For those concerned about International Stocks...

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simplesauce
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For those concerned about International Stocks...

Post by simplesauce » Tue Apr 21, 2020 10:39 am

For those concerned about the recent poor performance of International Stocks vs US Stocks, I would direct you to this figure from The Bogleheads’ Guide to Investing (2nd Edition.) I refer to this chapter when I have any doubts about my international allocation:

Image

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Crushtheturtle
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Re: For those concerned about International Stocks...

Post by Crushtheturtle » Tue Apr 21, 2020 10:55 am

According to Jack Bogle, International outperforms 9 out of 16 years (56% of the time).

The implication is clear: Why hold U.S.?

:twisted:
“The mass of men lead lives of quiet desperation.” - Henry David Thoreau

Flextruck
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Re: For those concerned about International Stocks...

Post by Flextruck » Tue Apr 21, 2020 11:16 am

I'll soon be out of International markets. Jack Bogle was on record speaking about simply investing in bonds and the domestic market. If it was good enough for Mr. Bogle, it's certainly good enough for me.

I believe in the American way, the American worker, the American technology, the American system and on and on. I'll soon be 70% VTSAX and 30% VBTLX and I will be better for it...I don't think International markets are a bad thing, I just don't think they're as good as the American markets.

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Rob5TCP
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Re: For those concerned about International Stocks...

Post by Rob5TCP » Tue Apr 21, 2020 11:18 am

I also have been "sucking up" and re-balance into international every year for a decade.
When I see charts that show years of international out-performance, I wonder if it is just
cherry picking. When I have time I will look at 30-50 years of domestic vs. international
and see what the average is for each.

Jozxyqk
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Re: For those concerned about International Stocks...

Post by Jozxyqk » Tue Apr 21, 2020 11:24 am

Flextruck wrote:
Tue Apr 21, 2020 11:16 am
I'll soon be out of International markets. Jack Bogle was on record speaking about simply investing in bonds and the domestic market. If it was good enough for Mr. Bogle, it's certainly good enough for me.

I believe in the American way, the American worker, the American technology, the American system and on and on. I'll soon be 70% VTSAX and 30% VBTLX and I will be better for it...I don't think International markets are a bad thing, I just don't think they're as good as the American markets.
I think this is the sort of recency bias we should watch out for.

You will "soon" be out of international? Has Jack Bogle's position suddenly become relevant to you for any reason other than the fact that the US has outperformed international recently?

It's fine in the abstract to decide that US markets are enough for you. But coincidentally making that decision on the heels of a decade of outperformance would make me take a hard look at what I was really doing, and whether I'm setting myself up for a poor decision now because in hindsight it would have been the right move 10 years ago.

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Re: For those concerned about International Stocks...

Post by tibbitts » Tue Apr 21, 2020 11:26 am

Flextruck wrote:
Tue Apr 21, 2020 11:16 am
I'll soon be out of International markets. Jack Bogle was on record speaking about simply investing in bonds and the domestic market. If it was good enough for Mr. Bogle, it's certainly good enough for me.
I believe another pioneer in a different industy (and undeniably with different motivations), Henry Ford, was on record as saying the Model T was "good enough" too, but most of us don't use them today as daily drivers.

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Re: For those concerned about International Stocks...

Post by MotoTrojan » Tue Apr 21, 2020 11:33 am

While I do believe in International stocks (have 30% allocation but always wonder if I should just jump to market weight, along with tilts to small/value...) you are playing games with the data to make you feel better about the past. International could win every other year, or win 9 out of 10, and still underperform dramatically. The amount of outperformance in each year is even more important than who wins the most years.

BV3273
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Re: For those concerned about International Stocks...

Post by BV3273 » Tue Apr 21, 2020 11:37 am

I’m no fan of international. As many have stated for the most part we are a global economy. I hold a little just to make sure I’m not missing anything. I hold about 15% of my AA in international.

ValuationsMatter
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Re: For those concerned about International Stocks...

Post by ValuationsMatter » Tue Apr 21, 2020 12:18 pm

I listened to a Michael Burry interview from a while back -- long before the COVID crisis -- wherein he discussed how leveraged international banks are. It scared me straight, after taking into consideration current events. I'm not pulling out of VTIAX, but instead of representing 30% of my equities, I'm pulling back to 20%, and I'll stay that way until we've at least stabilized from COVID and I have time to reassess.

I recall a study, perhaps it was a Vanguard study, that discussed the merits of owning international, and even though it advocated for a greater than 30% weight of equities toward international, my take away was that 20% achieved most of the purpose of int'l being in a portfolio. That is to say, you get most of the benefits of diversification with a lot less exposure to intl, if you have more faith in US markets over the long term. A graph in there shows that for US stocks, the reduction in volatility is ~3% with a 20% intl equity allocation. It's maybe 4% with a 40% allocation.

We're not talking about volatility reduction that's going to make all that much of a difference, in my opinion. And, it comes at the cost of perhaps slightly lower long-term performance. Plus, I'm comfortable with American regulations, economics, business, and fed/govt backing & trust them more as a whole than I trust the rest of the world. So, a little less exposure than conventional wisdom implies is perfectly ok with me.

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

dkturner
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Re: For those concerned about International Stocks...

