For those concerned about International Stocks...

[visualguy]

I would a healthy chunk of my investments in areas that underperformed recently but over the long term has performed comparably or better.

Such as? What are some specific examples? Your criterion doesn't apply to ex-US indexing since it under-performed in the long run even when ignoring the recent under-performance. What areas does it apply to?

[Noobvestor]

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

I don't know if you read the thread I link above, but in case you didn't, here's Jack Bogle on international from Bogleheads 11: "If there's one place I don't want people to take my advice, it's international. I want you to think it through for yourself."

I was there. His answers to international were compellingly nuanced, humble, and not nearly as dogmatic as the retcons would have you believe.

[learntogrow]

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

I don't know if you read the thread I link above, but in case you didn't, here's Jack Bogle on international from Bogleheads 11: "If there's one place I don't want people to take my advice, it's international. I want you to think it through for yourself."

I was there. His answers to international were compellingly nuanced, humble, and not nearly as dogmatic as the retcons would have you believe.

I was referring to a recent (before he passed) sit-down interview he did that I watched not too long ago.

He was asked about international holdings and he pretty much flat out shut it down, with a quick “no” followed by “why would you?”

It seems smart to diversify for the unknown. I’m going to add a small allocation in time. Just scary when the namesake recommends against it is all ha!

[unclescrooge]

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

This is precisely the time to overweight it - because it is cheap on a relative and historical basis.

Check the performance of CXSE (China excluding state owned enterprises) versus SP500 for the past 5 years. The china fund did better by 2%+ per year.

Even this year, CXSE has handily outperformed US stocks. Max drawdown this year in March was 8% compared to 30%+ for SP500.

CXSE represents 1/3rd of my international holdings, the rest being 1/3rd in DM and 1/3 in EM index funds. These are just under half of my equity allocation.

[eye.surgeon]

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

Check the performance of CXSE (China excluding state owned enterprises) versus SP500 for the past 5 years. The china fund did better by 2%+ per year.

Even this year, CXSE has handily outperformed US stocks. Max drawdown this year in March was 8% compared to 30%+ for SP500.

I show CXSE at a high of 89 in Jan and a low of 70 in mid March, by my accounting that's a 19% drawdown. Feel free to check my math.

[Always passive]

Is there any data available on multi national companies based in the US? Their income comes from their exposure to multi countries. And if this is true, then one can make a case that if investing in these companies, it really does not make any difference where they are domiciled. As an example, I invest heavily in quality companies via QUAL. If you look at the composition of this ETF, you realize that most do business everywhere. Is there anything that I am missing?

[unclescrooge]

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

Check the performance of CXSE (China excluding state owned enterprises) versus SP500 for the past 5 years. The china fund did better by 2%+ per year.

Even this year, CXSE has handily outperformed US stocks. Max drawdown this year in March was 8% compared to 30%+ for SP500.

I show CXSE at a high of 89 in Jan and a low of 70 in mid March, by my accounting that's a 19% drawdown. Feel free to check my math.

I may have misspoken. I meant YTD in mid March. It's hard to fact check on a phone.

[JBTX]

I would a healthy chunk of my investments in areas that underperformed recently but over the long term has performed comparably or better.

Such as? What are some specific examples? Your criterion doesn't apply to ex-US indexing since it under-performed in the long run even when ignoring the recent under-performance. What areas does it apply to?

It depends upon the time period. But if you want to front run with all the hot shots, by all means have at it. While you are at it, just put all your money in FANG. Why bother with the rest of the trash, right?

[visualguy]

I would a healthy chunk of my investments in areas that underperformed recently but over the long term has performed comparably or better.

Such as? What are some specific examples? Your criterion doesn't apply to ex-US indexing since it under-performed in the long run even when ignoring the recent under-performance. What areas does it apply to?

It depends upon the time period. But if you want to front run with all the hot shots, by all means have at it. While you are at it, just put all your money in FANG. Why bother with the rest of the trash, right?

I still don't understand what you are proposing. You said investments "in areas that underperformed recently but over the long term has performed comparably or better". Sounds good, but what are those areas? Are you talking about specific foreign stock markets, or sectors in those markets? Your criterion doesn't apply to ex-US indexing because it under-performed in the long run even when ignoring its recent severe under-performance of the last decade.

[Noobvestor]

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

I don't know if you read the thread I link above, but in case you didn't, here's Jack Bogle on international from Bogleheads 11: "If there's one place I don't want people to take my advice, it's international. I want you to think it through for yourself." I was there. His answers to international were compellingly nuanced, humble, and not nearly as dogmatic as the retcons would have you believe.

