Vanguard Total International Stock Index Fund

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Ramey58
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Vanguard Total International Stock Index Fund

Post by Ramey58 »

Just reviewing this fund which is in my retirement portfolio. It seems like the returns over time have not been that great. 4.86% annual returns since 1996. Can someone explain to me why International Funds are so good for a balanced portfolio?
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Re: Vanguard Total International Stock Index Fund

Post by Rick Ferri »

No one knows whether international stocks will outperform the US or the other way around. They have not recently, but the future may be different.

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Re: Vanguard Total International Stock Index Fund

Post by nisiprius »

I don't know that they are "so good."

Novices sometimes find it hard to believe how incredibly variable and inconsistent performance is. Bursts of outperformance and underperformance can last for five or ten years. The actual results over any particular time period tend to depend on how many of each that particular period included. It's almost impossible to get a time period long enough to average them out, and by the time you do there are serious doubts over whether that whole time period is really "the same thing."

These charts are not intended to show you that international stocks are "so good," but only that you just can't be sure... of much of anything.

Source

Blue is Total International. Orange is VTSMX, the Vanguard Total [US-only] Stock Market Index Fund.

From inception through the end of 2002, US (orange) outperformed.

Image

From 2002 through mid-2008, international outperformed. The result was the investors holding US-only stocks experienced an infamous "lost decade," 2000 through 2009, while investors who included international stocks in their portfolios enjoyed a modest gain.

Image

Mid-2008 through present, the US again outperformed.

Image

So, the time period you looked at had two periods of US outperformance and only one of international outperformance. The two funds leapfrogged each other and the US got in one more leap.

I am not a big enthusiast for international stocks, and I've looked at charts like these before and don't know what to make of them, other than "I don't know." But that in itself is a strong statement. I can't believe either that they do much good or much harm. About 25% of my stock holding is international, for no good reason.
Last edited by nisiprius on Thu Jan 09, 2020 1:06 pm, edited 1 time in total.
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Re: Vanguard Total International Stock Index Fund

Post by Rick Ferri »

None of the above charts matter to what will occur in the future. We just don't know. That's why we diversify.

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Re: Vanguard Total International Stock Index Fund

Post by danielc »

Rick Ferri wrote: Thu Jan 09, 2020 1:05 pm None of the above charts matter to what will occur in the future. We just don't know. That's why we diversify.

Rick Ferri
I would argue that those charts show that the future is unpredictable.
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Re: Vanguard Total International Stock Index Fund

Post by danielc »

Ramey58 wrote: Thu Jan 09, 2020 11:56 am Just reviewing this fund which is in my retirement portfolio. It seems like the returns over time have not been that great. 4.86% annual returns since 1996. Can someone explain to me why International Funds are so good for a balanced portfolio?
I don't think anyone has argued that international stocks are "so good". I hold international stocks. Maybe they'll do better in the future, or maybe they won't. In the past they have some times done better than the US, and some times they've done worse. I hold them because I like to hold everything, and I think that they will diversify my portfolio. I also think that most of US and ex-US stocks are large cap companies that are pretty global anyway, so I don't see a powerful reason to discriminate large cap stocks based on domicile.
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How Much International Stock? A Suggestion.

Post by Taylor Larimore »

Ramey58 wrote: Thu Jan 09, 2020 11:56 am Just reviewing this fund which is in my retirement portfolio. It seems like the returns over time have not been that great. 4.86% annual returns since 1996. Can someone explain to me why International Funds are so good for a balanced portfolio?
Ramey58:

You may find this post helpful:

How Much International Stock? A suggestion.

Best wishes.
Taylor
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Re: Vanguard Total International Stock Index Fund

Post by abuss368 »

Ramey58 wrote: Thu Jan 09, 2020 11:56 am Just reviewing this fund which is in my retirement portfolio. It seems like the returns over time have not been that great. 4.86% annual returns since 1996. Can someone explain to me why International Funds are so good for a balanced portfolio?
Your right, international stocks have not done well. The problem is no one knows what the future will bring and not chart will ever tell an investor that. I think it is import to simply do what works best for your individual circumstances and allows you to sleep well at night.
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Re: Vanguard Total International Stock Index Fund

Post by DB2 »

abuss368 wrote: Thu Jan 09, 2020 1:20 pm I think it is import to simply do what works best for your individual circumstances and allows you to sleep well at night.
Agreed, this is the bottom line.
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Re: Vanguard Total International Stock Index Fund

Post by Svensk Anga »

Since the financial crisis, corresponding to Nisi’s third chart, the dollar has been appreciating relative to other currencies. This makes the return on foreign stocks lower when measured in dollars. They did about 60% better when measured in their local currencies.