Post by dkturner » Tue Apr 21, 2020 2:53 pm

Mr. Bogle was correct when he said one doesn’t need international equity exposure, but if one wants it, limit it to 20%. For the last 50 years U.S. equities produced annualized total returns of 10.5% while international equities only returned 9.3%. Score one for The Man! If you go with an allocation of 80% U.S. equity and 20% international equity and rebalance annually (a good trick if you hold your equities in a taxable account - but I digress) the annualized total returns were 10.5%. Not much damage due to adding 20% in international equities.

Now, that’s history and the next 50 years may be different, but I wouldn’t bet on it.

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Gort
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Re: For those concerned about International Stocks...

Post by Gort » Tue Apr 21, 2020 3:12 pm

The following is Vanguard's recommendation concerning international equities allocation. The information is from the Vanguard Portfolio Watch, Stock Analysis tab...

"Vanguard research has shown that while holding some portion of a diversified equity portfolio in international equities has helped to temper the volatility of U.S. equities, the majority of the benefit was achieved as the international allocation increased from 0% to 20% of total equity exposure, with incremental additional benefit up to 50%. Thus for many investors, an allocation that falls between 30% and 50% should be considered reasonable, given the historical benefits of diversification."

There are things I don't quite understand with the recommendation:
1. If the majority of the benefit was achieved as the international allocation increased from 0% to 20% of total equity exposure, why go higher than 20% ?
2. What does "with incremental additional benefit up to 50%" mean? Are the incremental benefits large, small, somewhere in between?

gmc4h232
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Re: For those concerned about International Stocks...

Post by gmc4h232 » Tue Apr 21, 2020 3:25 pm

Vanguard seems to have high hopes for international over the long term as they have allocated more than 25% to international in all their target date funds 2025 and beyond.

I on the other hand am more pessimistic and as such, I’ve dropped my international allocation from 20% to 15% and moved them out of Roth accounts to tax deferred accounts

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vineviz
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Re: For those concerned about International Stocks...

Post by vineviz » Tue Apr 21, 2020 3:33 pm

Gort wrote:
Tue Apr 21, 2020 3:12 pm
There are things I don't quite understand with the recommendation:
1. If the majority of the benefit was achieved as the international allocation increased from 0% to 20% of total equity exposure, why go higher than 20% ?
To get the rest of the benefits.
Gort wrote:
Tue Apr 21, 2020 3:12 pm
2. What does "with incremental additional benefit up to 50%" mean? Are the incremental benefits large, small, somewhere in between?
It means that diversification benefits continue to increase up to a 50/50 split, at least the way Vanguard is calculating it. Above 50% international the portfolio becomes less diversified for a US investor.
"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: For those concerned about International Stocks...

Post by Noobvestor » Tue Apr 21, 2020 3:33 pm

My only regret is not holding more of my international in taxable. This last decade has left me with fewer TLH opportunities because I had mostly US in taxable. Of course, if the trend reverses this coming decade, maybe I'll get some more US TLH opportunities after all! :twisted:
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Spinola
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Re: For those concerned about International Stocks...

Post by Spinola » Tue Apr 21, 2020 3:46 pm

ValuationsMatter wrote:
Tue Apr 21, 2020 12:18 pm
I listened to a Michael Burry interview from a while back -- long before the COVID crisis -- wherein he discussed how leveraged international banks are. It scared me straight, after taking into consideration current events.
and yet American companies aren't leveraged to the hilt? Riding on a corporate debt bubble, on the verge of popping? US stocks aren't over-valued? Are we really just as well off as we were a few months back? When I see how some countries have just rolled up their sleeves and effectively mitigated the worst of the COVID crisis and will be much more prepared to rebound and see what is happening in the USA, the incompetent manner in which the Federal government has "dealt" with the crisis, and the wide range of states efforts in the handling of it, ranging from very early measures and quarantine to just plain ignorance and well-wishing it away.. I don't see a very rosy picture for the US economy in the years to come. Actions and inaction have consequences.
Time to take my 20-% international to closer to market weight.

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Spinola
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Re: For those concerned about International Stocks...

Post by Spinola » Tue Apr 21, 2020 3:47 pm

Flextruck wrote:
Tue Apr 21, 2020 11:16 am
I'll soon be out of International markets. Jack Bogle was on record speaking about simply investing in bonds and the domestic market. If it was good enough for Mr. Bogle, it's certainly good enough for me.
No doubt some well respected financial genius in 1980s Japan said something along these lines also..

mindboggling
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Re: For those concerned about International Stocks...

Post by mindboggling » Tue Apr 21, 2020 3:54 pm

Nowadays, electronics manufacturers often supply a universal power supply for many products that can accept 110 VAC inputs as well as 220 VAC inputs, so one standard model can be used world-wide with only an inexpensive adapter. In a similar way, I think, Vanguard is striving for a universal portfolio that can be marketed world-wide.
In broken mathematics, We estimate our prize, --Emily Dickinson

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vineviz
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Re: For those concerned about International Stocks...

Post by vineviz » Tue Apr 21, 2020 4:13 pm

vineviz wrote:
Tue Apr 21, 2020 3:33 pm
Gort wrote:
Tue Apr 21, 2020 3:12 pm
2. What does "with incremental additional benefit up to 50%" mean? Are the incremental benefits large, small, somewhere in between?
It means that diversification benefits continue to increase up to a 50/50 split, at least the way Vanguard is calculating it. Above 50% international the portfolio becomes less diversified for a US investor.
I feel like "large" and "small" is subjective, but perhaps this graph will give you some idea of how the benefits scale.