I was referring to a recent (before he passed) sit-down interview he did that I watched not too long ago. He was asked about international holdings and he pretty much flat out shut it down, with a quick “no” followed by “why would you?” It seems smart to diversify for the unknown. I’m going to add a small allocation in time. Just scary when the namesake recommends against it is all ha!

I don't know what to tell you. He lived through an amazing period of US exceptionalism. He said many things about US and ex-US investing, including various acknowledgments that he didn't know what would work going forward. He did amazing things, like spearheading a movement toward total-market indexing. Taken to its logical conclusion, that should mean starting with global markets. Maybe he would have come around to that point of view eventually, or maybe he really did think the US was a free lunch - more return, less risk. I have to say, though, that this seems inconsistent with his overall philosophy of owning the market - I wonder if his view would have evolved. Regardless, if you want to make lifelong decisions based on a single interview instead of decades of research into the benefits of international diversification, that's your choice.

[rab]

One factor that I haven't seen mentioned here is a possible Coronavirus effect. If Country A had an effective Coronavirus response and was able to quickly and sustainably restart its economy, it might be expected to show better equity returns than to Country B that had a poor response and had to wait longer to restart its economy or had to re-initiate lockdowns after a resurgence of the virus. This might lead one to re-consider the importance of equity portfolio diversification over multiple countries.

[cjking]

Here's an analogy for US vs rest-of-the-world.

- Two stocks, A and B, that (for simplicity of figures) pay out all their earnings as dividends.
- Twenty years ago their prices were $100 each, earnings $5 each.
- Investors for whatever reason prefer stock A, so today A is $200, B is still $100. Both still earning $5.
- Most investors, the only thing they look at is past performance, clearly stock A has a much higher CAGR, it has completely destroyed B, why would you own B?
- Although they may not admit it, they expect stock A's out-perfomance to continue. Well, if the trends of the past 20 years are replicated into the future, in 20 years time stock A will be $400, B will still be $100, both will still be be earning $5.
- But there are some investors who think that the trend of A decreasing in yield relative to B cannot continue forever. In fact, since it seems rather irrational, they consider it more likely that A and B will be the same price as each other in 20 years time, than that A will have out-paced B by the same amount again. Consider three scenarios:-
(1) A out-paces B in speculative return to the same extent as in the past.
"A" total returns = 2.5% earnings+3.5% speculative= 6.0%
"B" total returns 5.0%
(2) A and B speculative return both zero.
"A" total returns 2.5%,
"B" total returns 5.0%
(3) B and A converge to the same price, say $150.
"A" total returns = 2.5% earnings - 1.4% speculative = 1.1%
"B" total returns= 5.0% earnings + 2.0% speculative = 7.0%

(Not sure I've done the return calculations right, but I think they're close enough.)

(Note that the future out-performance of A in scenario 1 is less than it's past out-performance, as the scenario implies the same level of speculative out-performance, but only half the starting earnings yield. Past performance calculated in the same way was 8.5% for A vs 5.0% for B.)

Of course there are other possible scenarios. Maybe A will grow earnings more than B over the next twenty years. But since that hasn't been the explanation for its superiority over the past 20 years, I don't know why we'd want to bring that idea into the discussion.

I believe this analogy describes what has happened with US vs non-US stocks. The superior past CAGR of US stocks has been almost entirely due to higher speculative return, almost none of it has been due to better earnings. In 2018 I showed this to be true of US vs UK shares over a 20 year period. I did a comparison with UK because that was the only other stock-market I had long-term PE data for. If anyone has a couple of decades of P/E data for the whole of world-ex-US, feel free to prove me wrong.

A quick google has just brought me to this 2019 blog post be Mebane Faber. One of the graphs shows the extra speculative return of US equities, versus rest-of-the-world, in recent decades. (Actually, since 2008.)

https://mebfaber.com/2019/01/25/the-big ... -40-years/

[dkturner]

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?

Not really.

(1) The quoted returns are for indices, which have no expenses. In the real world one has to settle for mutual funds or exchange traded funds - where international investments have much higher expense ratios than domestic investments.

(2) If you hold equities in your taxable account (the generally accepted concept around here) there are taxes to be paid due to rebalancing. Those taxes further reduce your returns from holding international investments. No international investments no need to rebalance international vs. domestic equities. Without rebalancing you get considerably lower returns - and greater volatility.

(3) any international equities held in tax deferred accounts have their returns reduced by withheld foreign taxes on their periodic dividend payments.

[theorist]

Here's an analogy for US vs rest-of-the-world.

