Why does anyone invest in international funds?

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UpsetRaptor
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Re: Why does anyone invest in international funds?

Post by UpsetRaptor » Thu Apr 02, 2020 10:05 am

vineviz wrote:
Thu Apr 02, 2020 9:54 am
birdog wrote:
Thu Apr 02, 2020 9:36 am
vineviz wrote:
Thu Apr 02, 2020 9:26 am
birdog wrote:
Thu Apr 02, 2020 8:52 am
We both know that no one knows the future. And the comment I was responding to was about the past. The past two weeks to be exact!
Remember, though, if you are a true believer in US-only portfolios that not ALL past periods matter. Just the ones in which US outperformed ex-US. The majority of past periods must ALSO be ignored, because the international outperformance during THOSE periods does not matter.

We wouldn't want anyone looking at all the available data and concluding that international diversification might have some merit.
That's because if you look at all the available data it's very doubtful you'd come to that conclusion. Over the past (nearly) 50 years, from 1971 through October 2019, the S&P 500 has annualized returns of 10.6% per year, beating out the MSCI EAFE index by 1.6% per year. 1.6% per year is a devastating difference. For example, if you'd invested $10K fifty years ago, at 10.6% you'd have over $2M today. At 1.6% less per year you'd have under $900K today. That's just the past 50 years. If you go back further the performance difference gets even worse for international.
Yes, absolutely we must only look at data that supports the conclusion we want to reach.
The data indicates that over the past 1-2 centuries, the US has outperformed international. Sure, there are shorter periods interspersed within there where international outperformed (not sure why you'd indicate that we're "ignoring" that), but the long term outperformance has been clear. We have solid data indicating the US outperformed ex-US by roughly ~1% during the 20th century. And 200 years ago the US was not even a top 10 economy.

keelerjr12
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Re: Why does anyone invest in international funds?

Post by keelerjr12 » Thu Apr 02, 2020 10:09 am

UpsetRaptor wrote:
Thu Apr 02, 2020 10:05 am
vineviz wrote:
Thu Apr 02, 2020 9:54 am
birdog wrote:
Thu Apr 02, 2020 9:36 am
vineviz wrote:
Thu Apr 02, 2020 9:26 am
birdog wrote:
Thu Apr 02, 2020 8:52 am
We both know that no one knows the future. And the comment I was responding to was about the past. The past two weeks to be exact!
Remember, though, if you are a true believer in US-only portfolios that not ALL past periods matter. Just the ones in which US outperformed ex-US. The majority of past periods must ALSO be ignored, because the international outperformance during THOSE periods does not matter.

We wouldn't want anyone looking at all the available data and concluding that international diversification might have some merit.
That's because if you look at all the available data it's very doubtful you'd come to that conclusion. Over the past (nearly) 50 years, from 1971 through October 2019, the S&P 500 has annualized returns of 10.6% per year, beating out the MSCI EAFE index by 1.6% per year. 1.6% per year is a devastating difference. For example, if you'd invested $10K fifty years ago, at 10.6% you'd have over $2M today. At 1.6% less per year you'd have under $900K today. That's just the past 50 years. If you go back further the performance difference gets even worse for international.
Yes, absolutely we must only look at data that supports the conclusion we want to reach.
The data indicates that over the past 1-2 centuries, the US has outperformed international. Sure, there are shorter periods interspersed within there where international outperformed (not sure why you'd indicate that we're "ignoring" that), but the long term outperformance has been clear. We have solid data indicating the US outperformed ex-US by roughly ~1% during the 20th century. And 200 years ago the US was not even a top 10 economy.
Exactly, I'm not sure what vineviz is even arguing for anymore. Vineviz, with your uber-wisdom, what do you propose everyone does WRT international equities?

chevca
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Re: Why does anyone invest in international funds?

Post by chevca » Thu Apr 02, 2020 10:10 am

Noobvestor wrote:
Wed Apr 01, 2020 4:18 pm
chevca wrote:
Wed Apr 01, 2020 12:03 pm
So, no one knows, right?

It's just as wrong to cram international down folks' throat like the HAVE TO have it. To each their own.
Global indexing is a neutral starting point. I'm not trying to cram anything down anyone's throats, just point out the obvious. People can and should deviate from defaults for good reasons, not start at a non-default point like US-only. Want to tilt US? Sure, just have solid reasons.

I am a dog with a bone on this front because I don't think people get that single-market risk is real. It has showed up at various times and in various places, including emerging and developed markets. It could show up here. Lots of reasons these days to think it might.

If I had to guess - and to be clear, I'm not acting on this guess - I would guess international has a better shot at higher returns this decade than US-only. Vanguard's 2020 whitepaper agrees with me. How it will turn out, no one knows, so I remain neutral at around market weights.
No, so it's just coincidence you post multiple times in all these multiple page INT threads to make folks see your point? :happy

Live and let live. It's not your job to make people "get" things.

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Re: Why does anyone invest in international funds?

Post by Peculiar_Investor » Thu Apr 02, 2020 10:11 am

keelerjr12 wrote:
Thu Apr 02, 2020 10:09 am
Vineviz, with your uber-wisdom, what do you propose everyone does WRT international equities?
I'm not Vineviz, but my answer would be invest in them at market weight, i.e. buy the haystack, not just the US needle.

As mentioned in this post, Bogle wrote (and said) Rule 5: Beware of Past Performance to Predict Future Performance.
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Re: Why does anyone invest in international funds?

Post by chevca » Thu Apr 02, 2020 10:15 am

The difference in these threads....