Image

The way Vanguard quantified the diversification benefit isn't quite right, and it leads the reader of their white paper to conclude that the drop-off in diversification benefit is sharper than it is in actuality: the benefits accrue in a near-linear fashion up to about a 25% or 30% international weight.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

atdharris
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Re: For those concerned about International Stocks...

Post by atdharris » Tue Apr 21, 2020 4:18 pm

We know international did well in the early to mid 2000s, but nothing since then. I am still not sure what to do. I like emerging markets over developed, because I don't see any compelling investment opportunities in Europe, but I'm not really sure if I'll dump VEA to go all in on VWO or just stay the course in my taxable account. I think investing in China, India, Brazil and other developing nations presents more opportunities than anywhere else outside of the USA.

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Stef
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Re: For those concerned about International Stocks...

Post by Stef » Tue Apr 21, 2020 4:31 pm

dkturner wrote:
Tue Apr 21, 2020 2:53 pm
Mr. Bogle was correct when he said one doesn’t need international equity exposure, but if one wants it, limit it to 20%. For the last 50 years U.S. equities produced annualized total returns of 10.5% while international equities only returned 9.3%. Score one for The Man! If you go with an allocation of 80% U.S. equity and 20% international equity and rebalance annually (a good trick if you hold your equities in a taxable account - but I digress) the annualized total returns were 10.5%. Not much damage due to adding 20% in international equities.

Now, that’s history and the next 50 years may be different, but I wouldn’t bet on it.
So you got the same return with less volatility?

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goonie
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Re: For those concerned about International Stocks...

Post by goonie » Tue Apr 21, 2020 4:35 pm

Flextruck wrote:
Tue Apr 21, 2020 11:16 am
I'll soon be out of International markets. Jack Bogle was on record speaking about simply investing in bonds and the domestic market. If it was good enough for Mr. Bogle, it's certainly good enough for me.

I believe in the American way, the American worker, the American technology, the American system and on and on. I'll soon be 70% VTSAX and 30% VBTLX and I will be better for it...I don't think International markets are a bad thing, I just don't think they're as good as the American markets.
Why didn't you come to this conclusion 10 years ago?

bling
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Re: For those concerned about International Stocks...

Post by bling » Tue Apr 21, 2020 4:36 pm

between 1998 and 2013, the difference in CAGR is 25% vs 17%.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

it's not just whether one performs better than the other each year, but by how much. US has absolutely destroyed international over the time period mentioned in the table.

i've held international at market weighting for my equity allocation since the beginning and it absolute sucks to see it decimated this past decade.

edit: this above is wrong because i used VTI and VXUS and it doesn't go back to 1998. here's the corrected link using "US Stock Market" and "Global ex-US Stock Market".

https://www.portfoliovisualizer.com/bac ... ion2_2=100

US still beats ex-US, albeit the spread is much lower. 6.46% vs 5.71%.
Last edited by bling on Tue Apr 21, 2020 8:10 pm, edited 1 time in total.

Lastrun
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Re: For those concerned about International Stocks...

Post by Lastrun » Tue Apr 21, 2020 4:46 pm

vineviz wrote:
Tue Apr 21, 2020 4:13 pm
The way Vanguard quantified the diversification benefit isn't quite right, and it leads the reader of their white paper to conclude that the drop-off in diversification benefit is sharper than it is in actuality: the benefits accrue in a near-linear fashion up to about a 25% or 30% international weight.
Thanks for this. It does look this VG is also sharper on the "ramp-up" as well. Here are two statements by VG.

This is from their Target Date Fund Construction PDF https://personal.vanguard.com/pdf/icrtdf.pdf:

"Our research has shown that allocations of 20% non-U.S. equities have provided about 85% of the maximum diversification benefit. Higher amounts such as 30% and 40% have provided more than 95% of this benefit."

In an earlier paper on international equities, they stated https://personal.vanguard.com/pdf/icriecr.pdf:

"Figure 4 shows that, on average, a 20% allocation of a domestic portfolio to non-U.S. equities has provided 70% of the maximum diversification benefit. An investor who allocated 30% to non-U.S. equities has averaged 90% of the maximum diversification benefit across all periods."

In the 2019 paper https://www.vanguard.com/pdf/ISGGEB.pdf, they did show a sharp drop off of benefits at 40%, at least with respect to increased volatility.

lostdog
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Re: For those concerned about International Stocks...

Post by lostdog » Tue Apr 21, 2020 4:50 pm

Flextruck wrote:
Tue Apr 21, 2020 11:16 am
I'll soon be out of International markets. Jack Bogle was on record speaking about simply investing in bonds and the domestic market. If it was good enough for Mr. Bogle, it's certainly good enough for me.

I believe in the American way, the American worker, the American technology, the American system and on and on. I'll soon be 70% VTSAX and 30% VBTLX and I will be better for it...I don't think International markets are a bad thing, I just don't think they're as good as the American markets.

:oops:
Global Market Cap Equity/1 Year Cash/Bonds || 25x Expenses

Bogey99
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Re: For those concerned about International Stocks...