Will the dollar go on appreciating? Who knows? Currencies tend to move in long cycles and at some point this one will reverse. Good luck on timing that.

I’ve been steady at 30% international since the early 90’s. Sure I’ve been disappointed with the last decade, but I suspect now is not the time to lighten up.
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Ramey58
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Re: Vanguard Total International Stock Index Fund

Post by Ramey58 »

Thanks for all the replies. I have always just stayed steady on my course and will continue to, but I'm close to retirement so I'm just noticing things more.
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Re: Vanguard Total International Stock Index Fund

Post by columbia »

If you poke around the site, you’ll see a variety of (strong) preferences and opinions.

I omit international for a variety reasons, but everyone has different takes, preferences and tolerances and needs to take risk. The main thing is - IMO - that there’s no right answer in terms of adding ex-US and to what level. The wiki has a lot unbiased information.

The only strong opinion I have (other than for my own choices) on the matter is to ignore the demagogues.
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Re: Vanguard Total International Stock Index Fund

Post by Trader Joe »

Ramey58 wrote: Thu Jan 09, 2020 11:56 am Just reviewing this fund which is in my retirement portfolio. It seems like the returns over time have not been that great. 4.86% annual returns since 1996. Can someone explain to me why International Funds are so good for a balanced portfolio?
No, I cannot explain. I do not include International stocks/equities in my own portfolio and I my portfolio has performed very well.
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Re: Vanguard Total International Stock Index Fund

Post by Triple digit golfer »

About half of the world's stock market capitalization is from companies headquartered outside of the U.S. Many of the products that you use every day are produced by these companies. BP, Shell, Nestle, Samsung, Unilever, Toyota, Honda, etc.

That's why international equities are often recommended as part of an equity portfolio.
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Re: Vanguard Total International Stock Index Fund

Post by PackersFan12 »

Just allocate 20% to 33% of your equities to international, and be done with it. I've found that this is not a topic that needs to be overthought.
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Re: Vanguard Total International Stock Index Fund

Post by columbia »

PackersFan12 wrote: Thu Jan 09, 2020 7:31 pm Just allocate 20% to 33% of your equities to international, and be done with it. I've found that this is not a topic that needs to be overthought.
The easiest way to do this is half in total stock market (or other large cap fund) and half in total world; no spreadsheet calculations required.
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Re: Vanguard Total International Stock Index Fund

Post by oldzey »

Rick Ferri wrote: Thu Jan 09, 2020 11:59 am No one knows whether international stocks will outperform the US or the other way around. They have not recently, but the future may be different.

Rick Ferri
+1 :thumbsup

The article containing Ben Carlson's 2014 quote: "Diversification is about accepting good enough while missing out on great but avoiding terrible" is worth a read and gives specific examples of the verity that future performance of U.S. or international stocks is unpredictable.
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Re: Vanguard Total International Stock Index Fund

Post by peterwantstosave »

Rick Ferri wrote: Thu Jan 09, 2020 1:05 pm None of the above charts matter to what will occur in the future. We just don't know. That's why we diversify.

Rick Ferri
+ 1
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Re: Vanguard Total International Stock Index Fund

Post by Triple digit golfer »

columbia wrote: Thu Jan 09, 2020 7:34 pm
PackersFan12 wrote: Thu Jan 09, 2020 7:31 pm Just allocate 20% to 33% of your equities to international, and be done with it. I've found that this is not a topic that needs to be overthought.
The easiest way to do this is half in total stock market (or other large cap fund) and half in total world; no spreadsheet calculations required.
How is that easier than a 70/30 or whatever split of U.S. and Total International? Still two funds.