US only folks.... I think US only is fine, it's likely to give good returns, and if others want to hole US and INT no biggie it probably won't make much of a difference.

INT folks... You have to hold INT, you're wrong to hold US only, the experts all say hold both, and you will be better if you just do what I say.

Okay.....

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watchnerd
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Re: Why does anyone invest in international funds?

Post by watchnerd » Thu Apr 02, 2020 10:18 am

The best country in a given year will always beat the global cap weighted index because the index is the summation of the winners and the losers.

The same arguments of a single country vs "international" could be made comparing Australia to the global index over the last 100 years.

It's just math....the average will always be worse than the winner.

The trade-off in accepting the global average is a reduction in risk concentration, including currency.

Investors can optimize portfolios along different axes.
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Re: Why does anyone invest in international funds?

Post by birdog » Thu Apr 02, 2020 10:33 am

vineviz wrote:
Thu Apr 02, 2020 9:54 am
Yes, absolutely we must only look at data that supports the conclusion we want to reach.
I see. And is this statement referring to the person who posted the two week example favoring international or the fifty year example favoring US-only that I gave?

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vineviz
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Re: Why does anyone invest in international funds?

Post by vineviz » Thu Apr 02, 2020 10:37 am

keelerjr12 wrote:
Thu Apr 02, 2020 10:09 am
Exactly, I'm not sure what vineviz is even arguing for anymore. Vineviz, with your uber-wisdom, what do you propose everyone does WRT international equities?
I was being a bit tongue-in-cheek earlier, but in a nutshell I propose this:

If you think that markets are difficult to beat and that market timing is a fools errand (i.e. "nobody knows nothing"), then hold ex-US stocks roughly in proportion to the global market cap or maximum diversification. This means roughly 50-60% US stocks and 40-50% ex-US stocks.

If you think that market returns tend to mean-revert or that contrarianism is generally rewarded (i.e. "buy low, sell high"), then underweight US stocks and overweight international stocks. Maybe this is 50-60% ex-US stocks and 40-50% US stocks?

If you think that past performance is the best indicator of future performance or you think patriotism/xenophobia are a sound basis for asset allocation, the overweight US stocks and underweight ex-US stocks. Pick the allocation recommended by your favorite guru and go with that.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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UpsetRaptor
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Re: Why does anyone invest in international funds?

Post by UpsetRaptor » Thu Apr 02, 2020 10:39 am

keelerjr12 wrote:
Thu Apr 02, 2020 10:09 am
Exactly, I'm not sure what vineviz is even arguing for anymore. Vineviz, with your uber-wisdom, what do you propose everyone does WRT international equities?
Oh, I'm sure he or she would argue for global market cap. Which is totally fine. But this:
chevca wrote:
Thu Apr 02, 2020 10:15 am
The difference in these threads....

US only folks.... I think US only is fine, it's likely to give good returns, and if others want to hole US and INT no biggie it probably won't make much of a difference.

INT folks... You have to hold INT, you're wrong to hold US only, the experts all say hold both, and you will be better if you just do what I say.

Okay.....
Is absolutely true, and why these threads always blow up. I mean...
Noobvestor wrote:
Wed Apr 01, 2020 3:38 am
So ... Vanguard is wrong, the market is wrong, Europe and Japan are doomed, the US is exceptional. Did I miss anything? Honestly, if you think the US has magical powers to outperform the world now and forever, leverage up - take out HELOCs, double-down, go all-in and shoot for the moon. There is no reason to take half-steps or go in with half-measures if you've got an angle on risk-free returns. Also: short international! :beer
vineviz wrote:
Thu Apr 02, 2020 9:54 am
Yes, absolutely we must only look at data that supports the conclusion we want to reach.
Sheesh.

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Re: Why does anyone invest in international funds?

Post by rudeboy » Thu Apr 02, 2020 10:55 am

chevca wrote:
Thu Apr 02, 2020 10:15 am
The difference in these threads....

US only folks.... I think US only is fine, it's likely to give good returns, and if others want to hole US and INT no biggie it probably won't make much of a difference.

INT folks... You have to hold INT, you're wrong to hold US only, the experts all say hold both, and you will be better if you just do what I say.

Okay.....
Ladies and gentlemen, may I present to you the straw man fallacy.

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vineviz
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Re: Why does anyone invest in international funds?

Post by vineviz » Thu Apr 02, 2020 10:57 am

UpsetRaptor wrote:
Thu Apr 02, 2020 10:39 am
Is absolutely true, and why these threads always blow up. I mean...
Not so fast: there is undoubtedly a large but quiet group of Bogleheads who take the moderate and (IMHO) reasonable position of "US stocks are good enough for me, and I just don't feel comfortable with international stocks in my portfolio".

On the flip side, I'm definitely among the most strident advocates for international diversification on this forum and I know that sometimes I take a strong position. I might go so far as to say that every investor SHOULD be internationally diversified, and I can see how someone who chooses not to invest internationally might feel admonished by that.

However, it is not the moderate/quiet U.S.-only investors who are picking these fights. Rather, again IMHO, it's a smaller and more strident crowd who attempt to build a public case for their preference based on a litany of well-known cognitive and emotional biases (recency bias, hindsight bias, regret aversion bias, belief preservation errors, fallacy of composition, etc.) or evidentiary falsehoods.

When people state a preference, I think that preference should be respected. When people repeat factual errors, I think those errors should be corrected. Who disagrees with that?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Why does anyone invest in international funds?