Post by Bogey99 » Tue Apr 21, 2020 4:56 pm

bling wrote:
Tue Apr 21, 2020 4:36 pm
between 1998 and 2013, the difference in CAGR is 25% vs 17%.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

it's not just whether one performs better than the other each year, but by how much. US has absolutely destroyed international over the time period mentioned in the table.

i've held international at market weighting for my equity allocation since the beginning and it absolute sucks to see it decimated this past decade.
The data in your link actually only covers 2012 and 2013, since VXUS opened in Feb 2011.

Lake Living
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Re: For those concerned about International Stocks...

Post by Lake Living » Tue Apr 21, 2020 4:59 pm

bling wrote:
Tue Apr 21, 2020 4:36 pm
between 1998 and 2013, the difference in CAGR is 25% vs 17%.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

it's not just whether one performs better than the other each year, but by how much. US has absolutely destroyed international over the time period mentioned in the table.

i've held international at market weighting for my equity allocation since the beginning and it absolute sucks to see it decimated this past decade.

Thank-you for posting this. It was a real eye opener.

rj49
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Re: For those concerned about International Stocks...

Post by rj49 » Tue Apr 21, 2020 4:59 pm

When Bogle wrote, the US was on its way to a historic bubble, after another historic bubble had deflated in Japan, and most of what he wrote was before the economic rise of the BRIC countries (Brazil, Russia, Indian, China). His SP500 approach looked good in the 1990s, not so good the next decade. Do you buy only US-made goods from a local store, even though they're more expensive and choice limited? Or do you buy things on Amazon that are cheaper because they made and sold elsewhere? Much of what you buy in a grocery store is also owned by Uniliver and Nestle, including pet food, so 'the US is good enough for me' isn't a consistent argument, just blind home bias. You're saying that Tesla and GM are better companies than Toyota, and that Exxon oil is superior to BP and Shell and that Johnson&Johnson is better than Roche and Sanofi and Apple better than Samsung, and that you're willing to pay significantly more to own the 3500 companies TSM (17 p/e) and ignore the 7500 companies in TI (12.5 p/e).

Japanese investors probably thought "Japan is good enough for me" when their economy was dominating the world and they were buying up Pebble Beach and US properties everywhere, and many Japanese investors probably saw the US as lazy and backwards, like current fears and generalizations about other countries (anyway you're not investing in countries, you're investing in companies that make oil and semiconductors and food and medicine). The Japanese example should give you even more pause, since they've had decades of persistent deflation, compounded by an aging population and a younger generation with a less-dedicated work ethic. With oil shocks and mass unemployment and few people willing or able to spend money on anything now, it would seem quite possible that the US could repeat Japan's problems. To me, that's a foolish risk to take, since you're able to diversify into the rest of the world's companies at a ridiculously low expense (and with a generous dividend and tax credit bonus). It's definitely a scary time to invest anywhere, particularly in fragile EM economies, but then buying low and selling high with diversification is what investing's all about.

lostdog
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Re: For those concerned about International Stocks...

Post by lostdog » Tue Apr 21, 2020 5:00 pm

Hold VTWAX, a decent bond fund, some cash for emergencies and walk away.

I've seen Rick Ferri recommend VTWAX several times.

I don't even see US and international indexes as a separate asset class.

Most of the time the bickering between international and US is about personal ideologies and performance chasing.
Last edited by lostdog on Tue Apr 21, 2020 5:01 pm, edited 1 time in total.
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KSActuary
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Re: For those concerned about International Stocks...

Post by KSActuary » Tue Apr 21, 2020 5:01 pm

International stocks have underperformed since 2010. Why would you invest in an underperforming sector? At least you should under-weight it.

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Re: For those concerned about International Stocks...

Post by theorist » Tue Apr 21, 2020 5:06 pm

KSActuary wrote:
Tue Apr 21, 2020 5:01 pm
International stocks have underperformed since 2010. Why would you invest in an underperforming sector? At least you should under-weight it.
“Reversion to the mean”

Performance chasing avoidance is one of the key tenets of being a boglehead. Otherwise, why not choose an active mutual fund that did well three years in a row? Or an all Apple portfolio? Both beat the S&P 500, which is relatively underperforming.

lostdog
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Re: For those concerned about International Stocks...

Post by lostdog » Tue Apr 21, 2020 5:23 pm

rj49 wrote:
Tue Apr 21, 2020 4:59 pm
When Bogle wrote, the US was on its way to a historic bubble, after another historic bubble had deflated in Japan, and most of what he wrote was before the economic rise of the BRIC countries (Brazil, Russia, Indian, China). His SP500 approach looked good in the 1990s, not so good the next decade. Do you buy only US-made goods from a local store, even though they're more expensive and choice limited? Or do you buy things on Amazon that are cheaper because they made and sold elsewhere? Much of what you buy in a grocery store is also owned by Uniliver and Nestle, including pet food, so 'the US is good enough for me' isn't a consistent argument, just blind home bias. You're saying that Tesla and GM are better companies than Toyota, and that Exxon oil is superior to BP and Shell and that Johnson&Johnson is better than Roche and Sanofi and Apple better than Samsung, and that you're willing to pay significantly more to own the 3500 companies TSM (17 p/e) and ignore the 7500 companies in TI (12.5 p/e).

