International market recovery

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binx99
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International market recovery

Post by binx99 » Tue May 12, 2020 1:37 pm

Any strong thoughts about recovery of or long-term effects on international markets vs. US after this event-driven bear market?

Prior to this year, there seemed to be a growing consensus (including by Vanguard) that investors should hold >40% international in their equity allocation. I think prevailing reasoning was that US equity valuations had become unduly elevated and perhaps a pendulum swing was forthcoming.

I've reviewed a number of articles and interesting threads on this topic, but all were penned prior to this unprecedented (at least since 1918) event. Wondering if rationale for increased international allocation still holds up after this market disruption, US Fed intervention, etc.

(To be clear, I haven't committed to an international %, yet. So for me, there is no "staying the course." I understand the value of diversification with international equities, but I have to admit, it's tough to embrace after comparing trailing returns for VTSAX and VGTSX...)

bloom2708
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Re: International market recovery

Post by bloom2708 » Tue May 12, 2020 1:42 pm

Truly, nobody knows.

Between 0% and 100% International is the range. You have to make the decision for yourself for you. What is value. What is priced in and what isn't.

I am 2% International based on the x-ray of the funds we own.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

theorist
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Re: International market recovery

Post by theorist » Tue May 12, 2020 1:42 pm

binx99 wrote:
Tue May 12, 2020 1:37 pm
Any strong thoughts about recovery of or long-term effects on international markets vs. US after this event-driven bear market?

Prior to this year, there seemed to be a growing consensus (including by Vanguard) that investors should hold >40% international in their equity allocation. I think prevailing reasoning was that US equity valuations had become unduly elevated and perhaps a pendulum swing was forthcoming.

I've reviewed a number of articles and interesting threads on this topic, but all were penned prior to this unprecedented (at least since 1918) event. Wondering if rationale for increased international allocation still holds up after this market disruption, US Fed intervention, etc.

(To be clear, I haven't committed to an international %, yet. So for me, there is no "staying the course." I understand the value of diversification with international equities, but I have to admit, it's tough to embrace after comparing trailing returns for VTSAX and VGTSX...)
I listen to a number of financial podcasts. Various interviewees still, post crash and partial recovery, opine that the US is somewhere between reasonably (given bond yields) and richly valued, while “the entire international market is selling at value prices.” It is hard to do based on recent past and current performance, and based on the fact that the glories of modern business like FAANG are all US based, but I think a heavy bet (or at least between 30% and market cap) on foreign equities is still very well justified.

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arcticpineapplecorp.
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Re: International market recovery

Post by arcticpineapplecorp. » Tue May 12, 2020 2:01 pm

can't really discuss how international will perform vs. US in and out of this recovery. That's unknown and unknowable, basically speculating which isn't worth anything.

like bloom2708 said anywhere between 0% and 100%, of course (unless you're using leverage in which case the numbers could be outside those bounds).

But probably the way to think about it is, why wouldn't you start with the global market cap weight and only differentiate if you have some compelling reason to do so?

Even then, you have to ask yourself what you know (or think you do) that the market hasn't already figured out. Understand? If the market is essentially 50/50 US/Int, then you have to have some reasons why everyone else is wrong if you're going to do something other than 50/50 US/Int.

Now you can say, "Well, why are Vanguard's TD funds only 40% Int and not market cap weighted?" It's taken them some time to get US investors comfortable with international investing. Vanguard's had to incrementally increase the international percentage. I think they were first 20% then 30% and now 40%. Vanguard itself admitted last year they ideally would like to get to global market weighting in the near future. So baby steps. US consumers are not as used to exchange rates than other countries are, so it's taken some time to get adjusted to that. Sometimes changes in exchange rates hurt, but sometimes they help:

Image

If you're trying to avoid choosing wrong, you will only know if you should invest internationally, and if so, in what amount after the fact. You will always have some regret. That I guarantee. Let's say you didn't hold international and US does better you feel better. But then what if certain years like 2017 (or periods of years 2003-2007) you avoid international and international outperformed?

In 2017 The US total stock market earned 21.16%. Great, right? Well total international earned 27.55% in 2017. Holding ANY portion of total international in 2017 would have improved returns as opposed to avoiding it entirely. (source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D)

Look at https://www.bogleheads.org/wiki/Domestic/International to see that some decades US beat International and other decades International beat US. Why not hold both?

Of course when int. does worse, it will be a drag on returns. There's just no way to know. Over the long term in the past, I believe the returns between US and International have been very close (with US having done only slightly better). Will that continue? Who knows.

So 50/50 is not only admitting you don't know, it's admitting you don't know more than the market.

That being said and for full disclosure I'm 30% int. in my Roth IRA and have a target date fund in my 457b (which I believe is 40% international). Why did I choose 30% for my Roth IRA? Years ago that was the sweet spot of volatility reduction and efficient frontier (best return per unit of risk) based on a Vanguard whitepaper. Since then, Vanguard's white paper (revised) shows 40% to now be the sweet spot (and supports their 40% allocation in their target date funds). https://www.vanguard.com/pdf/ISGGEB.pdf (see page 5).

hope that helps.
Last edited by arcticpineapplecorp. on Tue May 12, 2020 2:29 pm, edited 2 times in total.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Schlabba
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Re: International market recovery

Post by Schlabba » Tue May 12, 2020 2:20 pm

binx99 wrote:
Tue May 12, 2020 1:37 pm
Any strong thoughts about recovery of or long-term effects on international markets vs. US after this event-driven bear market?

Prior to this year, there seemed to be a growing consensus (including by Vanguard) that investors should hold >40% international in their equity allocation. I think prevailing reasoning was that US equity valuations had become unduly elevated and perhaps a pendulum swing was forthcoming.