- Two stocks, A and B, that (for simplicity of figures) pay out all their earnings as dividends.
- Twenty years ago their prices were $100 each, earnings $5 each.
- Investors for whatever reason prefer stock A, so today A is $200, B is still $100. Both still earning $5.
- Most investors, the only thing they look at is past performance, clearly stock A has a much higher CAGR, it has completely destroyed B, why would you own B?
- Although they may not admit it, they expect stock A's out-perfomance to continue. Well, if the trends of the past 20 years are replicated into the future, in 20 years time stock A will be $400, B will still be $100, both will still be be earning $5.
- But there are some investors who think that the trend of A decreasing in yield relative to B cannot continue forever. In fact, since it seems rather irrational, they consider it more likely that A and B will be the same price as each other in 20 years time, than that A will have out-paced B by the same amount again. Consider three scenarios:-
(1) A out-paces B in speculative return to the same extent as in the past.
"A" total returns = 2.5% earnings+3.5% speculative= 6.0%
"B" total returns 5.0%
(2) A and B speculative return both zero.
"A" total returns 2.5%,
"B" total returns 5.0%
(3) B and A converge to the same price, say $150.
"A" total returns = 2.5% earnings - 1.4% speculative = 1.1%
"B" total returns= 5.0% earnings + 2.0% speculative = 7.0%

(Not sure I've done the return calculations right, but I think they're close enough.)

(Note that the future out-performance of A in scenario 1 is less than it's past out-performance, as the scenario implies the same level of speculative return, but only half the starting earnings yield. Past performance calculated in the same way was 8.5% for A vs 5.0% for B.)

Of course there are other possible scenarios. Maybe A will grow earnings more than B over the next twenty years. But since that hasn't been the explanation for its superiority over the past 20 years, I don't know why we'd want to bring that idea into the discussion.

I believe this analogy describes what has happened with US vs non-US stocks. The superior past CAGR of US stocks has been almost entirely due to higher speculative return, almost none of it has been due to better earnings. In 2018 I showed this to be true of US vs UK shares over a 20 year period. I did a comparison with UK because that was the only other stock-market I had long-term PE data for. If anyone has a couple of decades of P/E data for the whole of world-ex-US, feel free to prove me wrong.

A quick google has just brought me to this 2019 blog post be Mebane Faber. One of the graphs shows the extra speculative return of US equities, versus rest-of-the-world, in recent decades. (Actually, since 2008.)

https://mebfaber.com/2019/01/25/the-big ... -40-years/

Thanks for the Faber link! It is great. The Australians with 66.5% of holdings concentrated in a tiny economy is striking. No doubt their market has done well in recent history or we wouldn’t see that...it would be like me only investing in California! (That would be slightly less biased actually...)

[TomatoTomahto]

I don't know what to tell you. He lived through an amazing period of US exceptionalism. He said many things about US and ex-US investing, including various acknowledgments that he didn't know what would work going forward. He did amazing things, like spearheading a movement toward total-market indexing. Taken to its logical conclusion, that should mean starting with global markets. Maybe he would have come around to that point of view eventually, or maybe he really did think the US was a free lunch - more return, less risk. I have to say, though, that this seems inconsistent with his overall philosophy of owning the market - I wonder if his view would have evolved. Regardless, if you want to make lifelong decisions based on a single interview instead of decades of research into the benefits of international diversification, that's your choice.

Jeez noob, you’re making so much sense that we might have to start a petition to have you change your username

Bogle was a wonderful man and the best friend a retail investor ever had. He was not a God.

[lostdog]

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.

Are you going to bail on the US index when it starts to underperform the international index? You'll sell low and buy high...

[KSActuary]

Why would I do that? I look at which parts of the world economy are doing better and why. I also look at momentum over varying periods of time. Since 2010, SPY CAGR 10.73%, EFA CAGR 2.63% and EEM CAGR 0.12%. What else do you need to know? Emerging markets just had their lost decade with non-US developed not too far behind. I know everything but the US is "cheap" now but until it shows some green shoots, I will severely underweight.

[deltaneutral83]

It's good to see this topic come up since I don't think we discuss it enough on BH . One thing I'll say that helped me is that putting 20-25% of your equities in a Tot Intl will give you a large portion of the potential benefits that are proclaimed from the experts (smoothing out returns/volatility and diversification no matter how incremental some think it is) with the flip side being that it's only 20-25% and you don't need anywhere close to market cap to get the overwhelming majority of the goodies. That certainly hasn't been the case the past 10 years but it's a lifelong commitment so early investors need to make that decision now and stay the course. I think between 20%-25% of equities is the point of maximum ambivalence for most (this obviously excludes the "US only" and "cap weight only" contrarian/purists) as well because you get a piece of both camps. Sort of like compromising between the head and the heart.