It would also allow allocation drift.
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Re: Vanguard Total International Stock Index Fund

Post by arcticpineapplecorp. »

https://www.bogleheads.org/wiki/Domestic/International

returns by decade (sometimes U.S. wins, other times it's international):

https://www.bogleheads.org/wiki/File:US ... decade.png

returns are not the only thing (and not known ahead of time). Volatility is another. Adding international has provided volatility reduction:

https://www.vanguard.com/pdf/ISGGEB.pdf

not to mention, holding international avoids country risk (but adds currency risk. Though currency fluctuations can not only hurt, but also at times help your investments):

Image

here's a good article:

https://www.fidelity.com/viewpoints/inv ... ail_weekly

by the way, how many times since 1999 was the U.S. the top dog (of developed markets)?
answer: 1

Finland was the top dog 4 times since 1999. (source: http://static.fmgsuite.com/media/docume ... ef3871.pdf)

knowing that, why bother with U.S. and why not put it all in Finland?

Image

There were emerging market countries that did even better:

Image
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Re: Vanguard Total International Stock Index Fund

Post by whodidntante »

The expected returns of international equities are currently higher. But you can put all your money in the horse that won the last race if you like.
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Re: Vanguard Total International Stock Index Fund

Post by Fundhunter »

I am in withdrawal stage and do 25% of my equities in international and mostly with that Vanguard index fund. I think it is not impossible that something bad happens to the U S economy/stock market relative to to other economies/markets and this is a hedge against that possibility in my mind.
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Re: Vanguard Total International Stock Index Fund

Post by abuss368 »

Fundhunter wrote: Thu Jan 09, 2020 9:31 pm I am in withdrawal stage and do 25% of my equities in international and mostly with that Vanguard index fund. I think it is not impossible that something bad happens to the U S economy/stock market relative to to other economies/markets and this is a hedge against that possibility in my mind.
Something "bad" did happen to our economy in 2007 - 2008. International dropped faster and harder than U.S.
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Re: Vanguard Total International Stock Index Fund

Post by columbia »

abuss368 wrote: Thu Jan 09, 2020 9:34 pm
Fundhunter wrote: Thu Jan 09, 2020 9:31 pm I am in withdrawal stage and do 25% of my equities in international and mostly with that Vanguard index fund. I think it is not impossible that something bad happens to the U S economy/stock market relative to to other economies/markets and this is a hedge against that possibility in my mind.
Something "bad" did happen to our economy in 2007 - 2008. International dropped faster and harder than U.S.
That could be different “next time”, of course. That won’t have any effect on me, as it won’t be in my portfolio. Good for those who own it at the time; there’s no indication that it will make a (positive) difference in their long term total reruns, however.
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Re: Vanguard Total International Stock Index Fund

Post by Fundhunter »

abuss368 wrote: Thu Jan 09, 2020 9:34 pm
Fundhunter wrote: Thu Jan 09, 2020 9:31 pm I am in withdrawal stage and do 25% of my equities in international and mostly with that Vanguard index fund. I think it is not impossible that something bad happens to the U S economy/stock market relative to to other economies/markets and this is a hedge against that possibility in my mind.
Something "bad" did happen to our economy in 2007 - 2008. International dropped faster and harder than U.S.
I said "relative to other economies/markets". Do you think that could not happen? I think it could.
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Re: Vanguard Total International Stock Index Fund

Post by abuss368 »

columbia wrote: Thu Jan 09, 2020 9:40 pm
abuss368 wrote: Thu Jan 09, 2020 9:34 pm
Fundhunter wrote: Thu Jan 09, 2020 9:31 pm I am in withdrawal stage and do 25% of my equities in international and mostly with that Vanguard index fund. I think it is not impossible that something bad happens to the U S economy/stock market relative to to other economies/markets and this is a hedge against that possibility in my mind.
Something "bad" did happen to our economy in 2007 - 2008. International dropped faster and harder than U.S.
That could be different “next time”, of course. That won’t have any effect on me, as it won’t be in my portfolio. Good for those who own it at the time; there’s no indication that it will make a (positive) difference in their long term total reruns, however.
Hi columbia -