Post by UpsetRaptor » Thu Apr 02, 2020 12:18 pm

vineviz wrote:
Thu Apr 02, 2020 10:57 am
UpsetRaptor wrote:
Thu Apr 02, 2020 10:39 am
Is absolutely true, and why these threads always blow up. I mean...
Not so fast: there is undoubtedly a large but quiet group of Bogleheads who take the moderate and (IMHO) reasonable position of "US stocks are good enough for me, and I just don't feel comfortable with international stocks in my portfolio".

On the flip side, I'm definitely among the most strident advocates for international diversification on this forum and I know that sometimes I take a strong position. I might go so far as to say that every investor SHOULD be internationally diversified, and I can see how someone who chooses not to invest internationally might feel admonished by that.

However, it is not the moderate/quiet U.S.-only investors who are picking these fights. Rather, again IMHO, it's a smaller and more strident crowd who attempt to build a public case for their preference based on a litany of well-known cognitive and emotional biases (recency bias, hindsight bias, regret aversion bias, belief preservation errors, fallacy of composition, etc.) or evidentiary falsehoods.

When people state a preference, I think that preference should be respected. When people repeat factual errors, I think those errors should be corrected. Who disagrees with that?
That's perfectly reasonable. :sharebeer

One minor quibble, you forgot to mention in your analysis that USA is the land of cowboys watching bald eagles swoop footballs off the Status of Liberty, while drinking Jack Daniels and grilling Budweisers. We'll let it slide though.

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Re: Why does anyone invest in international funds?

Post by birdog » Thu Apr 02, 2020 12:34 pm

vineviz wrote:
Thu Apr 02, 2020 10:37 am
If you think that past performance is the best indicator of future performance or you think patriotism/xenophobia are a sound basis for asset allocation, the overweight US stocks and underweight ex-US stocks. Pick the allocation recommended by your favorite guru and go with that.
Perhaps rudeboy’s strawman fallacy reference applies to this statement as well. In addition, it is also very clearly a false dichotomy. “Either invest ex-US or you subscribe to one of these derogatory investing fallacies.”

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txaggie
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Re: Why does anyone invest in international funds?

Post by txaggie » Thu Apr 02, 2020 1:22 pm

I invest in international for diversification. Like owning the Chinese copy of Starbucks that is down 75% today.

Image
https://www.wsj.com/articles/luckin-cof ... low_a_pos1

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Re: Why does anyone invest in international funds?

Post by Flextruck » Thu Apr 02, 2020 1:52 pm

I'm seriously considering moving completely out of my international positions for several reasons. The chief reason would be that I'm an American citizen, born and bred. I believe in the knowledge, cutting edge technology, skillset and spirit of the American people.

Those are good enough reasons for me to capitulate from the international positions and put my money where my beliefs are.

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Re: Why does anyone invest in international funds?

Post by watchnerd » Thu Apr 02, 2020 2:11 pm

txaggie wrote:
Thu Apr 02, 2020 1:22 pm
I invest in international for diversification. Like owning the Chinese copy of Starbucks that is down 75% today.

Image
https://www.wsj.com/articles/luckin-cof ... low_a_pos1
That's pretty brazen.

Reminds me of Wells Fargo fabricating their new accounts sign-ups a few years ago.

https://en.wikipedia.org/wiki/Wells_Far ... ud_scandal
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chevca
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Re: Why does anyone invest in international funds?

Post by chevca » Thu Apr 02, 2020 2:46 pm

vineviz wrote:
Thu Apr 02, 2020 10:57 am
UpsetRaptor wrote:
Thu Apr 02, 2020 10:39 am
Is absolutely true, and why these threads always blow up. I mean...
Not so fast: there is undoubtedly a large but quiet group of Bogleheads who take the moderate and (IMHO) reasonable position of "US stocks are good enough for me, and I just don't feel comfortable with international stocks in my portfolio".

On the flip side, I'm definitely among the most strident advocates for international diversification on this forum and I know that sometimes I take a strong position. I might go so far as to say that every investor SHOULD be internationally diversified, and I can see how someone who chooses not to invest internationally might feel admonished by that.

However, it is not the moderate/quiet U.S.-only investors who are picking these fights. Rather, again IMHO, it's a smaller and more strident crowd who attempt to build a public case for their preference based on a litany of well-known cognitive and emotional biases (recency bias, hindsight bias, regret aversion bias, belief preservation errors, fallacy of composition, etc.) or evidentiary falsehoods.

When people state a preference, I think that preference should be respected. When people repeat factual errors, I think those errors should be corrected. Who disagrees with that?
Thanks for proving my point... perfectly.

US only investors state THEIR preference.

The INT diehards state what EVERYONE'S preference should be.

See the difference???

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vineviz
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Re: Why does anyone invest in international funds?

Post by vineviz » Thu Apr 02, 2020 2:53 pm

chevca wrote:
Thu Apr 02, 2020 2:46 pm
US only investors state THEIR preference.
If only they’d stop there we’d suffer through a lot less misinformation.
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Re: Why does anyone invest in international funds?

Post by restingonmylaurels » Thu Apr 02, 2020 3:31 pm

vineviz wrote:
Tue Mar 31, 2020 5:33 pm
restingonmylaurels wrote:
Tue Mar 31, 2020 4:30 pm
Hulbert's summary says "But if the sole reason you’re investing in non-U.S. stocks is their alleged low correlation with U.S. stocks, you may want to think twice."

Is that not what you just proved?
I don't think so.

For one thing, the low correlation is real and not "alleged". For another, I don't think I've ever touted the correlation coefficient as the "sole reason" to invest in non-US stocks nor have I suggested that three months is a sufficiently long time to judge the value of portfolio diversification.
Just getting back to this now. You usually have top notch analysis, so I think I must be missing something.