[TheOscarGuy]

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:

What happened from 1998 to 2013 is bound to repeat?
I hold International as well. But I do not follow your logic, this is a pretty small timeframe to use an argument that International will always outperform domestic. No one knows, so decide on AA and stick to it.

[UpperNwGuy]

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.

This is why I hate seeing the Callan Periodic Table so often here. It's not who wins which years, or how many years they win. It's about sustained performance over long periods of time.

[willthrill81]

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.

This is why I hate seeing the Callan Periodic Table so often here. It's not who wins which years, or how many years they win. It's about sustained performance over long periods of time.

Reducing the amount of information in such a drastic fashion as done in the Callan table is very often highly misleading.

[abuss368]

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:

While I appreciate the page and enjoy (and learned much from the book), the graph does have limitations. While the table shows the overall "winner" between US v. International, it does not provide by how much. That can make a difference and supports why since 1994 or so the cumulative return for international (as of a few years ago) was 280% while the S&P 500 was over 700%.

No one know what the future may bring.

[JBTX]

I would a healthy chunk of my investments in areas that underperformed recently but over the long term has performed comparably or better.

Such as? What are some specific examples? Your criterion doesn't apply to ex-US indexing since it under-performed in the long run even when ignoring the recent under-performance. What areas does it apply to?

It depends upon the time period. But if you want to front run with all the hot shots, by all means have at it. While you are at it, just put all your money in FANG. Why bother with the rest of the trash, right?

I still don't understand what you are proposing. You said investments "in areas that underperformed recently but over the long term has performed comparably or better". Sounds good, but what are those areas? Are you talking about specific foreign stock markets, or sectors in those markets? Your criterion doesn't apply to ex-US indexing because it under-performed in the long run even when ignoring its recent severe under-performance of the last decade.

This (first thing I saw Googled) gives a pretty good summary. But these are not new arguments.

https://www.fidelity.com/viewpoints/inv ... ting-myths

- Go down a ways and you look at 1950-2019 and yes US has performed better, but a 70/30 weighting is just as good as US with lower standard deviation and better Sharpe ratio.

- if you take out last 10 years the international performs comparably.

https://twitter.com/mebfaber/status/109 ... 53184?s=21

- even if you accept the US has edged out international, the word "comparably" does not mean exactly the same

- if you believe in long term mean reversion, international should do comparatively better in the future, all else equal. This could be true even if US has edge on long term performance.

- at the beginning of the year, cape 10s were dramatically lower for international markets, almost half of the US

https://siblisresearch.com/data/cape-ratios-by-country/

Market cap to GDP is much lower in other countries

https://siblisresearch.com/data/market- ... dp-ratios/


You can argue about what those imply for future returns, but I think it is obvious that international markets are at a different place than the US, which for diversification purposes is a good thing.

I make no predictions about the future. But I want a healthy share of items that have underperformed but long term have performed comparably. That includes healthy share of international, small cap value and emerging markets.

If the US outperforms, chances are as a resident I will benefit from that. Plus a majority of my stocks are still in US. If the US goes the Japan route, I'd hate to have all my eggs in one basket. Imagine a Japanese investor before the nikkei crash decades ago. I'm sure they made the exact same arguments as many make here on a daily basis. But that could never happen here, right?!! if you want to stick with the Oingo-Boingo-nothing-bad-ever-happens-to-me philosophy of home bias investing, be my guest

[Irenaeus]

I would a healthy chunk of my investments in areas that underperformed recently but over the long term has performed comparably or better.

Such as? What are some specific examples? Your criterion doesn't apply to ex-US indexing since it under-performed in the long run even when ignoring the recent under-performance. What areas does it apply to?

It depends upon the time period. But if you want to front run with all the hot shots, by all means have at it. While you are at it, just put all your money in FANG. Why bother with the rest of the trash, right?

I still don't understand what you are proposing. You said investments "in areas that underperformed recently but over the long term has performed comparably or better". Sounds good, but what are those areas? Are you talking about specific foreign stock markets, or sectors in those markets? Your criterion doesn't apply to ex-US indexing because it under-performed in the long run even when ignoring its recent severe under-performance of the last decade.