Japanese investors probably thought "Japan is good enough for me" when their economy was dominating the world and they were buying up Pebble Beach and US properties everywhere, and many Japanese investors probably saw the US as lazy and backwards, like current fears and generalizations about other countries (anyway you're not investing in countries, you're investing in companies that make oil and semiconductors and food and medicine). The Japanese example should give you even more pause, since they've had decades of persistent deflation, compounded by an aging population and a younger generation with a less-dedicated work ethic. With oil shocks and mass unemployment and few people willing or able to spend money on anything now, it would seem quite possible that the US could repeat Japan's problems. To me, that's a foolish risk to take, since you're able to diversify into the rest of the world's companies at a ridiculously low expense (and with a generous dividend and tax credit bonus). It's definitely a scary time to invest anywhere, particularly in fragile EM economies, but then buying low and selling high with diversification is what investing's all about.
:sharebeer
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Topic Author
simplesauce
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Re: For those concerned about International Stocks...

Post by simplesauce » Tue Apr 21, 2020 5:33 pm

rj49 wrote:
Tue Apr 21, 2020 4:59 pm
When Bogle wrote, the US was on its way to a historic bubble, after another historic bubble had deflated in Japan, and most of what he wrote was before the economic rise of the BRIC countries (Brazil, Russia, Indian, China). His SP500 approach looked good in the 1990s, not so good the next decade. Do you buy only US-made goods from a local store, even though they're more expensive and choice limited? Or do you buy things on Amazon that are cheaper because they made and sold elsewhere? Much of what you buy in a grocery store is also owned by Uniliver and Nestle, including pet food, so 'the US is good enough for me' isn't a consistent argument, just blind home bias. You're saying that Tesla and GM are better companies than Toyota, and that Exxon oil is superior to BP and Shell and that Johnson&Johnson is better than Roche and Sanofi and Apple better than Samsung, and that you're willing to pay significantly more to own the 3500 companies TSM (17 p/e) and ignore the 7500 companies in TI (12.5 p/e).

Japanese investors probably thought "Japan is good enough for me" when their economy was dominating the world and they were buying up Pebble Beach and US properties everywhere, and many Japanese investors probably saw the US as lazy and backwards, like current fears and generalizations about other countries (anyway you're not investing in countries, you're investing in companies that make oil and semiconductors and food and medicine). The Japanese example should give you even more pause, since they've had decades of persistent deflation, compounded by an aging population and a younger generation with a less-dedicated work ethic. With oil shocks and mass unemployment and few people willing or able to spend money on anything now, it would seem quite possible that the US could repeat Japan's problems. To me, that's a foolish risk to take, since you're able to diversify into the rest of the world's companies at a ridiculously low expense (and with a generous dividend and tax credit bonus). It's definitely a scary time to invest anywhere, particularly in fragile EM economies, but then buying low and selling high with diversification is what investing's all about.
Wow, what a post!

ValuationsMatter
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Re: For those concerned about International Stocks...

Post by ValuationsMatter » Tue Apr 21, 2020 5:54 pm

Spinola wrote:
Tue Apr 21, 2020 3:46 pm
and yet American companies aren't leveraged to the hilt?
Yes. I said banks, though, which make a financial collapse more brutal. Our banks are much better positioned/leveraged to deal with a crisis than European banks are.
Riding on a corporate debt bubble, on the verge of popping?
Maybe.
US stocks aren't over-valued?
Modestly, but in a much more reasonable range than before COVID.
Are we really just as well off as we were a few months back?
Not even close.
When I see how some countries have just rolled up their sleeves and effectively mitigated the worst of the COVID crisis and will be much more prepared to rebound and see what is happening in the USA, the incompetent manner in which the Federal government has "dealt" with the crisis, and the wide range of states efforts in the handling of it, ranging from very early measures and quarantine to just plain ignorance and well-wishing it away.. I don't see a very rosy picture for the US economy in the years to come.
I don't think any Western country, did a great job in response to COVID, aside from Germany. However, the stock market & the economy are more directly tied to our response than they are to the human cost of COVID. Imagine COVID killed 2% of the entire population, and most of it was elderly without any social distancing measures whatsoever, what effect would/should that have on stock prices? Perhaps somewhat less than the 2%, since the elderly are disproportionately affected?

So, if shutting everything down is the true cause of massive unemployment, which then necessitated stimulus spending & possibly a deflationary/inflationary spiral, perhaps we actually shouldn't have responded economically, at all. I think the faltering economy is going to cost a lot of lives and certainly livelihoods. It's pretty hard to weigh them against the directly measurable losses from the virus. That's a tough judgment call, and people are bound to be unhappy with our leaders, regardless of how they reacted.
Actions and inaction have consequences.
Time to take my 20-% international to closer to market weight.
Interesting. Valuations certainly suggest they are more likely to outperform, but it's been that way for a long time with disappointing results. I may join you when the threat of a financial disaster looms less imminently over the financial sectors across the world.

Rosencrantz1
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Re: For those concerned about International Stocks...

Post by Rosencrantz1 » Tue Apr 21, 2020 6:57 pm

theorist wrote:
Tue Apr 21, 2020 5:06 pm
KSActuary wrote:
Tue Apr 21, 2020 5:01 pm
International stocks have underperformed since 2010. Why would you invest in an underperforming sector? At least you should under-weight it.
“Reversion to the mean”

Performance chasing avoidance is one of the key tenets of being a boglehead. Otherwise, why not choose an active mutual fund that did well three years in a row? Or an all Apple portfolio? Both beat the S&P 500, which is relatively underperforming.
If Bogleheads is back to 'discussing' US vs exUS, then is the market coming back to 'normal' ? :D

I invest in equities specifically because of historical performance - it's why I put any dollars into the market at all. If one were to look at the last year, the last 5 years, the last 10 years, the last 20 years, the last 50 years - - in those time frames, I think US has outperformed exUS. Speaking for myself, I don't see much in the way of recency bias there.