I've reviewed a number of articles and interesting threads on this topic, but all were penned prior to this unprecedented (at least since 1918) event. Wondering if rationale for increased international allocation still holds up after this market disruption, US Fed intervention, etc.

(To be clear, I haven't committed to an international %, yet. So for me, there is no "staying the course." I understand the value of diversification with international equities, but I have to admit, it's tough to embrace after comparing trailing returns for VTSAX and VGTSX...)
The only strong thought I have is that it is less risky to own the entire stock market than to only own the US stock market.

But with either choice you will probably do fine over the long term.
Secretly a dividend investor. Feel free to ask why.

FrankTheViking
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Re: International market recovery

Post by FrankTheViking » Tue May 12, 2020 2:28 pm

Personally I believe the U.S. will continue to outperform in my lifetime. That being said lost sleep at 100% U.S. so changed allocation to 80/20 U.S. International.
Might come out ahead, might not. I would be more concerned with savings rate than returns.

If just starting out as I was I would strongly recommend just going 80/20. See how it feels. The U.S. / INTL rabbit hole is a deep one. I'd advice starting the marathon now just for the sake of starting, if you wish to tweak your cadence two miles in you can easily do so with new contributions.
No EF. 80% Total U.S. / 20% Total International. 100% equity. Is there a gun to your head? Is there a tiger in the room? No? What's the problem?

FrankTheViking
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Re: International market recovery

Post by FrankTheViking » Tue May 12, 2020 2:30 pm

Personally I believe the U.S. will continue to outperform in my lifetime. That being said lost sleep at 100% U.S. so changed allocation to 80/20 U.S. International.
Might come out ahead, might not. I would be more concerned with savings rate than returns.

If just starting out as I was I would strongly recommend just going 80/20. See how it feels. The U.S. / INTL rabbit hole is a deep one. I'd advice starting the marathon now just for the sake of starting, if you wish to tweak your cadence two miles in you can easily do so with new contributions.

Quick edit, I recall finding a study someone posted that came to the conclusion that for most people, in most countries, most of the time, a 20% tilt toward home country away from market cap usually works out best.
No EF. 80% Total U.S. / 20% Total International. 100% equity. Is there a gun to your head? Is there a tiger in the room? No? What's the problem?

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rob
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Re: International market recovery

Post by rob » Tue May 12, 2020 2:35 pm

This topic has people all over the map... and for good reasons on both sides. Both sides fermentedly hold that they have the right position.... and for good reasons on both sides. I'd bet it's the most common differentiator in these parts. In the end.. neither reasonable position will be right or wrong.

As for will it come back better or worse... I have no clue...

I'd say what I have in portfolio but that and a buck can get you a newspaper... I'm not sure it gets a coffee anymore.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

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arcticpineapplecorp.
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Re: International market recovery

Post by arcticpineapplecorp. » Tue May 12, 2020 2:41 pm

look at the chart back to 2000:

Image

What do you notice? Blue line is total US stock market index fund and orange is total international stock market index fund. (don't worry about the fact that US did almost twice as better than international over the entire period. That's not the point here and is the wrong lesson learned. Focusing on that only assumes you invested once at the start date and never invested again over the entire 19 year period. Is that likely? If not, isn't the motto "Buy low..."?)

From 2000-2004 the performance between the two was similar enough. From 2005-2011 the total international stock market index fund outperformed the US (7 years). Then from 2012-2019 US outperformed total international (8 years).

If you are a buyer of stocks would you have wanted to buy US the entire time? Why? One went up more than the other. Wouldn't you have wanted to buy US from 2005-2011 (when international outperformed) and then buy International from 2012-2019 when US outperformed international?

You'd do the opposite if you are in retirement and selling instead of buying; that is, sell that which has gone up more than the other.

If you hold different assets that perform differently from others you always have an opportunity to buy (during working years) and also sell (during retirement years).

source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

asif408
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Re: International market recovery

Post by asif408 » Tue May 12, 2020 2:52 pm

binx99 wrote:
Tue May 12, 2020 1:37 pm
Any strong thoughts about recovery of or long-term effects on international markets vs. US after this event-driven bear market?
I prefer weak facts to strong opinions. Here are my weak facts:

1) From the Bogleheads own Wiki page (which hasn't been updated with charts since 2008): https://www.bogleheads.org/wiki/File:US ... tional.png There was less than a 1/2% difference in total CAGR between the worst US/Int'l allocation and the best, and interestingly the best allocation was about a 50/50 split. Therefore, the dramatic outperformance of US equities for the past decade appears to be an anomaly. Change the time frame and you can find 2 separate 25 year time frames to fit your bias, one that looks much better for international (1970-1994) and one that looks much better for the US (1995-2020). The latter is much more often cited here, and starting and ending valuations at the time rarely addressed.

2) There is no rational reason to believe that one country's stock market should dominate the world's returns in the future, particularly ones that have in the past, even if it seems like the safest. Historically, individual countries, like individual companies, have a time they rise to the top and a time they fall from it. It's not a question of if, but a question of when and how far they fall, and who replaces them. Unless you believe the world economy is a communist entity.

3) It is extremely unlikely that the US dollar can permanently appreciate vs. all other currencies because of purchasing power parity (PPP), so at some point investments in unhedged international equities will have a currency tailwind.

4) Historically, at least, when everything craters, generally even the better value sectors/markets fall just as much or more initially (which we have seen here). It's in the second and third phases of these crises that the lower valued stocks shine, either by falling less, recovering more quickly, or some combination. If you are basing judgement of diversification benefit based on the last two months, only gold and silver miners in the equity space would fit the bill, even though they initially cratered the first month (followed by a 75% rise this past month).