I agree it could be different next time. No one knows in advance what pleasures and pain the stock and bond markets will bring.
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Re: Vanguard Total International Stock Index Fund

Post by abuss368 »

Fundhunter wrote: Thu Jan 09, 2020 10:03 pm
abuss368 wrote: Thu Jan 09, 2020 9:34 pm
Fundhunter wrote: Thu Jan 09, 2020 9:31 pm I am in withdrawal stage and do 25% of my equities in international and mostly with that Vanguard index fund. I think it is not impossible that something bad happens to the U S economy/stock market relative to to other economies/markets and this is a hedge against that possibility in my mind.
Something "bad" did happen to our economy in 2007 - 2008. International dropped faster and harder than U.S.
I said "relative to other economies/markets". Do you think that could not happen? I think it could.
I agree as no one knows anything in advance.
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Re: Vanguard Total International Stock Index Fund

Post by alex123711 »

Should non Americans also be overweight US stocks? Or does this only apply to domestic investors? Also how do you adjust allocations say you are 50/50 and U.S has a big year, do you sell some U.S and buy more INT to get back to 50/50?
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Re: Vanguard Total International Stock Index Fund

Post by watchnerd »

alex123711 wrote: Sun Jan 12, 2020 1:15 am Should non Americans also be overweight US stocks? Or does this only apply to domestic investors? Also how do you adjust allocations say you are 50/50 and U.S has a big year, do you sell some U.S and buy more INT to get back to 50/50?
Rebalancing depends on your rules.

I use bands, i.e. rebalance at 5% overweight of port, or 25% more than original AA.

In your example, if I got to 56% US / 44% ex-US, I'd sell that extra 6% of US and buy 6% ex-US.
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Re: Vanguard Total International Stock Index Fund

Post by smectym »

Rick Ferri wrote: Thu Jan 09, 2020 1:05 pm None of the above charts matter to what will occur in the future. We just don't know. That's why we diversify.

Rick Ferri
Rick, that’s fair, and as a logical exercise, if one accepts the premise that diversification is the only secret sauce/only free lunch in investing etc., and one further accepts that some huge “x” amount of economic activity is occurring ex-US, it’s easy to conclude, Hey, let’s diversify ex-US!

But those sounding cautionary notes explain that since much of SPX is multinational, and since the US is still, for better or worse, the global monopoly capitalist imperialist big dog, much of the value of that global economic growth is duly extracted by the US multinationals. That could both explain the outperformance of US vs. international, and offer a rationale for investors to shun the excessive volatility and opacity of many international markets, while still reaping most of the profits generated internationally through investing in the less volatile, more transparent U.S. markets.

So I think what’s needed is a persuasive argument debunking that, and showing why investors are not smart to place their chips on U.S. only: and such an argument must go beyond a reductive retreat to the simplistic “diversity is good; international provides additional diversity; so diversifying internationally is good” syllogism. Nor can such an argument complacently ignore the significant underperformance of international vs. U.S. over a protracted period by just shrugging, “well, maybe this year...or maybe next year, we’ll see some mean reversion.” Some color explaining the reasons for the prolonged underperformance of international, and the reasons for expecting future outperformance, would be welcome.

Vanguard has gone out on a limb by oracularly ordaining that investors should put a large slug of their money into international. If you sign up for VPAS you MUST allocate to international, or you’re not welcome. But the case presented so far for such a dogmatic approach seems a little thin. We need a new “white paper” updating the case for international and rebutting its detractors.
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Re: Vanguard Total International Stock Index Fund

Post by lazyday »

smectym wrote: Sun Jan 12, 2020 4:38 amWe need a new “white paper”

Global equity investing: The benefits of diversification and sizing your allocation
https://www.vanguard.com/pdf/ISGGEB.pdf
Vanguard Research February 2019 - Brian J. Scott, CFA; Kimberly A. Stockton; Scott J. Donaldson, CFA, CFP
domestic equities tend to be more exposed to the narrower economic and market forces of their home market
In each market we examined [US, UK, AU, CA] our analysis indicated that volatility was reduced most with an allocation to international equities of between 40% and 50%.
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Re: Vanguard Total International Stock Index Fund