I think Hulbert said that when times are bad, the correlations between international and US equity markets increase.

You have just demonstrated that there is significant correlations between international and US markets when times are good.

I have seen this play out for decades, first watching people working in financial industry firms with offices in London, Tokyo, and New York essentially singing off the same sheet of music then second in the markets themselves.

So I am not that big of a proponent of balancing US and developed international equity markets, they just move too often in synch.

You can see this every day if you watch the markets in realtime, Europe does one thing until the US markets open then they follow that and then developed Asian markets do the same thing the next day.

What I am long-time proponent of is US and emerging equity markets. There I still see the diversification benefits.

Do you have a different opinion, looking forward?

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Re: Why does anyone invest in international funds?

Post by Steve Reading » Thu Apr 02, 2020 3:39 pm

restingonmylaurels wrote:
Thu Apr 02, 2020 3:31 pm
vineviz wrote:
Tue Mar 31, 2020 5:33 pm
restingonmylaurels wrote:
Tue Mar 31, 2020 4:30 pm
Hulbert's summary says "But if the sole reason you’re investing in non-U.S. stocks is their alleged low correlation with U.S. stocks, you may want to think twice."

Is that not what you just proved?
I don't think so.

For one thing, the low correlation is real and not "alleged". For another, I don't think I've ever touted the correlation coefficient as the "sole reason" to invest in non-US stocks nor have I suggested that three months is a sufficiently long time to judge the value of portfolio diversification.
Just getting back to this now. You usually have top notch analysis, so I think I must be missing something.

I think Hulbert said that when times are bad, the correlations between international and US equity markets increase.

You have just demonstrated that there is significant correlations between international and US markets when times are good.

I have seen this play out for decades, first watching people working in financial industry firms with offices in London, Tokyo, and New York essentially singing off the same sheet of music then second in the markets themselves.

So I am not that big of a proponent of balancing US and developed international equity markets, they just move too often in synch.

You can see this every day if you watch the markets in realtime, Europe does one thing until the US markets open then they follow that and then developed Asian markets do the same thing the next day.

What I am long-time proponent of is US and emerging equity markets. There I still see the diversification benefits.

Do you have a different opinion, looking forward?
Correlation just measures how closely the above-average and below-average returns of two variables (with respect to their own means) occur with respect to each other. US and Ex-US have plenty of high correlation. Below-average returns in US typically occur when Int has below average returns too and vice-versa.

But the magnitude is incredibly important and not at all captured by correlation. Say in the next 20 years, US will return 1% and Int will return 10%. You don't know that or which one will do that. Say all you know is that the correlation will be 1.0. You might say "well correlation is 1.0 so no point in diversifying so I'll just pick one at random". But that would be a terrible choice because half of the times, you would've gotten a pretty lousy investment (US in this case).

So even if the correlation were 1.0, because we don't know what US or Ex-US will return overall, it STILL makes sense to put some into each to make sure you don't end up holding only the loser.

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Re: Why does anyone invest in international funds?

Post by marky2kk » Thu Apr 02, 2020 3:41 pm

restingonmylaurels wrote:
Thu Apr 02, 2020 3:31 pm
vineviz wrote:
Tue Mar 31, 2020 5:33 pm
restingonmylaurels wrote:
Tue Mar 31, 2020 4:30 pm
Hulbert's summary says "But if the sole reason you’re investing in non-U.S. stocks is their alleged low correlation with U.S. stocks, you may want to think twice."

Is that not what you just proved?
I don't think so.

For one thing, the low correlation is real and not "alleged". For another, I don't think I've ever touted the correlation coefficient as the "sole reason" to invest in non-US stocks nor have I suggested that three months is a sufficiently long time to judge the value of portfolio diversification.
Just getting back to this now. You usually have top notch analysis, so I think I must be missing something.

I think Hulbert said that when times are bad, the correlations between international and US equity markets increase.

You have just demonstrated that there is significant correlations between international and US markets when times are good.

I have seen this play out for decades, first watching people working in financial industry firms with offices in London, Tokyo, and New York essentially singing off the same sheet of music then second in the markets themselves.

So I am not that big of a proponent of balancing US and developed international equity markets, they just move too often in synch.

You can see this every day if you watch the markets in realtime, Europe does one thing until the US markets open then they follow that and then developed Asian markets do the same thing the next day.

What I am long-time proponent of is US and emerging equity markets. There I still see the diversification benefits.

Do you have a different opinion, looking forward?
As someone with heavy international exposure, in particular to Europe, I'd be happy if US and Europe moved completely in sync over the last decade.They did not. https://www.portfoliovisualizer.com/bac ... ion2_2=100

Having said that, I don\t have a problem envisioning the opposite scenario in which Europe outperforms the U.S. for a couple of decades.

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Re: Why does anyone invest in international funds?

Post by vineviz » Thu Apr 02, 2020 4:01 pm

restingonmylaurels wrote:
Thu Apr 02, 2020 3:31 pm
I think Hulbert said that when times are bad, the correlations between international and US equity markets increase.
He does say this, but it's a red herring. As he DOES point out, this is largely a statistical artifact due to the variance of all assets going up when "times are bad". He says this as if as if it reflects a fundamental change in the relationship of the assets, or the power of one to act as diversification for the other, when this is emphatically NOT the case.