The strong opinions favoring US only tend to revolve around American Exceptionalism (whatever that means) and because Jack and Warren said so. I haven't seen anyone on the other side trying to convince investors to go 100% international, [Religious comment removed by moderator oldcomputerguy].

Topic Author
binx99
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Re: International market recovery

Post by binx99 » Tue May 12, 2020 3:47 pm

Thanks for the excellent perspectives. It is interesting how the deep psychological desire to time the market and predict the future creeps into thinking about the market. It's nice to have the input of forum members to guide one back towards the rational path.

I guess I was fishing for obvious factors particular to this financial crisis which may inform the US:Intl debate. My understanding of international markets is limited even more than my understanding of the domestic one. Intuitively, I'd think that it substantially differs from the US market based on clear differences in government, regulation, levels of central intervention, economic health of particular countries, corporate tax code, etc. But what I'm hearing in this discussion is that US and International markets have historically behaved in a similar fashion and most (all?) reasonable assumptions about investing in the US market can be applied to the international one. Please correct me if I've misunderstood. I am aware that there are many partitions in the "international market" and am referring to that market represented by a typical broad market index.

visualguy
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Re: International market recovery

Post by visualguy » Tue May 12, 2020 4:55 pm

binx99 wrote:
Tue May 12, 2020 3:47 pm
But what I'm hearing in this discussion is that US and International markets have historically behaved in a similar fashion and most (all?) reasonable assumptions about investing in the US market can be applied to the international one. Please correct me if I've misunderstood.
If that's what you're hearing, then it's wrong. US has historically outperformed ex-US significantly. The difference is 2% annually over the last century, which is a very large difference when compounded. Even if you decide for whatever reason not to include the last decade, the significant out-performance of US still holds. There were some periods during which ex-US out-performed, but that out-performance was much less significant than the under-performance during other times. People keep mentioning some years during the 2000s when ex-US out-performed, but that out-performance was nothing when compared to ex-US under-performance during the previous decade (1990s) or the following decade (2010s).

What you conclude from it, if anything, is up to you, but there's no reason to be mislead about the past.

Ruttiger
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Re: International market recovery

Post by Ruttiger » Tue May 12, 2020 5:15 pm

My view is that "Capitalsm will always win", and my assumption has been, the US is about as capitalistic as we can get (I know there are some flaws with this). I was always skeptical about international but finally heeded some advice and went international for a few years several years ago and based on returns didn't work out, granted only a few years, and went back to US. Have been investing since 1997 and always preferred US stocks (in one way a long time, but in a some ways, not).

Is there a way that others gage how capitalistic a country is, and how does this influence investment direction?

I'm still an all US proponent, but willing to listen.

22twain
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Re: International market recovery

Post by 22twain » Tue May 12, 2020 5:50 pm

rob wrote:
Tue May 12, 2020 2:35 pm
Both sides fermentedly hold that they have the right position....
I wonder if it depends on whether one favors beer, wine, or whisky? :twisted:

(yeah, blame the spell-checker... :) )
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: International market recovery

Post by whodidntante » Tue May 12, 2020 6:03 pm

American stocks have become quite top-heavy, and Amazon, Microsoft, Apple, et al may be able to stay on top, but my guess is they will be unable to deliver the kind of Styx "come sail away" returns to which we've all grown accustomed to. Therefore, continued American dominance of equity markets shall require small and value to vastly outperform cap weight, which would upset Taylor. So it follows that international will rise again. :wink:

Hustlinghustling
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Re: International market recovery

Post by Hustlinghustling » Tue May 12, 2020 6:05 pm

Ruttiger wrote:
Tue May 12, 2020 5:15 pm
My view is that "Capitalsm will always win", and my assumption has been, the US is about as capitalistic as we can get (I know there are some flaws with this). I was always skeptical about international but finally heeded some advice and went international for a few years several years ago and based on returns didn't work out, granted only a few years, and went back to US. Have been investing since 1997 and always preferred US stocks (in one way a long time, but in a some ways, not).

Is there a way that others gage how capitalistic a country is, and how does this influence investment direction?

I'm still an all US proponent, but willing to listen.
How is applying this capitalism criteria any different from any other to pick individual stocks? It's not fundamentally that different from believing more strongly in, say, the tech sector or companies with a certain type of CEO/board

I'd argue that part of diversification is also being invested into economies that don't align with your outlook necessarily and acknowledging that the world, markets and wealth generation may not always play out as you expect or understand it to. China being an obvious example of state influence, but others like Singapore, S.Korea are readily accepted as capitalist societies but with much more state intervention too. Moreover, even if capitalist economies do have greater productivity, why assume this tendency isn't already priced into the stocks of both the more capitalist and less capitalist countries already? Indeed this may well be behind the oft-suggested "overvaluation" metrics of US stocks

whereskyle
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Re: International market recovery

Post by whereskyle » Tue May 12, 2020 6:20 pm

I can't decide how much international, but I am happily buying VT lately. US market is extremely expensive under any historic or analytic framework. Everyone says international is inexpensive. I love debating about it one way or the other, but I can't argue VT does not provide a unique peace of mind by virtue of holding everything. I also know Jack would tell me to buy the us market. So I buy VT and VTI. Much higher weight in VTI. Considering holding at 50/50, but I'm a long way from that, and my work plan is the Russell 3000. VT is a unique product (Jack would call it a service) that I can't argue against. I would however also recommend holding a u.s. total market position.
"I am better off than he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

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Chief_Engineer
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Re: International market recovery

Post by Chief_Engineer » Tue May 12, 2020 6:34 pm

FrankTheViking wrote:
Tue May 12, 2020 2:30 pm
Quick edit, I recall finding a study someone posted that came to the conclusion that for most people, in most countries, most of the time, a 20% tilt toward home country away from market cap usually works out best.
It was an article written by Siamond, and suggested a 25% domestic to 75% world split. Last time I updated my spreadsheet it works out to a 66/34 US/Int split for a US based investor. This is what I decided to do so I didn't have to try to justify any other arbitrary allocation.