Post by UpperNwGuy »

smectym wrote: Sun Jan 12, 2020 4:38 am what’s needed is a persuasive argument {...] showing why investors are not smart to place their chips on U.S. only: and such an argument must go beyond a reductive retreat to the simplistic “diversity is good; international provides additional diversity; so diversifying internationally is good” syllogism. Nor can such an argument complacently ignore the significant underperformance of international vs. U.S. over a protracted period by just shrugging, “well, maybe this year...or maybe next year, we’ll see some mean reversion.” Some color explaining the reasons for the prolonged underperformance of international, and the reasons for expecting future outperformance, would be welcome.
^^^ This.
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Re: Vanguard Total International Stock Index Fund

Post by lazyday »

You've probably seen charts showing ex-US outperforming for several years, then US, then ex-US.

Recently it's been US.

If you do a backtest when ex-US has outperformed, then ex-US will look good. Today, US looks good in backtests.
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Re: Vanguard Total International Stock Index Fund

Post by UpperNwGuy »

lazyday wrote: Sun Jan 12, 2020 5:52 am You've probably seen charts showing ex-US outperforming for several years, then US, then ex-US.

Recently it's been US.

If you do a backtest when ex-US has outperformed, then ex-US will look good. Today, US looks good in backtests.
But this is yet another "reductive retreat." While it is true, it doesn't explain the overall superior performance of US stocks over long time periods.
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Re: Vanguard Total International Stock Index Fund

Post by lazyday »

UpperNwGuy wrote: Sun Jan 12, 2020 6:10 amdoesn't explain the overall superior performance of US stocks over long time periods
Would that help? Most people 100% invested in the US probably have explanations for outperformance.

Imagine trying to convince three investors to diversify: the 100% tech investor in 1999, 40% EM in 2007, and 100% US in 2020.

Among other things, we could tell 1999 that first mover advantages and low marginal costs of adding a customer could bring some companies tremendous profits. We could tell 2007 about favorable demographics and improved financial strength of both companies and countries. We could tell 2020 about the swift response to the financial crisis, and the seemingly more dynamic US economy.

We could also discuss behavioral reasons for outperformance. We put too much faith in the stories above, and drive prices too high.

Smectym suggests also explaining why we should expect outperformance to reverse.

Things change. Economic advantages change, and Shiller's "narratives" change. We could go back and show times where new tech stocks eventually disappointed, such as radio and electronics. Where EM’s future looked bright but problems still persisted, such as 1997. For 100% US, there’s Japan’s rise in the 1980s, and Europe’s in the 2000s.

Here in 2020, we see that the 1999 and 2007 investors should have diversified. I wonder if they learned something, or if they’ve recently sold their international to go 100% US.
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Re: Vanguard Total International Stock Index Fund

Post by rerod »

PackersFan12 wrote: Thu Jan 09, 2020 7:31 pm Just allocate 20% to 33% of your equities to international, and be done with it. I've found that this is not a topic that needs to be overthought.
Whats interesting is Ive done just that with my taxable (33% international) which is chugging along doing 7% a year..
But my tax deferred doesn't include any international with 35% bonds and did 22% over one year..

Hmm..
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Re: Vanguard Total International Stock Index Fund

Post by Wanderingwheelz »

whodidntante wrote: Thu Jan 09, 2020 8:48 pm The expected returns of international equities are currently higher. But you can put all your money in the horse that won the last race if you like.
You currently expect returns on international stocks to be higher. That doesn’t mean everyone should feel the same way that you do about it.

The truth is nobody knows. Not you, not me, not anybody.
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Re: Vanguard Total International Stock Index Fund

Post by watchnerd »

Wanderingwheelz wrote: Sun Jan 12, 2020 9:48 am

The truth is nobody knows. Not you, not me, not anybody.
Which is why I bet on both.
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Re: Vanguard Total International Stock Index Fund

Post by columbia »

whodidntante wrote: Thu Jan 09, 2020 8:48 pm The expected returns of international equities are currently higher. But you can put all your money in the horse that won the last race if you like.
Are you overweighting international based on your reading of expected returns? There is one poster here who is 100% ex-US...
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Re: Vanguard Total International Stock Index Fund

