundreds of (not) new comments, rehashing the same arguments over and over again, breaking no new ground, and changing no one’s mind.
There is tons of repetition, and I do think OP could have just posted in one of the other threads on this topic.

But each time the intl/US topic comes up, I'm usually surprised by some newish idea or at least a way of seeing things that I hadn't seen in some time. And in the last week or so, I saw a post in an unrelated thread where someone said they were convinced by Bogleheads on global diversification!

Anyway, I partly agree with you but do think these threads are valuable. There could be wildly different returns in different countries, so this topic might really matter for our portfolios.

Sometimes I'll get sick of it and ignore these threads for a while, just not clicking on them at all.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Phineas J. Whoopee »

Elysium wrote: Mon Dec 09, 2019 3:53 pm
danielc wrote: Mon Dec 09, 2019 2:51 pm
Elysium wrote: Mon Dec 09, 2019 11:25 am The real question is not whether to invest in US Equities vs Intl Equities, but to invest in Equities at all.

That's the question. Why should anyone invest in Equities. We know the answer because it is a necessary evil, but in reality no one enjoys risking their capital by lending your hard earned savings to corporations that you have no control over.
That is not even remotely what investing in equities is. What you described is called a bond.
You missed the point completely. ...
I believe danielc was responding to your claim, which he highlighted in bold, that to invest in equities is to loan money to corporations. It is not. His response was correct.

Furthermore, in the secondary equities market the corporations don't get any of your money. It goes to whoever you bought the stock from.

PJW
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

Portfolio7 wrote: Mon Dec 09, 2019 3:45 pm Lastly, the theory all depends on how you interpret it. John Bogle believed the US market was a sufficient approximation of 'The Market'. Some people believe that it's not complete until you add in Int'l funds. I think the definition was left pretty open. Clearly it does not include the world of investible assets by most reckoning, but maybe there are some purists out there who feel they have to own wheat, art, baseball cards, collectible automobiles and timber as well as global equities, I don't know. Note that if you want a truly diversified Global portfolio, you need to be prepared to hold at least 60% bonds, iirc.
I would take Bogle's position that things that don't produce cashflows are not investments (that covers wheat, art, baseball cards, collectible automobiles and timber).
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by pascalwager »

Elysium wrote: Mon Dec 09, 2019 11:25 am The real question is not whether to invest in US Equities vs Intl Equities, but to invest in Equities at all.

That's the question. Why should anyone invest in Equities. We know the answer because it is a necessary evil, but in reality no one enjoys risking their capital by lending your hard earned savings to corporations that you have no control over.

Let's put it this way, if saving money through riskless US Savings bonds or FDIC insured CDs were enough to meet our retirement needs, then why should anyone take the risk of providing capital to mega-corporations that you have no insight into. That itself is a huge leap of faith, in the capital markets system, that taking on some systemic risk will provide you with a positive earnings over and beyond riskless savings that is needed to meet your goals.

To then extend that faith to invest overseas on companies that you have even less information on, much rather subject to country risks, currency risks, political risks, corporate governance and ethical risks, are asking for even bigger faith in unknown systems.

The question then is, two steps, first why invest in equities, and once you have decided that may be a risk you must take given the greater risk or not meeting the goals, then the second question is whether taking on additional overseas risk is really needed. Is there a real need to further diversify away US systemic risk? If so, the theory behind Total Stock market diversifies away all non-systemic risk is flawed, but we know it isn't.

Once you have diversified across the US markets, you have eliminated non-systemic risks, therefore it meets sufficient need to take risks goals. Beyond that, there is no need to take risk, rather a personal appetite for exposure to more risks.

The question then really is how much risk exposure do we need in order to meet our goals. If goal is to take the least amount of risk needed to meet the goals, once you have accomplished that, everything else is a preference.
In spite of the issues you raise, the Vanguard paper on global investing shows that a global portfolio still has had a lower standard deviation or volatility than an all-US portfolio. To me, this means that your concerns may not be a valid or sufficient reason to avoid a global portfolio.

The Vanguard study shows maximum volatility benefits at between 30% and 50% int'l allocations. Some investors, for example, might like to be on the high-end because of lower int'l valuations and higher expected returns. Others might be attracted to the low-end while believing in continued US out-performance.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Portfolio7 »

danielc wrote: Mon Dec 09, 2019 4:40 pm
Portfolio7 wrote: Mon Dec 09, 2019 3:45 pm Lastly, the theory all depends on how you interpret it. John Bogle believed the US market was a sufficient approximation of 'The Market'. Some people believe that it's not complete until you add in Int'l funds. I think the definition was left pretty open. Clearly it does not include the world of investible assets by most reckoning, but maybe there are some purists out there who feel they have to own wheat, art, baseball cards, collectible automobiles and timber as well as global equities, I don't know. Note that if you want a truly diversified Global portfolio, you need to be prepared to hold at least 60% bonds, iirc.
I would take Bogle's position that things that don't produce cashflows are not investments (that covers wheat, art, baseball cards, collectible automobiles and timber).
I think that's a legitimate interpretation. But then do you include actual physical property, i.e. rentals? I personally don't, but some do. International bonds, US Hi Yield Bonds? I don't, but some people do. Do you include equities where the government has heavy involvement and market regulation is poor, i.e. China? I personally do, but I admit to ruminating whether I should. I think odds are good that I will disinvest when or before I hit retirement. Lotteries have a cash flow too, technically, as do micro loans, neither of which I participate in. I'm fine saying I'm ok with a global portfolio, I'm also ok with a US only portfolio - I'm just not going to pretend it's a cut and dry decision.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