I couldn't get to the original article. Here's a link via the Wayback Machine.

Massdriver
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Re: International market recovery

Post by Massdriver » Tue May 12, 2020 6:54 pm

whodidntante wrote:
Tue May 12, 2020 6:03 pm
American stocks have become quite top-heavy, and Amazon, Microsoft, Apple, et al may be able to stay on top, but my guess is they will be unable to deliver the kind of Styx "come sail away" returns to which we've all grown accustomed to. Therefore, continued American dominance of equity markets shall require small and value to vastly outperform cap weight, which would upset Taylor. So it follows that international will rise again. :wink:
I like this post.
:D

Hustlinghustling
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Re: International market recovery

Post by Hustlinghustling » Tue May 12, 2020 6:59 pm

Ruttiger wrote:
Tue May 12, 2020 5:15 pm
My view is that "Capitalsm will always win", and my assumption has been, the US is about as capitalistic as we can get .
even in this pandemic, there seems now a correlation between individual freedoms of western countries and state heavy handedness of Asian ones in terms of effectiveness to tackle the virus

Many measures taken in Korea of credit card and GPS location tracking of the infected and powers of govt in locking down a city and preventing flow of people used in China or govt mandating certain businesses to come under their control (ie mask suppliers) would never be palatable in a western democracy. Not suggesting they should be either. Nonetheless, such extreme govt authority may be more advantageous in dealing with a mass outbreak where public concerns trump individual liberties. and how resilient a country is to an outbreak has economic impact as we can of course attest to

don’t get me wrong, i’m not making a political point but just an example of how things can easily not play out the way we expect it with a blind faith that “capitalist democracies always win” in the end, even when it’s rooted in sound economic theory

Rosencrantz1
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Re: International market recovery

Post by Rosencrantz1 » Tue May 12, 2020 7:36 pm

visualguy wrote:
Tue May 12, 2020 4:55 pm

The difference is 2% annually over the last century, which is a very large difference when compounded.

What you conclude from it, if anything, is up to you, but there's no reason to be mislead about the past.
**emphasis mine.

I'm not sure why folks cling to occasional outperformance of exUS as the primary reason to invest in international. Given the above information, it seems exUS would need to outperform for a looooooooooong time to match the returns of US only over the last 10 -20 - 30 years. But, I say 'more power to them' - maybe exUS will have its day(s) in the sun for the next 20+ years.

Someone pointed out in a previous thread the basic question of 'where do you believe the next group of disrupting companies will come from?' I think it's a good question. If one feels those companies will come from Europe/China/Japan/India/Canada etc. etc. AND you think you'll participate fully in the future meteoric rise of said companies (see China), then by all means, put your $$ into international.

IMHO, it appears to me that bright folks from all over the world immigrate to the US and some of these very bright folks are starting powerhouse companies - in the US.... to say nothing of US citizens by birthright and the amazing companies they build. I guess my point is that I see the US as a magnet for international talent - and that 'magnetism', in my view, gives the US equity markets a potential edge. As I think about it, this may be one of the reasons Mr. Market essentially 'discounts' the exUS equity markets (but, it's just a guess :) ) /0.02cents

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Re: International market recovery

Post by WildBill » Tue May 12, 2020 7:49 pm

rob wrote:
Tue May 12, 2020 2:35 pm
This topic has people all over the map... and for good reasons on both sides. Both sides fermentedly hold that they have the right position.... and for good reasons on both sides.
Howdy

I also have very strong and fermentedly held beliefs, usually after a few beers.

Happy auto complete to all.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

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rob
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Re: International market recovery

Post by rob » Tue May 12, 2020 8:02 pm

WildBill wrote:
Tue May 12, 2020 7:49 pm
rob wrote:
Tue May 12, 2020 2:35 pm
This topic has people all over the map... and for good reasons on both sides. Both sides fermentedly hold that they have the right position.... and for good reasons on both sides.
Howdy

I also have very strong and fermentedly held beliefs, usually after a few beers.

Happy auto complete to all.

W B
lol - Okay ya got me....
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

Hustlinghustling
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Re: International market recovery

Post by Hustlinghustling » Tue May 12, 2020 8:13 pm

Rosencrantz1 wrote:
Tue May 12, 2020 7:36 pm
visualguy wrote:
Tue May 12, 2020 4:55 pm

The difference is 2% annually over the last century, which is a very large difference when compounded.

What you conclude from it, if anything, is up to you, but there's no reason to be mislead about the past.
**emphasis mine.

I'm not sure why folks cling to occasional outperformance of exUS as the primary reason to invest in international. Given the above information, it seems exUS would need to outperform for a looooooooooong time to match the returns of US only over the last 10 -20 - 30 years. But, I say 'more power to them' - maybe exUS will have its day(s) in the sun for the next 20+ years.

Someone pointed out in a previous thread the basic question of 'where do you believe the next group of disrupting companies will come from?' I think it's a good question. If one feels those companies will come from Europe/China/Japan/India/Canada etc. etc. AND you think you'll participate fully in the future meteoric rise of said companies (see China), then by all means, put your $$ into international.

IMHO, it appears to me that bright folks from all over the world immigrate to the US and some of these very bright folks are starting powerhouse companies - in the US.... to say nothing of US citizens by birthright and the amazing companies they build. I guess my point is that I see the US as a magnet for international talent - and that 'magnetism', in my view, gives the US equity markets a potential edge. As I think about it, this may be one of the reasons Mr. Market essentially 'discounts' the exUS equity markets (but, it's just a guess :) ) /0.02cents
best and brightest domestically flocking to silicon valley and wall street. so by the same logic, overweight tech and financials for its “magnetism”?