He says: "Notice what this means: Correlation is highest when you want it to be lowest, and lowest when you want it to be highest." This is nonsensical gibberish.
restingonmylaurels wrote:
Thu Apr 02, 2020 3:31 pm
You have just demonstrated that there is significant correlations between international and US markets when times are good.
I don't think so. For one thing, the correlations are low enough to result in useful diversification benefits in both good times and bad. For another, correlation is only one piece of the diversification puzzle but Hulbert acts as if daily correlations over a two week period means something important. Again, nonsensical gibberish.
restingonmylaurels wrote:
Thu Apr 02, 2020 3:31 pm
What I am long-time proponent of is US and emerging equity markets. There I still see the diversification benefits.

Do you have a different opinion, looking forward?
I agree that the diversification benefits of emerging markets are definitely greater (for a US investor) than international developed markets: the correlation is lower and the variance is higher. In my own portfolio, my international equities are split evenly between emerging markets stocks and half large cap value developed markets stocks.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Why does anyone invest in international funds?

Post by vineviz » Thu Apr 02, 2020 4:27 pm

Let me say this again, for the benefit of anyone who is reading this thread with absolutely NO desire to own anything but US-domiciled stocks and bonds: this is an entirely normal desire, and I think you should not let anyone tell you differently.

Is it an economically optimal portfolio allocation? It is objectively not, and it is possible to conjure a whole host of authoritative evidence to prove this.

But YOUR portfolio should reflect YOUR values, not mine or Vanguard's or Fidelity's etc. That's because personal finance is not JUST finance: it's also personal. So you do you, and all I ask is to is that you understand that you are increasing your idiosyncratic risk by making that choice. We all make choices about which risks we can accept and which risks we want to avoid/minimize, but nothing is more dangerous in investing than being blind to the risks you are exposed to.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Why does anyone invest in international funds?

Post by Peculiar_Investor » Thu Apr 02, 2020 5:21 pm

vineviz wrote:
Thu Apr 02, 2020 4:27 pm
Let me say this again,
Thanks that is a very good summary. Hopefully readers will take heed.
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Re: Why does anyone invest in international funds?

Post by Miriam2 » Thu Apr 02, 2020 5:39 pm

vineviz wrote: Let me say this again, for the benefit of anyone who is reading this thread with absolutely NO desire to own anything but US-domiciled stocks and bonds: this is an entirely normal desire, and I think you should not let anyone tell you differently.

Is it an economically optimal portfolio allocation? It is objectively not, and it is possible to conjure a whole host of authoritative evidence to prove this.

But YOUR portfolio should reflect YOUR values, not mine or Vanguard's or Fidelity's etc. That's because personal finance is not JUST finance: it's also personal. So you do you, and all I ask is to is that you understand that you are increasing your idiosyncratic risk by making that choice. We all make choices about which risks we can accept and which risks we want to avoid/minimize, but nothing is more dangerous in investing than being blind to the risks you are exposed to.
Thank you Vineviz for your clear and succinct advice :happy

But a Q - is it "an economically optimal portfolio allocation" for those of us well into retirement in our 70's?

. . . for those of us over the optimal hill who only have a decade or two or three :shock: left to realize the benefits of adding international stocks and bonds now, should those benefits even come?

Put aside "personal preferences or values" favoring US stocks & bonds and looking only at the portfolio benefit, the personal economic benefit of adding international stocks and bonds -

Q - when we are already retired and in the decumulation phase of our life, how do we assess the risk of adding or keeping international when that added portfolio value may be too late for us to enjoy?

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hisdudeness
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Re: Why does anyone invest in international funds?

Post by hisdudeness » Thu Apr 02, 2020 6:29 pm

vineviz wrote:
Thu Apr 02, 2020 10:37 am
keelerjr12 wrote:
Thu Apr 02, 2020 10:09 am
Exactly, I'm not sure what vineviz is even arguing for anymore. Vineviz, with your uber-wisdom, what do you propose everyone does WRT international equities?
I was being a bit tongue-in-cheek earlier, but in a nutshell I propose this:

If you think that markets are difficult to beat and that market timing is a fools errand (i.e. "nobody knows nothing"), then hold ex-US stocks roughly in proportion to the global market cap or maximum diversification. This means roughly 50-60% US stocks and 40-50% ex-US stocks.

If you think that market returns tend to mean-revert or that contrarianism is generally rewarded (i.e. "buy low, sell high"), then underweight US stocks and overweight international stocks. Maybe this is 50-60% ex-US stocks and 40-50% US stocks?

If you think that past performance is the best indicator of future performance or you think patriotism/xenophobia are a sound basis for asset allocation, the overweight US stocks and underweight ex-US stocks. Pick the allocation recommended by your favorite guru and go with that.
Vineviz, you seem like a bright guy, but your argument loses merit when you assume that US only investors do so because they may be xenophobic.
That's pitiful.

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Re: Why does anyone invest in international funds?

Post by UpsetRaptor » Thu Apr 02, 2020 7:25 pm

Miriam2 wrote:
Thu Apr 02, 2020 5:39 pm

. . . for those of us over the optimal hill who only have a decade or two or three :shock: left to realize the benefits of adding international stocks and bonds now, should those benefits even come?

Put aside "personal preferences or values" favoring US stocks & bonds and looking only at the portfolio benefit, the personal economic benefit of adding international stocks and bonds -

Q - when we are already retired and in the decumulation phase of our life, how do we assess the risk of adding or keeping international when that added portfolio value may be too late for us to enjoy?
The decision is even more inconsequential if you're in decumulation phase and presumably have a larger fixed income holding. Remember that the correlation between US and international is pretty high and it's been increasing in recent decades, presumably with globalization, which is only likely to continue. If you're content with your overall equity - fixed income allocation, don't lose sleep over whichever us:international ratio you choose.
hisdudeness wrote:
Thu Apr 02, 2020 6:29 pm
Vineviz, you seem like a bright guy, but your argument loses merit when you assume that US only investors do so because they may be xenophobic.
That's pitiful.
His last post above is his real opinion, and it's quite reasonable. There's a lot of fallacious arguments bandied about in these threads, which can make it tough for some of us not to jump in.