Elysium wrote: Mon Dec 09, 2019 3:53 pm Whether to extend that Equity investing risk beyond your shores to overseas market is a third decision which entails additional risks that requires further examination.
The data does not support that statement. The minimum volatility portfolio for a US-based investor has a solid amount of international equities (around 40% by Vanguard's estimate). Deviating from that number is what entails additional risks that requires further examination.
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Elysium »

danielc wrote: Mon Dec 09, 2019 4:59 pm
Elysium wrote: Mon Dec 09, 2019 3:53 pm Whether to extend that Equity investing risk beyond your shores to overseas market is a third decision which entails additional risks that requires further examination.
The data does not support that statement. The minimum volatility portfolio for a US-based investor has a solid amount of international equities (around 40% by Vanguard's estimate). Deviating from that number is what entails additional risks that requires further examination.
Risk is not S/D
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by puc_ytpme »

schooner wrote: Mon Dec 09, 2019 12:01 pm
nisiprius wrote: Mon Dec 09, 2019 9:29 am John C. Bogle never said that you shouldn't.

1) He said that he didn't think it was necessary to own any international stocks, and

2) Sometime in the time frame when international stocks were doing well and emerging markets were doing even better, he said that if you did choose to own them, you should limit them to 20% of your stock holdings. I can't find an actual direct quotation from Bogle, and the link to W. Pfau in this posting has expired, but... a poster quote Pfau's notes on a 2012 speech:
Wade Pfau’s summary of Mr. Bogle’s comments:

He has never been much into international stock funds. He has a home country bias, as he thinks U.S. companies dominate and the economic system and financial institutions are most stable here. He is not a fan of taking currency risk. Nonetheless, he does not view emerging markets as excessively risky at the current time, and he doesn’t necessarily think that his views about international stocks are appropriate for everyone. He suggests limiting international equity holdings to 20% of the portfolio at most. He doesn’t see high prospects for European countries either. Perhaps 10% in developed markets and 10% in emerging markets for that 20% international allocation.
This accords exactly with my memory of what Bogle has said in interviews.
That is a real argument of semantics! Bogle wasn't a fan of international. You can play around with the words but the the record is pretty clear about his reticence.

Here is an actual quote from an interview with Morningstar you are looking for:

"Many of these foreign nations, particularly emerging markets nations--which are, I think, around 20% of the non-U.S. index--are very risky, very interest-rate sensitive, governmentally not as strong or maybe capable of tipping over rather easily. I do tell people, feel free to disagree with me because I'm not always right, but I have 0% in non-U.S. I say you don't need to have non-U.S., but if you do, limit it to 20%. A lot of portfolios now have 25%, 35%, 45% in non-U.S. securities, and I think that's just too much."

source: https://www.morningstar.com/articles/88 ... -us-stocks

Another piece by Bogle from common sense on mutual funds Chapter 4 pg. 102



"My best judgement is that international holdings should comprise 20 percent of equities at a maximum, and that a zero weight is fully acceptable in most portfolios."

Bogle:
"stay the course. Hold tight. Complicating the investment process merely clutters the mind,too often bringing emotion into a financial plan that cries out for rationality."

"My approach to investing is simple in concept, but it is far from easy in implementation."

"Suppress the temptation to add redundant layers of diversification"

All the best,

B
No person ever steps in the same river twice, for it’s not the same river & they’re not the same person
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by schooner »

puc_ytpme wrote: Mon Dec 09, 2019 5:32 pm
schooner wrote: Mon Dec 09, 2019 12:01 pm
nisiprius wrote: Mon Dec 09, 2019 9:29 am John C. Bogle never said that you shouldn't.

1) He said that he didn't think it was necessary to own any international stocks, and

2) Sometime in the time frame when international stocks were doing well and emerging markets were doing even better, he said that if you did choose to own them, you should limit them to 20% of your stock holdings. I can't find an actual direct quotation from Bogle, and the link to W. Pfau in this posting has expired, but... a poster quote Pfau's notes on a 2012 speech:
Wade Pfau’s summary of Mr. Bogle’s comments:

He has never been much into international stock funds. He has a home country bias, as he thinks U.S. companies dominate and the economic system and financial institutions are most stable here. He is not a fan of taking currency risk. Nonetheless, he does not view emerging markets as excessively risky at the current time, and he doesn’t necessarily think that his views about international stocks are appropriate for everyone. He suggests limiting international equity holdings to 20% of the portfolio at most. He doesn’t see high prospects for European countries either. Perhaps 10% in developed markets and 10% in emerging markets for that 20% international allocation.
This accords exactly with my memory of what Bogle has said in interviews.
That is a real argument of semantics! Bogle wasn't a fan of international. You can play around with the words but the the record is pretty clear about his reticence.