I drive Toyotas and own Samsung equipment. I want to invest in international at market cap weight. I just don't know that I can justify it based on the short and long-term historical returns I've seen (and the reason I invest in equities in the first place).

To those that have stuck it out through thick and thin (a lot of thin recently) with international, I say 'more power to you!' Of course, it's possible international will blow away US over the next decade and, if it does, that should make up for a LOT of lost ground over the past decade...

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raven15
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Re: For those concerned about International Stocks...

Post by raven15 » Tue Apr 21, 2020 7:35 pm

Lake Living wrote:
Tue Apr 21, 2020 4:59 pm
bling wrote:
Tue Apr 21, 2020 4:36 pm
between 1998 and 2013, the difference in CAGR is 25% vs 17%.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

it's not just whether one performs better than the other each year, but by how much. US has absolutely destroyed international over the time period mentioned in the table.

i've held international at market weighting for my equity allocation since the beginning and it absolute sucks to see it decimated this past decade.

Thank-you for posting this. It was a real eye opener.
People, this test does not show that. Those funds did not exist for that period, actual returns were closer to 6% for both. Look at the investor class mutual fund versions for the actual returns:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
2013 marked the year in which US finally pulled ahead after decades of under-performance.
It's Time. Adding Interest.

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Re: For those concerned about International Stocks...

Post by theorist » Tue Apr 21, 2020 7:59 pm

Rosencrantz1 wrote:
Tue Apr 21, 2020 6:57 pm
theorist wrote:
Tue Apr 21, 2020 5:06 pm
KSActuary wrote:
Tue Apr 21, 2020 5:01 pm
International stocks have underperformed since 2010. Why would you invest in an underperforming sector? At least you should under-weight it.
“Reversion to the mean”

Performance chasing avoidance is one of the key tenets of being a boglehead. Otherwise, why not choose an active mutual fund that did well three years in a row? Or an all Apple portfolio? Both beat the S&P 500, which is relatively underperforming.
If Bogleheads is back to 'discussing' US vs exUS, then is the market coming back to 'normal' ? :D

I invest in equities specifically because of historical performance - it's why I put any dollars into the market at all. If one were to look at the last year, the last 5 years, the last 10 years, the last 20 years, the last 50 years - - in those time frames, I think US has outperformed exUS. Speaking for myself, I don't see much in the way of recency bias there.

I drive Toyotas and own Samsung equipment. I want to invest in international at market cap weight. I just don't know that I can justify it based on the short and long-term historical returns I've seen (and the reason I invest in equities in the first place).

To those that have stuck it out through thick and thin (a lot of thin recently) with international, I say 'more power to you!' Of course, it's possible international will blow away US over the next decade and, if it does, that should make up for a LOT of lost ground over the past decade...

I had the same thought about the return to the US vs int debate :-).

You raise a good point. I think there is a test that should be done. My null hypothesis would be that US and developed international perform the same over a market cycle, which we could take to be 10 years. Say we expect growth at the mean growth rate of both over history from 1926.

Now, you can bin history and try to test this null hypothesis. Can we reject that US and int perform the same at the given growth rate “in an ideal world,” and we are just seeing sampling noise from random history plus finite time?

I haven’t seen an analysis of this sort done, but it probably has been. If one cannot reject the null hypothesis with reasonable assumed distributions of returns around the mean, that would in some weak sense refute your argument.

Of course one might want to do this removing special events we think won’t occur again — like World War II. Or maybe not.

Anyway, food for thought. You might be right, and I’d like to see the results of an analysis roughly like the above :-).

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Re: For those concerned about International Stocks...

Post by dru808 » Tue Apr 21, 2020 8:03 pm

goonie wrote:
Tue Apr 21, 2020 4:35 pm
Flextruck wrote:
Tue Apr 21, 2020 11:16 am
I'll soon be out of International markets. Jack Bogle was on record speaking about simply investing in bonds and the domestic market. If it was good enough for Mr. Bogle, it's certainly good enough for me.

I believe in the American way, the American worker, the American technology, the American system and on and on. I'll soon be 70% VTSAX and 30% VBTLX and I will be better for it...I don't think International markets are a bad thing, I just don't think they're as good as the American markets.
Why didn't you come to this conclusion 10 years ago?
Lol. Good one
60% US equity | 25% International equity | 15% US Treasury bonds

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Re: For those concerned about International Stocks...

Post by dru808 » Tue Apr 21, 2020 8:10 pm

rj49 wrote:
Tue Apr 21, 2020 4:59 pm
When Bogle wrote, the US was on its way to a historic bubble, after another historic bubble had deflated in Japan, and most of what he wrote was before the economic rise of the BRIC countries (Brazil, Russia, Indian, China). His SP500 approach looked good in the 1990s, not so good the next decade. Do you buy only US-made goods from a local store, even though they're more expensive and choice limited? Or do you buy things on Amazon that are cheaper because they made and sold elsewhere? Much of what you buy in a grocery store is also owned by Uniliver and Nestle, including pet food, so 'the US is good enough for me' isn't a consistent argument, just blind home bias. You're saying that Tesla and GM are better companies than Toyota, and that Exxon oil is superior to BP and Shell and that Johnson&Johnson is better than Roche and Sanofi and Apple better than Samsung, and that you're willing to pay significantly more to own the 3500 companies TSM (17 p/e) and ignore the 7500 companies in TI (12.5 p/e).