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Re: Why does anyone invest in international funds?

Post by vineviz » Thu Apr 02, 2020 8:10 pm

Miriam2 wrote:
Thu Apr 02, 2020 5:39 pm
Thank you Vineviz for your clear and succinct advice :happy

But a Q - is it "an economically optimal portfolio allocation" for those of us well into retirement in our 70's?
Yes, and especially so. The years immediately before and immediately after retirement are the most dangerous ones for a balanced portfolio (e.g one with stocks and bonds), because this is the time in which an unfavorable sequence of returns can do the most damage to the level and longevity of retirement income. It is this zone of years, and especially the first ten or so years after retirement, in which a well-diversified portfolio is truly crucial. Even modest reductions in volatility as a result of diversification can dramatically alter retirement outcomes.

I've presented this example before: the "4% rule" is essentially the result of the poor outcomes of the cohort that retired in 1966. This was, historically, the worst year to retire because subsequent returns supported the lowest retirement income in history.

But the 4% rule was set based on a U.S.-only portfolio. What if 1966 investors allocated 20% of their equities to international stocks (via existing mutual funds) or 40% of their equities? Here are three hypothetical 60/40 portfolios with a starting wealth of $100k in 1966 and monthly withdrawals of $360 adjusted for inflation.

Image

The volatility reduction seems modest (10.3% to 9.8%) but I think this example illustrates that real power of diversification: it's less about making the return better in the average year, and more about making returns in the worst years slightly less bad. It's the difference between being dying broke and dying with more money than your started retirement with.

A 30-year old investor has time to make up for a terrible year, and a 90-year old investor is much less dependent on compounding returns for income. But a 65- or 70-year old investor is really at the mercy of the markets, even with a 40% or 50% bond allocation. For them, even modest amounts of diversification can really save their bacon.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Why does anyone invest in international funds?

Post by vineviz » Thu Apr 02, 2020 8:18 pm

hisdudeness wrote:
Thu Apr 02, 2020 6:29 pm
Vineviz, you seem like a bright guy, but your argument loses merit when you assume that US only investors do so because they may be xenophobic.
That's pitiful.
I don't think that all U.S.-only investors are - themselves - xenophobic, but there's no getting around the fact that many of the reasons given to SUPPORT such an allocation rely on xenophobic tropes. And that's not merely a pet theory: there is academic research on the home bias phenomenon that links the bias with psychological attitudes and levels of formal education.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Noobvestor
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Re: Why does anyone invest in international funds?

Post by Noobvestor » Thu Apr 02, 2020 8:33 pm

vineviz wrote:
Thu Apr 02, 2020 8:10 pm
Miriam2 wrote:
Thu Apr 02, 2020 5:39 pm
Thank you Vineviz for your clear and succinct advice :happy

But a Q - is it "an economically optimal portfolio allocation" for those of us well into retirement in our 70's?
Yes, and especially so. The years immediately before and immediately after retirement are the most dangerous ones for a balanced portfolio (e.g one with stocks and bonds), because this is the time in which an unfavorable sequence of returns can do the most damage to the level and longevity of retirement income. It is this zone of years, and especially the first ten or so years after retirement, in which a well-diversified portfolio is truly crucial. Even modest reductions in volatility as a result of diversification can dramatically alter retirement outcomes.

I've presented this example before: the "4% rule" is essentially the result of the poor outcomes of the cohort that retired in 1966. This was, historically, the worst year to retire because subsequent returns supported the lowest retirement income in history.

But the 4% rule was set based on a U.S.-only portfolio. What if 1966 investors allocated 20% of their equities to international stocks (via existing mutual funds) or 40% of their equities? Here are three hypothetical 60/40 portfolios with a starting wealth of $100k in 1966 and monthly withdrawals of $360 adjusted for inflation.

Image

The volatility reduction seems modest (10.3% to 9.8%) but I think this example illustrates that real power of diversification: it's less about making the return better in the average year, and more about making returns in the worst years slightly less bad. It's the difference between being dying broke and dying with more money than your started retirement with.

A 30-year old investor has time to make up for a terrible year, and a 90-year old investor is much less dependent on compounding returns for income. But a 65- or 70-year old investor is really at the mercy of the markets, even with a 40% or 50% bond allocation. For them, even modest amounts of diversification can really save their bacon.
This is a powerful example - thanks for sharing. I keep thinking about recent projections by GMO (based in part on mean reversion) and Vanguard (valuation-centric) that estimate the coming decade will be a bad one for US-only approaches. VG estimates that a US-only 60/40 will underperform one with international (emerging markets in particular). But there's good news: international has done poorly for the past decade, crashed hard and valuations look good, so anyone thinking about adding international is more likely to be buying in low than high. In other words: someone choosing to add rather than subtract international at this point can be confident at least that they aren't chasing winners. :beer

https://pressroom.vanguard.com/nonindex ... k_2020.pdf

Aside from all of that, too, it remains unclear to me which national economies will come out better or worse given current events, but I digress.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Why does anyone invest in international funds?