Here is an actual quote from an interview with Morningstar you are looking for:

"Many of these foreign nations, particularly emerging markets nations--which are, I think, around 20% of the non-U.S. index--are very risky, very interest-rate sensitive, governmentally not as strong or maybe capable of tipping over rather easily. I do tell people, feel free to disagree with me because I'm not always right, but I have 0% in non-U.S. I say you don't need to have non-U.S., but if you do, limit it to 20%. A lot of portfolios now have 25%, 35%, 45% in non-U.S. securities, and I think that's just too much."

source: https://www.morningstar.com/articles/88 ... -us-stocks

Another piece by Bogle from common sense on mutual funds Chapter 4 pg. 102



"My best judgement is that international holdings should comprise 20 percent of equities at a maximum, and that a zero weight is fully acceptable in most portfolios."

Bogle:
"stay the course. Hold tight. Complicating the investment process merely clutters the mind,too often bringing emotion into a financial plan that cries out for rationality."

"My approach to investing is simple in concept, but it is far from easy in implementation."

"Suppress the temptation to add redundant layers of diversification"

All the best,

B


Mr. Bogle was quick to note that since "Bogle on Investing" was published in 1993, the S&P 500 has gained 779% cumulative vs. 309% for the Europe, Australasia and Far East index. "I've been right," Mr. Bogle said.

"Does that mean I'll be right in the future? I could be wrong," he said. But, he added, when you buy the S&P 500, you buy a portfolio where roughly half the earnings and revenue comes from abroad.

https://www.investmentnews.com/article/ ... nal-stocks
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by FIREchief »

stan1 wrote: Mon Dec 09, 2019 8:27 am How many 100% US equity investors over age 70 would recommend their grandchildren in their 20s also be 100% US equity? Some would hold their ground, but my guess is many would begrudgingly agree their grandchildren should hold some international equities. Maybe not Total World market cap weight but something between zero and market cap weight.
If I'm gifting money to my grandchildren to be invested, I'll insist on 100% US. If they're investing their own money, I'm not recommending anything. If they ask me, I'll tell them what I would do if it was my money. 8-)
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by Bluce »

FIREchief wrote: Mon Dec 09, 2019 5:51 pm
stan1 wrote: Mon Dec 09, 2019 8:27 am How many 100% US equity investors over age 70 would recommend their grandchildren in their 20s also be 100% US equity? Some would hold their ground, but my guess is many would begrudgingly agree their grandchildren should hold some international equities. Maybe not Total World market cap weight but something between zero and market cap weight.
If I'm gifting money to my grandchildren to be invested, I'll insist on 100% US. If they're investing their own money, I'm not recommending anything. If they ask me, I'll tell them what I would do if it was my money. 8-)
And to add to that, didn't Warren Buffet tell his wife(?) some years ago, that after he's gone, to invest 90% in the S&P and 10% in ST Treasurys?
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

deleted (bad math)
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by schooner »

Bluce wrote: Mon Dec 09, 2019 6:25 pm
FIREchief wrote: Mon Dec 09, 2019 5:51 pm
stan1 wrote: Mon Dec 09, 2019 8:27 am How many 100% US equity investors over age 70 would recommend their grandchildren in their 20s also be 100% US equity? Some would hold their ground, but my guess is many would begrudgingly agree their grandchildren should hold some international equities. Maybe not Total World market cap weight but something between zero and market cap weight.
If I'm gifting money to my grandchildren to be invested, I'll insist on 100% US. If they're investing their own money, I'm not recommending anything. If they ask me, I'll tell them what I would do if it was my money. 8-)
And to add to that, didn't Warren Buffet tell his wife(?) some years ago, that after he's gone, to invest 90% in the S&P and 10% in ST Treasurys?
+1

Bogle and Buffett: Keep it simple. Invest the equity portion of your portfolio in a low cost, SP500 index fund. Don't get too fancy. I've studied this for decades and you really can't do any better.

Bogleheads: :moneybag :moneybag :moneybag I've found the map to El Dorado!!! Look at my cherry-picked backtest ;-)
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Re: You should own Int'l stocks for the same reason Bogle says you shouldn't

Post by danielc »

Elysium wrote: Mon Dec 09, 2019 6:44 pm Thank you pointing out the semantics and deviating from the original topic :sharebeer
The difference between buying a company and lending to a company is not semantics. It is the fundamental distinction between the two primary asset classes. The arguments for and against foreign bonds, their risks, returns, and correlations, are very different than those of foreign stocks.
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