Japanese investors probably thought "Japan is good enough for me" when their economy was dominating the world and they were buying up Pebble Beach and US properties everywhere, and many Japanese investors probably saw the US as lazy and backwards, like current fears and generalizations about other countries (anyway you're not investing in countries, you're investing in companies that make oil and semiconductors and food and medicine). The Japanese example should give you even more pause, since they've had decades of persistent deflation, compounded by an aging population and a younger generation with a less-dedicated work ethic. With oil shocks and mass unemployment and few people willing or able to spend money on anything now, it would seem quite possible that the US could repeat Japan's problems. To me, that's a foolish risk to take, since you're able to diversify into the rest of the world's companies at a ridiculously low expense (and with a generous dividend and tax credit bonus). It's definitely a scary time to invest anywhere, particularly in fragile EM economies, but then buying low and selling high with diversification is what investing's all about.

These are the kind of posts that make me want to sway toward world market cap weight. I’ve hesitated but I’m slowly getting there, 5%-20%-23%. Don’t know if I’ll go all the way. Great writing.
60% US equity | 25% International equity | 15% US Treasury bonds

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Re: For those concerned about International Stocks...

Post by bling » Tue Apr 21, 2020 8:11 pm

Lake Living wrote:
Tue Apr 21, 2020 4:59 pm
bling wrote:
Tue Apr 21, 2020 4:36 pm
...

Thank-you for posting this. It was a real eye opener.
there was an error in my original post. i've edited it and supplied a correct PV link.

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willthrill81
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Re: For those concerned about International Stocks...

Post by willthrill81 » Tue Apr 21, 2020 8:13 pm

MotoTrojan wrote:
Tue Apr 21, 2020 11:33 am
While I do believe in International stocks (have 30% allocation but always wonder if I should just jump to market weight, along with tilts to small/value...) you are playing games with the data to make you feel better about the past. International could win every other year, or win 9 out of 10, and still underperform dramatically. The amount of outperformance in each year is even more important than who wins the most years.
Bingo. The way the data are presented in the OP is terrible. It's as badly presented as Callan's periodic table of investment returns, which are inexplicably popular with some here. The fact that it came from a Boglehead's book is even worse.

For the record, since 2007, U.S. stocks returned 4.70% real while international returned -1.19%.
Last edited by willthrill81 on Tue Apr 21, 2020 8:15 pm, edited 1 time in total.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Gort
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Re: For those concerned about International Stocks...

Post by Gort » Tue Apr 21, 2020 8:13 pm

vineviz wrote:
Tue Apr 21, 2020 4:13 pm
vineviz wrote:
Tue Apr 21, 2020 3:33 pm
Gort wrote:
Tue Apr 21, 2020 3:12 pm
2. What does "with incremental additional benefit up to 50%" mean? Are the incremental benefits large, small, somewhere in between?
It means that diversification benefits continue to increase up to a 50/50 split, at least the way Vanguard is calculating it. Above 50% international the portfolio becomes less diversified for a US investor.
I feel like "large" and "small" is subjective, but perhaps this graph will give you some idea of how the benefits scale.

Image

The way Vanguard quantified the diversification benefit isn't quite right, and it leads the reader of their white paper to conclude that the drop-off in diversification benefit is sharper than it is in actuality: the benefits accrue in a near-linear fashion up to about a 25% or 30% international weight.
Very helpful. Thanks.

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Re: For those concerned about International Stocks...

Post by BV3273 » Tue Apr 21, 2020 8:14 pm

willthrill81 wrote:
Tue Apr 21, 2020 8:13 pm
MotoTrojan wrote:
Tue Apr 21, 2020 11:33 am
While I do believe in International stocks (have 30% allocation but always wonder if I should just jump to market weight, along with tilts to small/value...) you are playing games with the data to make you feel better about the past. International could win every other year, or win 9 out of 10, and still underperform dramatically. The amount of outperformance in each year is even more important than who wins the most years.
Bingo. The way the data are presented in the OP is terrible. The fact that it came from a Boglehead's book is even worse.

For the record, since 2007, U.S. stocks returned 4.70% real while international returned -1.19%.
Do you have any international in your AA?

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willthrill81
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Re: For those concerned about International Stocks...

Post by willthrill81 » Tue Apr 21, 2020 8:17 pm

BV3273 wrote:
Tue Apr 21, 2020 8:14 pm
willthrill81 wrote:
Tue Apr 21, 2020 8:13 pm
MotoTrojan wrote:
Tue Apr 21, 2020 11:33 am
While I do believe in International stocks (have 30% allocation but always wonder if I should just jump to market weight, along with tilts to small/value...) you are playing games with the data to make you feel better about the past. International could win every other year, or win 9 out of 10, and still underperform dramatically. The amount of outperformance in each year is even more important than who wins the most years.
Bingo. The way the data are presented in the OP is terrible. The fact that it came from a Boglehead's book is even worse.

For the record, since 2007, U.S. stocks returned 4.70% real while international returned -1.19%.
Do you have any international in your AA?
After the backlash I received in my trend following thread, I no longer discuss my investing strategy publicly on the forum. But if you read the OP in that thread, it should answer your question.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Rosencrantz1
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Re: For those concerned about International Stocks...