This (first thing I saw Googled) gives a pretty good summary. But these are not new arguments.

https://www.fidelity.com/viewpoints/inv ... ting-myths

- Go down a ways and you look at 1950-2019 and yes US has performed better, but a 70/30 weighting is just as good as US with lower standard deviation and better Sharpe ratio.

- if you take out last 10 years the international performs comparably.

https://twitter.com/mebfaber/status/109 ... 53184?s=21

- even if you accept the US has edged out international, the word "comparably" does not mean exactly the same

- if you believe in long term mean reversion, international should do comparatively better in the future, all else equal. This could be true even if US has edge on long term performance.

- at the beginning of the year, cape 10s were dramatically lower for international markets, almost half of the US

https://siblisresearch.com/data/cape-ratios-by-country/

Market cap to GDP is much lower in other countries

https://siblisresearch.com/data/market- ... dp-ratios/


You can argue about what those imply for future returns, but I think it is obvious that international markets are at a different place than the US, which for diversification purposes is a good thing.

I make no predictions about the future. But I want a healthy share of items that have underperformed but long term have performed comparably. That includes healthy share of international, small cap value and emerging markets.

If the US outperforms, chances are as a resident I will benefit from that. Plus a majority of my stocks are still in US. If the US goes the Japan route, I'd hate to have all my eggs in one basket. Imagine a Japanese investor before the nikkei crash decades ago. I'm sure they made the exact same arguments as many make here on a daily basis. But that could never happen here, right?!! if you want to stick with the Oingo-Boingo-nothing-bad-ever-happens-to-me philosophy of home bias investing, be my guest

Good comments and +1 for the reference to (the Mystics Knights of) Oingo Boingo.

[Rosencrantz1]

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:

While I appreciate the page and enjoy (and learned much from the book), the graph does have limitations. While the graph shows the overall "winner" between US v. International, it does not provide by how much. That can make a difference and supports why since 1994 or so the cumulative return for international (as of a few years ago) was 280% while the S&P 500 was over 700%.

No one know what the future may bring.

I think the OP is presenting data in a 'table' format - not a graph. Are you thinking of a graph with a typical x, y coordinate system?

[abuss368]

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:

While I appreciate the page and enjoy (and learned much from the book), the graph does have limitations. While the graph shows the overall "winner" between US v. International, it does not provide by how much. That can make a difference and supports why since 1994 or so the cumulative return for international (as of a few years ago) was 280% while the S&P 500 was over 700%.

No one know what the future may bring.

I think the OP is presenting data in a 'table' format - not a graph. Are you thinking of a graph with a typical x, y coordinate system?

Thanks! I wanted to state "table" and have edited my earlier post.

[jwa]

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

So should one make investment decisions looking in the rear view mirror?

[KSActuary]

Passive buy & hold - probably not but I am a more active investor and I overweight/underweight sectors

[Robot Monster]

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

I don't know if you read the thread I link above, but in case you didn't, here's Jack Bogle on international from Bogleheads 11: "If there's one place I don't want people to take my advice, it's international. I want you to think it through for yourself."

I was there. His answers to international were compellingly nuanced, humble, and not nearly as dogmatic as the retcons would have you believe.

I was referring to a recent (before he passed) sit-down interview he did that I watched not too long ago.

He was asked about international holdings and he pretty much flat out shut it down, with a quick “no” followed by “why would you?”

It seems smart to diversify for the unknown. I’m going to add a small allocation in time. Just scary when the namesake recommends against it is all ha!

Of possible interest:

Bogle said himself at the summer event, “I do think investors can make a legitimate choice; if they want to do non-U.S., they should do it.” He added that if an investor is determined to go overseas, he would recommend no more than a 20 percent allocation...Bogle said recently that if he were to invest internationally, it would be in emerging markets, but not more than 5 percent.

Source: https://www.cnbc.com/2017/10/17/vanguar ... -bias.html

[Mrxyz]

I love it when all of smart people like you discuss, argue and dissect stuff like this topic (no offense .. just admiration!).
I can even understand some of it!
So, what is the conclusion?
I have around 23% International in my current AA and its probably okay. However, I am 5-10 years from retirement, and wonder if I need to get rid of international and buy bonds/CD/fixed income to make a 'bond tent' of sorts.

Thanks for all you do!

[willthrill81]

I love it when all of smart people like you discuss, argue and dissect stuff like this topic (no offense .. just admiration!).
I can even understand some of it!
So, what is the conclusion?

In terms of a consensus conclusion, there isn't one and likely will never be.

Whatever you do, it's important that you don't become a performance chaser like most investors appear to be. I would strongly advise you to review the arguments presented here as well as those in many other threads (this topic comes up regularly), come to your own conclusions, and then stick with it.