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Re: International market recovery

Post by rascott » Tue May 12, 2020 8:17 pm

Personally it's not an issue of American exceptionalism in any manner. Rather it's that when I look at major overseas developed markets....I see tremendous economic headwinds. Aging populations, populist/ anti- capitalist movements, weak banks, and weak monetary policy solutions.

These are also issues in the US.... but to a much less degree.

Hustlinghustling
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Re: International market recovery

Post by Hustlinghustling » Tue May 12, 2020 8:20 pm

rascott wrote:
Tue May 12, 2020 8:17 pm
Personally it's not an issue of American exceptionalism in any manner. Rather it's that when I look at major overseas developed markets....I see tremendous economic headwinds. Aging populations, populist/ anti- capitalist movements, weak banks, and weak monetary policy solutions.

These are also issues in the US.... but to a much less degree.
all well and good. but how is this any different to analyzing individual stock’s trajectory and stock picking? of course if you do that too, no issues from me. but why assume things are all priced in for one but not the other is the logical inconsistency often exhibited here

HEDGEFUNDIE
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Re: International market recovery

Post by HEDGEFUNDIE » Tue May 12, 2020 8:23 pm

arcticpineapplecorp. wrote:
Tue May 12, 2020 2:41 pm
look at the chart back to 2000:

Image

What do you notice? Blue line is total US stock market index fund and orange is total international stock market index fund. (don't worry about the fact that US did almost twice as better than international over the entire period. That's not the point here and is the wrong lesson learned. Focusing on that only assumes you invested once at the start date and never invested again over the entire 19 year period. Is that likely? If not, isn't the motto "Buy low..."?)

From 2000-2004 the performance between the two was similar enough. From 2005-2011 the total international stock market index fund outperformed the US (7 years). Then from 2012-2019 US outperformed total international (8 years).

If you are a buyer of stocks would you have wanted to buy US the entire time? Why? One went up more than the other. Wouldn't you have wanted to buy US from 2005-2011 (when international outperformed) and then buy International from 2012-2019 when US outperformed international?

You'd do the opposite if you are in retirement and selling instead of buying; that is, sell that which has gone up more than the other.

If you hold different assets that perform differently from others you always have an opportunity to buy (during working years) and also sell (during retirement years).

source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Here is the better chart, a tell-tale comparison between VGTSX and VTSMX:

Image

Total International had a burst of outperformance between 2002 and 2008. Other than that it has been thoroughly whipped by the good ol' US of A. Looks more like "secular decline" to me than "nobody knows nuthin'".

Topic Author
binx99
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Re: International market recovery

Post by binx99 » Tue May 12, 2020 8:26 pm

I'd like to come back around to the conceptual underpinnings of long term investment philosophy. I think I see 2 major opposing arguments being expounded here and in other related threads:

1) The US generally has had superior returns and a uniquely robust economy (in the long term), therefore why invest in international?

2) Why discriminate between US and ex-US with portfolio allocation? The World Market follows the same fundamentals as the US market in terms of market efficiency, short to intermediate term unpredictability, appropriateness of a long-term investment horizon, etc. (In other words, the argument that the Boglehead Investment Philosophy applies to all markets, irrespective of nation: https://www.bogleheads.org/wiki/Boglehe ... philosophy).

But, aren't international markets substantially different markets from US? Don't they have some pattern of identifiable differences that may reasonably sway an investor one way or the other? If nothing else, we're talking about companies headquartered in a single nation as opposed to a collection of equities based in a diverse group of nations. I'm not talking about chasing returns. I'm talking about making investment decisions based on observable and significant differences in the given assets. If one were offered 100% of their 401K in US Total market funds or 100% in Danish total market funds, most everyone would have a strong opinion. (just a random example. Not saying one is superior to the other!) It seems like comparing apples to oranges.

HEDGEFUNDIE
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Re: International market recovery

Post by HEDGEFUNDIE » Tue May 12, 2020 8:28 pm

Here is a longer view, using the actively managed PRITX:

Image

hdas
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Joined: Thu Jun 11, 2015 8:24 am

.....

Post by hdas » Tue May 12, 2020 8:49 pm

.....
Last edited by hdas on Thu May 21, 2020 1:08 pm, edited 1 time in total.
....

jhsu802701
Posts: 136
Joined: Fri Apr 03, 2020 2:42 pm

Re: International market recovery

Post by jhsu802701 » Tue May 12, 2020 9:04 pm

International stocks are much cheaper than US stocks. Additionally, the Big Mac Index shows nearly every currency to be undervalued against the US dollar.

DGRE vs. DGRW is an apples-to-apples comparison. Both are WisdomTree stock ETFs that specialize in dividend growth stocks. DGRE is the emerging markets version, and DGRW is the US version.

The statistics for DGRE's portolio:
1. Dividend Yield: 3.55%
2. Price/Earnings: 11.34
3. Price/Book: 1.63
4. Price/Sales: 1.07
5. Price/Cash Flow: 7.65

The statistics for DGRW's portfolio:
1. Dividend Yield: 2.57% (28% lower)
2. Price/Earnings: 18.35 (62% higher)
3. Price/Book: 4.68 (187% higher, nearly triple)
4. Price/Sales: 2.03 (90% higher, nearly double)
5. Price/Cash Flow: 12.02 (57% higher)

visualguy
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Re: International market recovery

Post by visualguy » Tue May 12, 2020 9:34 pm

jhsu802701 wrote:
Tue May 12, 2020 9:04 pm
International stocks are much cheaper than US stocks.
Ok, but what's new there? You could have said the same thing in the past, and ex-US still performed miserably. Why would it be any different now going forward? If anything, I would think that Europe and Japan are in even more trouble and more stagnated now, and the same old problems persist with investing in China, India, etc. You're applying a criterion that didn't work in the past in terms of predicting a rosy future for ex-US.