Post by Wanderingwheelz »

watchnerd wrote: Sun Jan 12, 2020 9:53 am
Wanderingwheelz wrote: Sun Jan 12, 2020 9:48 am

The truth is nobody knows. Not you, not me, not anybody.
Which is why I bet on both.
Technically that’s not a bet at all. You’re internationally not betting, unlike a person who thinks one will do better than the other and acts on his hunch.
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Re: Vanguard Total International Stock Index Fund

Post by watchnerd »

Wanderingwheelz wrote: Sun Jan 12, 2020 9:57 am

Technically that’s not a bet at all. You’re internationally not betting, unlike a person who thinks one will do better than the other and acts on his hunch.
I just try to hold the global market weight, or close to it.

It seems intellectually defensible.
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Re: Vanguard Total International Stock Index Fund

Post by columbia »

watchnerd wrote: Sun Jan 12, 2020 10:02 am
Wanderingwheelz wrote: Sun Jan 12, 2020 9:57 am

Technically that’s not a bet at all. You’re internationally not betting, unlike a person who thinks one will do better than the other and acts on his hunch.
I just try to hold the global market weight, or close to it.

It seems intellectually defensible.
Your signature indicates otherwise.
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Re: Vanguard Total International Stock Index Fund

Post by watchnerd »

columbia wrote: Sun Jan 12, 2020 10:05 am
Your signature indicates otherwise.
How so?

I'm 70% stock. That's split 35% US / 35% ex-US.
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columbia
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Re: Vanguard Total International Stock Index Fund

Post by columbia »

watchnerd wrote: Sun Jan 12, 2020 10:14 am
columbia wrote: Sun Jan 12, 2020 10:05 am
Your signature indicates otherwise.
How so?

I'm 70% stock. That's split 35% US / 35% ex-US.
“Small factor” indicates a tilt and overweighting some form of small is definitely nowhere near market cap. It’s your portfolio, but it seems like a strange claim to make.
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watchnerd
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Re: Vanguard Total International Stock Index Fund

Post by watchnerd »

columbia wrote: Sun Jan 12, 2020 10:19 am “Small factor” indicates a tilt and overweighting some form of small is definitely nowhere near market cap. It’s your portfolio, but it seems like a strange claim to make.
Well, we were talking US vs international.

But that's a 5% tilt. Which is why I said "close to it".
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rascott
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Re: Vanguard Total International Stock Index Fund

Post by rascott »

Understand that the underlying tilts of the US market vs the international index are different. International funds are heavily weighted towards things like financials.... while the US is more weighted towards tech.

In many ways it's a growth vs value argument. I've long been very underweight international, and it's worked out so far. I don't find many of the arguments for things like global market weight very persuasive, but that's just a personal decision.
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Re: Vanguard Total International Stock Index Fund

Post by abuss368 »

rascott wrote: Sun Jan 12, 2020 10:24 am Understand that the underlying tilts of the US market vs the international index are different. International funds are heavily weighted towards things like financials.... while the US is more weighted towards tech.

In many ways it's a growth vs value argument. I've long been very underweight international, and it's worked out so far. I don't find many of the arguments for things like global market weight very persuasive, but that's just a personal decision.
I would agree. While the future may be different, international has not historically been enticing.
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stan1
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Re: Vanguard Total International Stock Index Fund

Post by stan1 »

rascott wrote: Sun Jan 12, 2020 10:24 am I don't find many of the arguments for things like global market weight very persuasive, but that's just a personal decision.
I don't find the arguments for global weight OR 100% US to be persuasive. Both rely on assumptions about the future that are likely to be flawed. I've settled at 2/3 US and 1/3 ex-US and planning to stay that way. The full set of facts was we know them supports neither global market cap nor 100% US. Agree in the end it does come down to some personal decisions.
lazyday
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Re: Vanguard Total International Stock Index Fund

Post by lazyday »

rascott wrote: Sun Jan 12, 2020 10:24 amInternational funds are heavily weighted towards things like financials.... while the US is more weighted towards tech.
Note that if you reweight the US to the sector weights of EAFE, valuations only move a little towards those of EAFE: viewtopic.php?t=231996 (2017)
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