[abuss368]

I love it when all of smart people like you discuss, argue and dissect stuff like this topic (no offense .. just admiration!).
I can even understand some of it!
So, what is the conclusion?
I have around 23% International in my current AA and its probably okay. However, I am 5-10 years from retirement, and wonder if I need to get rid of international and buy bonds/CD/fixed income to make a 'bond tent' of sorts.

Thanks for all you do!

This may be more of a question of overall asset allocation and no so much international specifically.

Is there a possibility that you should consider more bonds?

[Taylor Larimore]

Bogleheads:

You can read my thoughts about international stocks here:

How Much International Stocks? A Suggestion.

Best wishes
Taylor

Jack Bogle's Words of Wisdom: "Holdings of non-U.S. stocks should be limited to no more than 20% of equities."

[GaryA505]

I've considered investing in international equity, but always found myself wondering how many years of under-performance I would have to suffer in order to some day maybe get some out-performance.

I know, "recency bias" and all that yada, yada, yada. I figure it's kinda like going to the casino. If I play long enough (and lose enough money) I'll eventually win some of my losses back.

[whereskyle]

I love it when all of smart people like you discuss, argue and dissect stuff like this topic (no offense .. just admiration!).
I can even understand some of it!
So, what is the conclusion?
I have around 23% International in my current AA and its probably okay. However, I am 5-10 years from retirement, and wonder if I need to get rid of international and buy bonds/CD/fixed income to make a 'bond tent' of sorts.

Thanks for all you do!

I would keep 20% for retirement. There is about a half-century of evidence that holding some international stocks in retirement reduces Sequence of Returns Risk. That is, a global portfolio is more often than not less volatile than a US-only portfolio and reduces the risk that you will excessively deplete your portfolio because its holdings have a series of bad years. Considering the recent large gains in US equities (assuming you're invested in total market funds) I might take more off my US holdings to build a fixed income position than I would off my ex-US holdings.

Best of luck with the transition to retirement!

[abuss368]

I've considered investing in international equity, but always found myself wondering how many years of under-performance I would have to suffer in order to some day maybe get some out-performance.

I know, "recency bias" and all that yada, yada, yada. I figure it's kinda like going to the casino. If I play long enough (and lose enough money) I'll eventually win some of my losses back.

I was always interested in just the same performance over the long term as US! I can pass on out performance!

[visualguy]

The concern I always have when looking at the ex-US index is that I find that it damages my trust in the Bogleheads strategy. Here's a very large and diversified index where holding it passively for decades has simply not been a good strategy. A nominal CAGR of less than 4% for the last 30 years is awful, especially when considering the volatility.

I ignore the under-performance relative to the US, and just look at the absolute performance. It just shakes my confidence in expecting necessarily decent returns for the risk if I stick to the strategy for decades.

[Robot Monster]

The concern I always have when looking at the ex-US index is that I find that it damages my trust in the Bogleheads strategy. Here's a very large and diversified index where holding it passively for decades has simply not been a good strategy. A nominal CAGR of less than 4% for the last 30 years is awful, especially when considering the volatility.

I ignore the under-performance relative to the US, and just look at the absolute performance. It just shakes my confidence in expecting necessarily decent returns for the risk if I stick to the strategy for decades.

Instead of Total International, you could do an international portfolio of Australia/Canada/Switzerland, which has, from Jan 1997 - Aug 2020, a CAGR of 7.67%.

Alternatively, you could go with Vanguard International Growth Fund, which, between Jan 2002 - Aug 2020, had a CAGR of 9.48%.

Sadly, both these option come with higher expense fees. I suppose you could go with the cheap Franklin Templeton single country etfs, but they're so small, they're at risk of being shuttered.

[rockstar]

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.

This followed the tech bubble and Buffet's article about how overvalued US equities were at the time. We also saw production grow in Asia during this time as well.

I think, we need a catalyst for international to outperform the US given that the strong growing tech companies are almost exclusively in the US. You have a few in China, but our relationship with China is strained at the moment. I'm not sure how that's going to impact performance.

[visualguy]

The concern I always have when looking at the ex-US index is that I find that it damages my trust in the Bogleheads strategy. Here's a very large and diversified index where holding it passively for decades has simply not been a good strategy. A nominal CAGR of less than 4% for the last 30 years is awful, especially when considering the volatility.

I ignore the under-performance relative to the US, and just look at the absolute performance. It just shakes my confidence in expecting necessarily decent returns for the risk if I stick to the strategy for decades.