Hustlinghustling
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Re: International market recovery

Post by Hustlinghustling » Tue May 12, 2020 9:45 pm

visualguy wrote:
Tue May 12, 2020 9:34 pm
jhsu802701 wrote:
Tue May 12, 2020 9:04 pm
International stocks are much cheaper than US stocks.
Ok, but what's new there? You could have said the same thing in the past, and ex-US still performed miserably. Why would it be any different now going forward? If anything, I would think that Europe and Japan are in even more trouble and more stagnated now, and the same old problems persist with investing in China, India, etc. You're applying a criterion that didn't work in the past in terms of predicting a rosy future for ex-US.
Boglehead principles been wrong this whole time. Past performance obviously does predict future results.

rascott
Posts: 2018
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Re: International market recovery

Post by rascott » Tue May 12, 2020 9:51 pm

Hustlinghustling wrote:
Tue May 12, 2020 8:20 pm
rascott wrote:
Tue May 12, 2020 8:17 pm
Personally it's not an issue of American exceptionalism in any manner. Rather it's that when I look at major overseas developed markets....I see tremendous economic headwinds. Aging populations, populist/ anti- capitalist movements, weak banks, and weak monetary policy solutions.

These are also issues in the US.... but to a much less degree.
all well and good. but how is this any different to analyzing individual stock’s trajectory and stock picking? of course if you do that too, no issues from me. but why assume things are all priced in for one but not the other is the logical inconsistency often exhibited here


Japan is the largest allocation of many intl index funds .... and their central bank has been buying Japanese equities for 7+ years. You really think there is legit price discovery in such a scenario?

They've thoroughly broken their govt bond market... there is next to zero daily trading in their govt bonds....as the central bank buys them all up.

You really want to plow money into such a market?

There's a wide gulf between stock picking and making ones lifelong allocations to certain national markets.

ruud
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Location: san francisco bay area

Re: International market recovery

Post by ruud » Tue May 12, 2020 9:58 pm

hdas wrote:
Tue May 12, 2020 8:49 pm
Is this chart Portfolio Visualizer......where is that feature?.Thanks. H
It's in the Fund Performance tool.
.

rascott
Posts: 2018
Joined: Wed Apr 15, 2015 10:53 am

Re: International market recovery

Post by rascott » Tue May 12, 2020 9:59 pm

HEDGEFUNDIE wrote:
Tue May 12, 2020 8:28 pm
Here is a longer view, using the actively managed PRITX:

Image
Take out the Japan hyper- bubble.... and it looks downright dreadful for basically all of modern post-war investing.

HEDGEFUNDIE
Posts: 4772
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Re: International market recovery

Post by HEDGEFUNDIE » Tue May 12, 2020 10:03 pm

Hustlinghustling wrote:
Tue May 12, 2020 9:45 pm
visualguy wrote:
Tue May 12, 2020 9:34 pm
jhsu802701 wrote:
Tue May 12, 2020 9:04 pm
International stocks are much cheaper than US stocks.
Ok, but what's new there? You could have said the same thing in the past, and ex-US still performed miserably. Why would it be any different now going forward? If anything, I would think that Europe and Japan are in even more trouble and more stagnated now, and the same old problems persist with investing in China, India, etc. You're applying a criterion that didn't work in the past in terms of predicting a rosy future for ex-US.
Boglehead principles been wrong this whole time. Past performance obviously does predict future results.
Looks that way

visualguy
Posts: 1928
Joined: Thu Jan 30, 2014 1:32 am

Re: International market recovery

Post by visualguy » Tue May 12, 2020 10:16 pm

Hustlinghustling wrote:
Tue May 12, 2020 9:45 pm
Boglehead principles been wrong this whole time. Past performance obviously does predict future results.
The Bogleheads approach is based on it working in the past. If it hadn't worked in the past, none of us would be following it. Moreover, if it had performed as ex-US indexing performed in the long run, there would be no Bogleheads. What sense would it make? Low return for high volatility. Oh, and Bogle was against investing in the ex-US index, so maybe the Boglehead principles really are not what you happen to define them to be.
Last edited by visualguy on Tue May 12, 2020 10:21 pm, edited 1 time in total.

visualguy
Posts: 1928
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Re: International market recovery

Post by visualguy » Tue May 12, 2020 10:19 pm

rascott wrote:
Tue May 12, 2020 9:51 pm
Hustlinghustling wrote:
Tue May 12, 2020 8:20 pm
rascott wrote:
Tue May 12, 2020 8:17 pm
Personally it's not an issue of American exceptionalism in any manner. Rather it's that when I look at major overseas developed markets....I see tremendous economic headwinds. Aging populations, populist/ anti- capitalist movements, weak banks, and weak monetary policy solutions.

These are also issues in the US.... but to a much less degree.
all well and good. but how is this any different to analyzing individual stock’s trajectory and stock picking? of course if you do that too, no issues from me. but why assume things are all priced in for one but not the other is the logical inconsistency often exhibited here


Japan is the largest allocation of many intl index funds .... and their central bank has been buying Japanese equities for 7+ years. You really think there is legit price discovery in such a scenario?

They've thoroughly broken their govt bond market... there is next to zero daily trading in their govt bonds....as the central bank buys them all up.

You really want to plow money into such a market?