Post by Rosencrantz1 » Tue Apr 21, 2020 8:42 pm

theorist wrote:
Tue Apr 21, 2020 7:59 pm

I think there is a test that should be done. My null hypothesis would be that US and developed international perform the same over a market cycle, which we could take to be 10 years. Say we expect growth at the mean growth rate of both over history from 1926.
That's an interesting idea. I don't know if reliable data is available from 1926 forward - but, it might be. When you say 'growth' - just so that I understand - you're referring to GDP growth (historically) of US vs developed International ? Curious. What sorts of countries would be considered 'developed' (for the purposes of your null hypothesis - from 1926) ? :beer

Rosencrantz1
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Re: For those concerned about International Stocks...

Post by Rosencrantz1 » Tue Apr 21, 2020 9:04 pm

willthrill81 wrote:
Tue Apr 21, 2020 8:17 pm
BV3273 wrote:
Tue Apr 21, 2020 8:14 pm
willthrill81 wrote:
Tue Apr 21, 2020 8:13 pm
MotoTrojan wrote:
Tue Apr 21, 2020 11:33 am
While I do believe in International stocks (have 30% allocation but always wonder if I should just jump to market weight, along with tilts to small/value...) you are playing games with the data to make you feel better about the past. International could win every other year, or win 9 out of 10, and still underperform dramatically. The amount of outperformance in each year is even more important than who wins the most years.
Bingo. The way the data are presented in the OP is terrible. The fact that it came from a Boglehead's book is even worse.

For the record, since 2007, U.S. stocks returned 4.70% real while international returned -1.19%.
Do you have any international in your AA?
After the backlash I received in my trend following thread, I no longer discuss my investing strategy publicly on the forum. But if you read the OP in that thread, it should answer your question.
Thank you for that link. I read the OP with interest and I remain a bit 'bummed' over the backlash you've had to endure. Always enjoy reading your input. Not hard to see why you no longer publicly discuss your strategy. Best of luck to you.

KSActuary
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Re: For those concerned about International Stocks...

Post by KSActuary » Tue Apr 21, 2020 9:50 pm

So, I guess holding asset categories because their "cheap" or reversion to mean must be in some way satisfying other than their actual returns. I'll take the better returns offered by US equities.

theorist
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Re: For those concerned about International Stocks...

Post by theorist » Tue Apr 21, 2020 9:57 pm

Rosencrantz1 wrote:
Tue Apr 21, 2020 8:42 pm
theorist wrote:
Tue Apr 21, 2020 7:59 pm

I think there is a test that should be done. My null hypothesis would be that US and developed international perform the same over a market cycle, which we could take to be 10 years. Say we expect growth at the mean growth rate of both over history from 1926.
That's an interesting idea. I don't know if reliable data is available from 1926 forward - but, it might be. When you say 'growth' - just so that I understand - you're referring to GDP growth (historically) of US vs developed International ? Curious. What sorts of countries would be considered 'developed' (for the purposes of your null hypothesis - from 1926) ? :beer

Hmm. I really meant CAGR of imaginary index funds invested in suitable US and foreign equities. Perhaps using data from something like this

https://www.amazon.com/Triumph-Optimist ... oks&sr=1-1

or the Credit Suisse yearbooks, one could actually do such a thought experiment ranging pretty far back. Defining what one means by developed markets as a function of time, and what to do with e.g. world wars, would also require some thought. I have a day job rather distant from finance so I doubt I’ll do it, but it might be fun!

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Noobvestor
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Re: For those concerned about International Stocks...

Post by Noobvestor » Tue Apr 21, 2020 11:17 pm

KSActuary wrote:
Tue Apr 21, 2020 9:50 pm
So, I guess holding asset categories because their "cheap" or reversion to mean must be in some way satisfying other than their actual returns. I'll take the better returns offered by US equities.
Interesting. US TSM underperformed US small and value, international developed and emerging, etc... over the 2000s. Could you clarify the timeframe over which you believe US will offer superior returns? We know that it won't necessarily in any given decade. Jack said so himself:

viewtopic.php?t=104781

A lot of people think it will do better long-term. A lot of people also thought the same of the UK in the early 1900s. It's an endless back-and-forth between camps, and minds rarely change, but there is a lot of data to support international diversification, which one can accept or ignore.

viewtopic.php?f=10&t=305673
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

learntogrow
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Re: For those concerned about International Stocks...

Post by learntogrow » Tue Apr 21, 2020 11:27 pm

Crushtheturtle wrote:
Tue Apr 21, 2020 10:55 am
According to Jack Bogle, International outperforms 9 out of 16 years (56% of the time).

The implication is clear: Why hold U.S.?

:twisted:

I’ve been so torn to add VTIAX or not. I really want to be diversified as it seems smarter. But it’s hard not to just keep putting money into US stocks.

Also seeing Bogle himself say he would hold absolutely ZERO percent of international is scary.

JBTX
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Re: For those concerned about International Stocks...

Post by JBTX » Tue Apr 21, 2020 11:34 pm

I would prefer a healthy chunk of my investments in areas that underperformed recently but over the long term have performed comparably or better.
Last edited by JBTX on Wed Apr 22, 2020 1:53 am, edited 1 time in total.

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