Post by boglerdude » Thu Apr 02, 2020 10:47 pm

> from 1971 through October 2019, the S&P 500 has annualized returns of 10.6% per year, beating out the MSCI EAFE index by 1.6% per year

During which decades has international outperformed, by how much, and why (economically/geo-politically)

For those in retirement who would like to hedge against Seattle falling into the ocean etc (cascadia quake disabling Amazon/Microsoft)

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Re: Why does anyone invest in international funds?

Post by Noobvestor » Fri Apr 03, 2020 12:35 am

boglerdude wrote:
Thu Apr 02, 2020 10:47 pm
> from 1971 through October 2019, the S&P 500 has annualized returns of 10.6% per year, beating out the MSCI EAFE index by 1.6% per year

During which decades has international outperformed, by how much, and why (economically/geo-politically)

For those in retirement who would like to hedge against Seattle falling into the ocean etc (cascadia quake disabling Amazon/Microsoft)
I went ahead and Googled it for you: https://www.financialsymmetry.com/wp-co ... s/MSCI.png

Just in case the US handles this crisis poorly, or mean reversion happens like it always does eventually. Valuations matter. /2 cents
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Why does anyone invest in international funds?

Post by Miriam2 » Fri Apr 03, 2020 12:50 am

Noobvestor wrote: . . . I keep thinking about recent projections by GMO (based in part on mean reversion) and Vanguard (valuation-centric) that estimate the coming decade will be a bad one for US-only approaches. VG estimates that a US-only 60/40 will underperform one with international (emerging markets in particular). But there's good news: international has done poorly for the past decade, crashed hard and valuations look good, so anyone thinking about adding international is more likely to be buying in low than high. In other words: someone choosing to add rather than subtract international at this point can be confident at least that they aren't chasing winners. :beer

https://pressroom.vanguard.com/nonindex ... k_2020.pdf
Thank you for this recent Vanguard white paper :happy They are difficult to find.

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Re: Why does anyone invest in international funds?

Post by palaheel » Fri Apr 03, 2020 5:52 am

vineviz wrote:
Thu Apr 02, 2020 8:10 pm


Image

Where do you get data back to 1966? It looks like portfoliovisualizer, but I've never seen their data go back that far.
Markets crash. Markets recover. Inflation takes your money FOREVER.

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Re: Why does anyone invest in international funds?

Post by vineviz » Fri Apr 03, 2020 7:40 am

palaheel wrote:
Fri Apr 03, 2020 5:52 am
Where do you get data back to 1966? It looks like portfoliovisualizer, but I've never seen their data go back that far.
I pulled the data from Morningstar and imported it to PortfolioVisualizer as a custom data series.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Why does anyone invest in international funds?

Post by keelerjr12 » Fri Apr 03, 2020 7:49 am

vineviz wrote:
Fri Apr 03, 2020 7:40 am
palaheel wrote:
Fri Apr 03, 2020 5:52 am
Where do you get data back to 1966? It looks like portfoliovisualizer, but I've never seen their data go back that far.
I pulled the data from Morningstar and imported it to PortfolioVisualizer as a custom data series.
Vineviz,

Instead of showing us a graph with an arbitrary start date, can you post the average rolling returns for different intervals? Thanks!

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Re: Why does anyone invest in international funds?

Post by palaheel » Fri Apr 03, 2020 8:00 am

vineviz wrote:
Fri Apr 03, 2020 7:40 am
palaheel wrote:
Fri Apr 03, 2020 5:52 am
Where do you get data back to 1966? It looks like portfoliovisualizer, but I've never seen their data go back that far.
I pulled the data from Morningstar and imported it to PortfolioVisualizer as a custom data series.
Thank you.
Markets crash. Markets recover. Inflation takes your money FOREVER.

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Re: Why does anyone invest in international funds?

Post by lostdog » Fri Apr 03, 2020 8:08 am

I wonder what the psychological affects are while holding world market cap with the two index funds of U.S. and International versus just holding Total World index?

An investor seeing the short term daily underperformance of one or the other would increase there performance regret vs just holding a Total World index and not paying attention to the separate regions?
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Re: Why does anyone invest in international funds?

Post by vineviz » Fri Apr 03, 2020 8:12 am

keelerjr12 wrote:
Fri Apr 03, 2020 7:49 am
Instead of showing us a graph with an arbitrary start date, can you post the average rolling returns for different intervals? Thanks!
The start date wasn't entirely arbitrary: it was specifically chosen to illustrate this particular retirement cohort, which is the basis for the classic 4% SWR "rule".

Here are the SWRs for rolling 30-year cohorts.

Image

You can see the diversification helped on average and especially for the retirement cohorts most challenged by sequence of returns (mid-1960s, mid-1980s). The early 2000s are another cohort, but this is not shown.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

keelerjr12
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Re: Why does anyone invest in international funds?

Post by keelerjr12 » Fri Apr 03, 2020 9:18 am

vineviz wrote:
Fri Apr 03, 2020 8:12 am
keelerjr12 wrote:
Fri Apr 03, 2020 7:49 am
Instead of showing us a graph with an arbitrary start date, can you post the average rolling returns for different intervals? Thanks!
The start date wasn't entirely arbitrary: it was specifically chosen to illustrate this particular retirement cohort, which is the basis for the classic 4% SWR "rule".

Here are the SWRs for rolling 30-year cohorts.