There's a wide gulf between stock picking and making ones lifelong allocations to certain national markets.
Indeed, Japan's central bank is the largest single stockholder in their stock market. So much for "priced by the market"...

Hustlinghustling
Posts: 100
Joined: Mon Jul 25, 2016 12:09 am

Re: International market recovery

Post by Hustlinghustling » Tue May 12, 2020 10:35 pm

Many differences to choose from, but lack of market intervention by the government would not be what I would champion as a main criterion. Have we not seen what's happened the last decade or even this year.

Hustlinghustling
Posts: 100
Joined: Mon Jul 25, 2016 12:09 am

Re: International market recovery

Post by Hustlinghustling » Tue May 12, 2020 10:40 pm

visualguy wrote:
Tue May 12, 2020 10:16 pm
Hustlinghustling wrote:
Tue May 12, 2020 9:45 pm
Boglehead principles been wrong this whole time. Past performance obviously does predict future results.
The Bogleheads approach is based on it working in the past. If it hadn't worked in the past, none of us would be following it. Moreover, if it had performed as ex-US indexing performed in the long run, there would be no Bogleheads. What sense would it make? Low return for high volatility. Oh, and Bogle was against investing in the ex-US index, so maybe the Boglehead principles really are not what you happen to define them to be.
just a lot of cherrypicking around here of when to apply "principles". it's your money, do as you want of course. just don't tell otherwise to active investors when they apply the same logic to their picks is all i ask.

Northern Flicker
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Re: International market recovery

Post by Northern Flicker » Tue May 12, 2020 11:16 pm

binx99 wrote: Prior to this year, there seemed to be a growing consensus (including by Vanguard) that investors should hold >40% international in their equity allocation.
Minor nit— I don’t think Vanguard recommends >40% of equities in int’l equities. They are right at 40% for their Target Retirement and LifeStrategy funds.
Index fund investor since 1987.

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NerveDoc
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Re: International market recovery

Post by NerveDoc » Wed May 13, 2020 12:07 am

William Bernstein in The Investor's Manifesto (2009) recommends between 80/20 and 60/40 split between total US market and total international market. In "If You Can" (2014) he recommends equal parts of total US market, total international market, and total bond market. Is the increased recommendation of total international market to 50% of equities just for simplicity, or a change in philosophy?

Alchemist
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Re: International market recovery

Post by Alchemist » Wed May 13, 2020 6:25 am

binx99 wrote:
Tue May 12, 2020 1:37 pm
Any strong thoughts about recovery of or long-term effects on international markets vs. US after this event-driven bear market?
......
I've reviewed a number of articles and interesting threads on this topic, but all were penned prior to this unprecedented (at least since 1918) event. Wondering if rationale for increased international allocation still holds up after this market disruption, US Fed intervention, etc.
Short answer: U.S. will likely weather this economic storm better than international writ large but some individual countries will do better.

Long answer: First, always remember there is absolutely no "international market". There are instead dozens of individual national markets with their own geographies, politics, currencies, security risks, regulations, demographies, etc etc ect. Secondly I think there will be no real winners. This will hurt everyone including the U.S. severely.

I also think looking just at infection numbers will be misleading from an economic performance perspective. Instead I think exposure to international trade is what you want to focus on. The less dependent on trade, particularly exports, the better a national economy will do in the current environment. Demand has cratered across the world for everything but essentials and even some essential things like oil have seen collapse in demand. Thus economies highly reliant on exporting their goods whether it be finished products (Germany, South Korea, China, SE Asia) or raw materials to be inputs for those goods (Petroleum exporters, mineral exporters like developing markets in Africa) will see the worst impacts.

Basically make a list of those national markets that benefit the most from globalization. Those are the same ones most negatively impacted by the current crisis as the global trade networks evaporate. One exception would be agricultural exporters. Food is required no matter what.

The U.S. has an enormous domestic market lead by domestic consumption and exports more agricultural products than the next two competitors combined. It will still hurt economically, alot. But no where near as badly as places like Germany, China, or emerging markets dependent on raw material export. Reserve currency status also gives it lots of head room for stimulus/emergency spending that countries like Italy or Spain simply do not have unless the EU actually begins issuing (and the ECB purchasing) Eurobonds instead of individual sovereign country bonds.

Who will do better than the U.S.? If I had to guess, Australia and Scandinavia. They have a better handle on containing the spread of the virus, good fiscal health and strong domestic consumption. Though Australia does export a lot of minerals. Either way if you buy an international index you will buy more countries that as a whole will do far worse than the U.S. during this crisis.

Before anyone claims I'm just being a silly Murican, perhaps consider why U.S. equities are selling at a valuation premium to international equities. Perhaps the market finds the U.S. equity market to have less risk in the current crisis.

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grayfox
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Re: International market recovery

Post by grayfox » Wed May 13, 2020 6:26 am

binx99 wrote:
Tue May 12, 2020 1:37 pm
Any strong thoughts about recovery of or long-term effects on international markets vs. US after this event-driven bear market?

Prior to this year, there seemed to be a growing consensus (including by Vanguard) that investors should hold >40% international in their equity allocation. I think prevailing reasoning was that US equity valuations had become unduly elevated and perhaps a pendulum swing was forthcoming.

I've reviewed a number of articles and interesting threads on this topic, but all were penned prior to this unprecedented (at least since 1918) event. Wondering if rationale for increased international allocation still holds up after this market disruption, US Fed intervention, etc.

(To be clear, I haven't committed to an international %, yet. So for me, there is no "staying the course." I understand the value of diversification with international equities, but I have to admit, it's tough to embrace after comparing trailing returns for VTSAX and VGTSX...)
Before the pandemic bear market my target in my Roth was 25/25/50 US/INTL/Bonds. I did not look at it too closely, but I was putting new money mostly into INTL because it was usually lower. Plus it seemed like a better bargain with lower P/E and higher dividend yield. INTL with lower P/E must have higher expected return than U.S. right?