Instead of Total International, you could do an international portfolio of Australia/Canada/Switzerland, which has, from Jan 1997 - Aug 2020, a CAGR of 7.67%.

Alternatively, you could go with Vanguard International Growth Fund, which, between Jan 2002 - Aug 2020, had a CAGR of 9.48%.

Sadly, both these option come with higher expense fees. I suppose you could go with the cheap Franklin Templeton single country etfs, but they're so small, they're at risk of being shuttered.

I agree. There have been subsets of international that did well, but the easy, cheap, and straightforward approach of indexing total international hasn't delivered. Vanguard International Growth is a little strange because the US companies Tesla and Amazon are among its top ten holdings...

[Iridium]

I believe in the American way, the American worker, the American technology, the American system and on and on.

I believe in all those things as well. However, the US market cap is increasingly getting unbalanced into either what I call the 'apps & sites' industry or is a technology platform play, and I really don't like either as a source of enduring competitive advantage.

First off, Apps&Sites are incredibly unstable: who is to say Amazon won't go the way of eBay, Google the way of Alta Vista, and Facebook the way of Tumblr/WhatsApp the way of Skype (those are Total Stock Market's 3rd, 4th, and 5th biggest holdings)? By their very nature, Apps&Sites tend to have low switching costs and low cost of entry for competitors, so their value derives almost entirely from network effects and/or consumer habit. Which means that 1) companies will constantly spring up to challenge the dominant incumbent, and 2) if any happen to get traction, the incumbent will rapidly blow up in a spectacular fashion.

Second, top US Total Stock Market holdings business cases tend to focus on making a platform play, then using the network effects to get a near-monopoly position while extracting most of the value created on the platform. Just because nobody has figured out a good way to attack a platform so far, shouldn't be taken as proof that counter-measures won't eventually be developed (my belief is that open source and interoperability standards appear to be at least partially successful if deployed early enough or when the platform attacked is stagnant enough).

Right now Total Stock Market's top 5 holdings are:

1. Apple - Partial platform play
2. Microsoft - Partial platform play
3. Amazon - Platform play
4. Alphabet - Apps&Sites industry. Partial platform play.
5. Facebook - Apps&Sites industry. Platform play.

It isn't until you get down to Johnson&Johnson at #6 that you get to a company that entirely creates its own value, rather than being at least partially dependent on network effects.

In contrast, all of Total International's top holdings outside the top 2 are not dependant on network effects.

I believe in American work and innovation. However, that is increasingly not getting reflected in Total Stock Market. Instead, the fact that a single type of business model has become very much in fashion, appears to be driving much of the US' outperformance and is increasingly what you but into when you buy domestic equities.

[March2009]

The world tech monopolies (Apple, Amazon, Microsoft, Google, Facebook, etc.) are in the S&P500. That is the reason why the S&P500 is tech heavy compared to an international index and why it has beaten International the past 10 plus years. I'm heavy on American and Tech companies but I'm keeping my international exposure as well as exposure to other sectors (non-tech). There is a massive amount of development in AI outside of the US and I don't think we can assume the US will automatically dominate it.

[rockstar]

The world tech monopolies (Apple, Amazon, Microsoft, Google, Facebook, etc.) are in the S&P500. That is the reason why the S&P500 is tech heavy compared to an international index and why it has beaten International the past 10 plus years. I'm heavy on American and Tech companies but I'm keeping my international exposure as well as exposure to other sectors (non-tech). There is a massive amount of development in AI outside of the US and I don't think we can assume the US will automatically dominate it.

The AI development outside the US is tied to Google. Deep Mind in the UK is apart of Google. The tech you use for AI is either NVIDIA or Google. When I build my neural networks I'm using either NVIDIA tech or Google tech. They pretty much own the space right now.

[March2009]

I believe in the American way, the American worker, the American technology, the American system and on and on.

I believe in all those things as well. However, the US market cap is increasingly getting unbalanced into either what I call the 'apps & sites' industry or is a technology platform play, and I really don't like either as a source of enduring competitive advantage.

First off, Apps&Sites are incredibly unstable: who is to say Amazon won't go the way of eBay, Google the way of Alta Vista, and Facebook the way of Tumblr/WhatsApp the way of Skype (those are Total Stock Market's 3rd, 4th, and 5th biggest holdings)? By their very nature, Apps&Sites tend to have low switching costs and low cost of entry for competitors, so their value derives almost entirely from network effects and/or consumer habit. Which means that 1) companies will constantly spring up to challenge the dominant incumbent, and 2) if any happen to get traction, the incumbent will rapidly blow up in a spectacular fashion.