Image

You can see the diversification helped on average and especially for the retirement cohorts most challenged by sequence of returns (mid-1960s, mid-1980s). The early 2000s are another cohort, but this is not shown.
This is interesting. I've been pulling the data myself straight from FRED, Wilshire, and MSCI for years. Using data back to 1970, here's what I came up with:

Code: Select all

/*** 5-Year Rolling Geometric Avgs ***/
W5000    8.8%
EAFE     7.6%

/*** 10-Year Rolling Geometric Avgs ***/
W5000    10.1%
EAFE     8.7%

/*** 15-Year Rolling Geometric Avgs ***/
W5000    10.4%
EAFE     9.2%

/*** 20-Year Rolling Geometric Avgs ***/
W5000    10.6%
EAFE     8.8%
Note: this is total return (i.e. price + dividends). Which more or less matches what PortfolioVisualizer shows.. US has outpaced Intl by roughly 1-2% over the long-term. What does that 1.5% difference look like over 20 years with a $6,000 a month contribution? Roughly a $1.7M difference...

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Re: Why does anyone invest in international funds?

Post by physixfan » Mon Apr 06, 2020 7:58 pm

In my opinion, at least in the next 10 years, there are only two countries that have a bright future: USA and China. Therefore I mainly invest in US stocks as well as ASHR (ETF of largest 300 Chinese stocks).

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Re: Why does anyone invest in international funds?

Post by whereskyle » Mon Apr 06, 2020 8:01 pm

Now is a great time to buy vt.
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Re: Why does anyone invest in international funds?

Post by Triple digit golfer » Mon Apr 06, 2020 8:06 pm

physixfan wrote:
Mon Apr 06, 2020 7:58 pm
In my opinion, at least in the next 10 years, there are only two countries that have a bright future: USA and China. Therefore I mainly invest in US stocks as well as ASHR (ETF of largest 300 Chinese stocks).
Why do you feel that way?

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Re: Why does anyone invest in international funds?

Post by beyou » Mon Apr 06, 2020 8:15 pm

OP Your avatar fits well with the question.

Personally I invest in International, because you never know when previously unthinkable things will happen in the US.
Fortunately as of now everything is pretty much as it always has been, but I like to be prepared through diversification.
8-)

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Re: Why does anyone invest in international funds?

Post by BogleBoogie » Mon Apr 06, 2020 8:19 pm

Why would anyone international invest in the United States?

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physixfan
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Re: Why does anyone invest in international funds?

Post by physixfan » Mon Apr 06, 2020 8:21 pm

Triple digit golfer wrote:
Mon Apr 06, 2020 8:06 pm
physixfan wrote:
Mon Apr 06, 2020 7:58 pm
In my opinion, at least in the next 10 years, there are only two countries that have a bright future: USA and China. Therefore I mainly invest in US stocks as well as ASHR (ETF of largest 300 Chinese stocks).
Why do you feel that way?
There are too many things to tell, but in short, this is a good chart to have a look at:

Image

It's made by Ray Dalio in this post: https://www.linkedin.com/pulse/chapter- ... ray-dalio/

See how other developed countries are taking a smaller and smaller share of the world power, and only USA and China can still compete.

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Re: Why does anyone invest in international funds?

Post by visualguy » Mon Apr 06, 2020 8:29 pm

physixfan wrote:
Mon Apr 06, 2020 7:58 pm
In my opinion, at least in the next 10 years, there are only two countries that have a bright future: USA and China. Therefore I mainly invest in US stocks as well as ASHR (ETF of largest 300 Chinese stocks).
I don't see a good way to invest in China through indexing their stock market. Otherwise, I would definitely invest. Their tremendous success is not reflected in the performance of the indexing ETFs like the one you mentioned (ASHR), FXI, etc. For example, FXI returned 2.79% over the last decade during which China had tremendous growth and success, and ASHR returned -3.57% over the last 5 years (it's a relatively new ETF.)

I think part of the reason is that Chinese companies aren't structured financially similarly to American companies. Much of the ownership is government or private equity, with relatively little float on the stock market. There are other reasons as well, but regardless of the exact reasons, indexing their stock market hasn't been a good vehicle for participating in their success, and I haven't heard of any changes that would improve that picture.

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Re: Why does anyone invest in international funds?

Post by watchnerd » Mon Apr 06, 2020 8:37 pm

physixfan wrote:
Mon Apr 06, 2020 8:21 pm
Triple digit golfer wrote:
Mon Apr 06, 2020 8:06 pm
physixfan wrote:
Mon Apr 06, 2020 7:58 pm
In my opinion, at least in the next 10 years, there are only two countries that have a bright future: USA and China. Therefore I mainly invest in US stocks as well as ASHR (ETF of largest 300 Chinese stocks).
Why do you feel that way?
There are too many things to tell, but in short, this is a good chart to have a look at:

Image

It's made by Ray Dalio in this post: https://www.linkedin.com/pulse/chapter- ... ray-dalio/

See how other developed countries are taking a smaller and smaller share of the world power, and only USA and China can still compete.

You're ignoring the upward trending India.

You also want to invest in the next big dog while they're still an underdog.
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Re: Why does anyone invest in international funds?

Post by anon_investor » Mon Apr 06, 2020 8:41 pm

BogleBoogie wrote:
Mon Apr 06, 2020 8:19 pm
Why would anyone international invest in the United States?
Why does anyone invest in equities? Long term US treasuries have obliterated everything... grandpa was right... :sharebeer

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Re: Why does anyone invest in international funds?

Post by Blender » Mon Apr 06, 2020 9:07 pm

Randolph Mortimer wrote:
Wed Mar 25, 2020 7:18 pm
Why do I invest in international funds?

Because the returns are terrible.

I get extremely fearful when I feel like I am making too much money.

International funds help assuage that fear.
I do it so I have something to TLH each year.

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