When the pandemic hit, I started looking at things more closely. My U.S. stock fund peaked on 2/19/2020. I looked at my INTL fund and guess what? It's peak was way back in Jan-2018! At the beginning of 2020, my INTL fund was already down -11.5% off the peak! :annoyed INTL was already in a "correction" at the start of 2020. Who knew? And when the U.S. fund peaked on 2/19/2020, my INTL fund was down further to -13.5% :annoyed

My U.S. fund bottomed out on 3/23/2020 down -35% from the peak. But the INTL fund was down even more -45%. :annoyed

Then the recovery (or dead cat bounce) came and by 4/29/2020 my U.S. fund is only down -15% YTD. :moneybag
But the INTL only came back to -32% YTD. :annoyed INTL barely recovered.

Awful lot of :annoyed 's in there. INTL started of worse, fell farther, and recovered less.
Sic transit gloria mundi. [STGM]

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jeffyscott
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Re: International market recovery

Post by jeffyscott » Wed May 13, 2020 7:44 am

Alchemist wrote:
Wed May 13, 2020 6:25 am
Before anyone claims I'm just being a silly Murican, perhaps consider why U.S. equities are selling at a valuation premium to international equities. Perhaps the market finds the U.S. equity market to have less risk in the current crisis.
Okay, but what is being said in many of these posts, including yours, is both that and that US Equity will have higher returns. So the claims seem to be that US stocks will continue to feature both less risk and higher returns.

BTW, part of Scandinavia (Sweden) has, so far, a worse covid-19 death rate (deaths per 100,000 population) than the US.
Time is your friend; impulse is your enemy. - John C. Bogle

Elysium
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Re: International market recovery

Post by Elysium » Wed May 13, 2020 8:00 am

There is no such thing as International - it's just a fancy word made in the backrooms of wall street corporations who wish to package and sell you more securities in many different ways. What you have instead is a number of Foreign countries cobbled together in an index and sold to you in one package.

The entire concept will fall apart when you think of investing as US on one side and a cluster of Foreign countries all on the other side. The rational way to do this would be to diversify into individual Foreign country markets after you have done investing domestically. That would require more work of course, and since there is no standard way to identify which countries to invest in and which ones not to, the easier approach is for Wall Street to package them all as one and promote benefits of diversification.

One could argue that investing in the Top 3 to 5 countries outside of US would get you almost the same benefits as investing in the entire index of countries other than US.

When you inspect this debate from a different perspective, you will find that the basic premise of this debate itself is wrong. The world market is concentrated in just three regions, 93% of it are in These Regions. Europe is only 19% of the world by this measure, yet all of this US/Intl discussion is based on the premise of overweighting Europe which is based on last century data.

When you dig deeper into this concept, you could begin to form a better model for exposure beyond domestic market. For instance, you could say investing in UK stocks offer almost no benefit to a US investor as they are tightly correlated, beyond any other market, where as investing in China offers most benefits by current measure, so on.. obviously, this will require a deeper analysis.

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jeffyscott
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Re: International market recovery

Post by jeffyscott » Wed May 13, 2020 8:36 am

Elysium wrote:
Wed May 13, 2020 8:00 am
One could argue that investing in the Top 3 to 5 countries outside of US would get you almost the same benefits as investing in the entire index of countries other than US.
That seems a bit too extreme, maybe the top 10 or so would do it, though?

Top 3 would appear to be China, Japan, UK, based on VTIAX. These 3 are 38% of VTIAX.

Adding the next 2 gets you Switzerland and Canada and this represents 51% of VTIAX. Next would be France, Germany, Australia, Taiwan, Korea and you are now up to about 74% of VTIAX.
Time is your friend; impulse is your enemy. - John C. Bogle

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jeffyscott
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Re: International market recovery

Post by jeffyscott » Wed May 13, 2020 8:50 am

Elysium wrote:
Wed May 13, 2020 8:00 am
When you inspect this debate from a different perspective, you will find that the basic premise of this debate itself is wrong. The world market is concentrated in just three regions, 93% of it are in These Regions. Europe is only 19% of the world by this measure, yet all of this US/Intl discussion is based on the premise of overweighting Europe which is based on last century data.

When you dig deeper into this concept, you could begin to form a better model for exposure beyond domestic market. For instance, you could say investing in UK stocks offer almost no benefit to a US investor as they are tightly correlated, beyond any other market, where as investing in China offers most benefits by current measure, so on.. obviously, this will require a deeper analysis.
Rather than just China, maybe Asia-ex Japan, and then realize that you basically can get that with EM. The EM index is about 77% Asia.
Time is your friend; impulse is your enemy. - John C. Bogle

Elysium
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Re: International market recovery

Post by Elysium » Wed May 13, 2020 9:35 am

jeffyscott wrote:
Wed May 13, 2020 8:36 am
Elysium wrote:
Wed May 13, 2020 8:00 am
One could argue that investing in the Top 3 to 5 countries outside of US would get you almost the same benefits as investing in the entire index of countries other than US.
That seems a bit too extreme, maybe the top 10 or so would do it, though?

Top 3 would appear to be China, Japan, UK, based on VTIAX. These 3 are 38% of VTIAX.

Adding the next 2 gets you Switzerland and Canada and this represents 51% of VTIAX. Next would be France, Germany, Australia, Taiwan, Korea and you are now up to about 74% of VTIAX.
I was simply throwing around that idea as a hypothetical. The current method of lumping all countries ex-US in a index isn't optimal either. It only looks optimal in the absence of a good alternative.

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