Second, top US Total Stock Market holdings business cases tend to focus on making a platform play, then using the network effects to get a near-monopoly position while extracting most of the value created on the platform. Just because nobody has figured out a good way to attack a platform so far, shouldn't be taken as proof that counter-measures won't eventually be developed (my belief is that open source and interoperability standards appear to be at least partially successful if deployed early enough or when the platform attacked is stagnant enough).

Right now Total Stock Market's top 5 holdings are:

1. Apple - Partial platform play
2. Microsoft - Partial platform play
3. Amazon - Platform play
4. Alphabet - Apps&Sites industry. Partial platform play.
5. Facebook - Apps&Sites industry. Platform play.

It isn't until you get down to Johnson&Johnson at #6 that you get to a company that entirely creates its own value, rather than being at least partially dependent on network effects.

In contrast, all of Total International's top holdings outside the top 2 are not dependant on network effects.

I believe in American work and innovation. However, that is increasingly not getting reflected in Total Stock Market. Instead, the fact that a single type of business model has become very much in fashion, appears to be driving much of the US' outperformance and is increasingly what you but into when you buy domestic equities.

I agree. I read your post after submitting mine. Seems we are on the same wavelength.

[March2009]

The world tech monopolies (Apple, Amazon, Microsoft, Google, Facebook, etc.) are in the S&P500. That is the reason why the S&P500 is tech heavy compared to an international index and why it has beaten International the past 10 plus years. I'm heavy on American and Tech companies but I'm keeping my international exposure as well as exposure to other sectors (non-tech). There is a massive amount of development in AI outside of the US and I don't think we can assume the US will automatically dominate it.

The AI development outside the US is tied to Google. Deep Mind in the UK is apart of Google. The tech you use for AI is either NVIDIA or Google. When I build my neural networks I'm using either NVIDIA tech or Google tech. They pretty much own the space right now.

Thanks for sharing that. Since I'm not satisfied with any of the current AI/Robotics index ETFs, I have built my own AI Index portfolio and Google and NVIDIA are in my top 4 holdings. It is good to see my homemade index has these companies in it.

[AerialWombat]

100 years from now, Bogleheads will be debating allocation between Earth and off-Earth companies. And should companies on Callisto even be included in a Planetary Index, since it’s a moon?

This debate will never end, just the players will change.

[columbia]

Some dogs don't hunt.

[UpperNwGuy]

The concern I always have when looking at the ex-US index is that I find that it damages my trust in the Bogleheads strategy. Here's a very large and diversified index where holding it passively for decades has simply not been a good strategy. A nominal CAGR of less than 4% for the last 30 years is awful, especially when considering the volatility.

I ignore the under-performance relative to the US, and just look at the absolute performance. It just shakes my confidence in expecting necessarily decent returns for the risk if I stick to the strategy for decades.

A lot of us share your concern. No amount of Callan periodic tables can overcome a simple CAGR comparison.

[zeal]

Holding to a quote that is often repeated on this forum: "Past performance is not helpful in judging future performance.”
— John C. Bogle

While the table is reassuring, whether or not you choose to hold international stocks should have less to do with their historical performance and more to do with your faith in the non-US companies of the world. In your lifetime, will the US stock market consistently outperform all others? I don't know, maybe it will.

I'm putting 20% of my eggs in other baskets though. If something happens to my favorite basket, my family will still get to eat.

[ChrisBenn]

I love it when all of smart people like you discuss, argue and dissect stuff like this topic (no offense .. just admiration!).
I can even understand some of it!
So, what is the conclusion?

In terms of a consensus conclusion, there isn't one and likely will never be.

Whatever you do, it's important that you don't become a performance chaser like most investors appear to be. I would strongly advise you to review the arguments presented here as well as those in many other threads (this topic comes up regularly), come to your own conclusions, and then stick with it.

The consensus of US investors is approx 70 domestic / 30 international (73/27 as of ~May)

ref:
viewtopic.php?p=3946197#p3946197

It has changed since that post, from 68/32 in 2018 to 73/27 currently.
- same methodology in the post, but crspr total market cap link updated to: http://www.crsp.org/files/crsptm1_quart ... ne2020.pdf

To me holding the average that US investors in aggregate hold seems to make the most sense (let the market figure out home bias, foreign market regulation, etc).

Granted the info on *what* their international allocation is is still unknown (I would hold that if I could), but I prefer this to random rule of thumb, or global market weight (since I have more information about me - my place of residence)

(not disagreeing with your advice, just addressing one form of consensus that I feel is especially pertinent)