Myths of international investing - Fidelity

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Myths of international investing - Fidelity

Post by pkcrafter »

Myths of international investing

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

The international allocation in Vanguard's Total World Stock Index is 39-40%. Are you comfortable with that much? Did reading this article change your view?

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Re: Myth's of international investing - Fidelity

Post by burritoLover »

That's not a balanced perspective. There are certainly downsides to investing outside your home country that should be taken into consideration.
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Re: Myth's of international investing - Fidelity

Post by JBTX »

Yes. No.
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Re: Myth's of international investing - Fidelity

Post by JBTX »

burritoLover wrote: Thu Sep 24, 2020 10:45 am That's not a balanced perspective. There are certainly downsides to investing outside your home country that should be taken into consideration.
Not balanced? Downsides to diversification?

The arguments for no international are:

Past predicts the future, especially last decade, US will outperform.
The world equity market is incapable of efficient valuing the superiority of the US market and other specific international market risks, leading to higher US returns.


I don't buy into those arguments.
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Re: Myth's of international investing - Fidelity

Post by burritoLover »

There are legitimate tax disadvantages when investing outside of the U.S., even in a tax advantaged account.
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Re: Myth's of international investing - Fidelity

Post by langlands »

JBTX wrote: Thu Sep 24, 2020 2:37 pm
burritoLover wrote: Thu Sep 24, 2020 10:45 am That's not a balanced perspective. There are certainly downsides to investing outside your home country that should be taken into consideration.
Not balanced? Downsides to diversification?

The arguments for no international are:

Past predicts the future, especially last decade, US will outperform.
The world equity market is incapable of efficient valuing the superiority of the US market and other specific international market risks, leading to higher US returns.


I don't buy into those arguments.
Many people on this forum seem to believe that "efficient markets" guarantee that US and ex-US expected returns must be the same. Consider the following:

Home country bias among all investors is massive. Either this is rational or not rational. If it's not rational, then the global equity market is not efficient since investors are not rationally allocating capital. If it is rational, then investors in different countries have differing utility preferences/constraints that cause their optimal portfolio to differ from those in other countries. These differing utility preferences mean that a European investor might not invest in the US even if the US has higher expected returns. Either way, the conclusion is that higher expected returns for the US market is not necessarily easily arbitraged away.
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Re: Myth's of international investing - Fidelity

Post by JBTX »

langlands wrote: Thu Sep 24, 2020 3:00 pm
JBTX wrote: Thu Sep 24, 2020 2:37 pm
burritoLover wrote: Thu Sep 24, 2020 10:45 am That's not a balanced perspective. There are certainly downsides to investing outside your home country that should be taken into consideration.
Not balanced? Downsides to diversification?

The arguments for no international are:

Past predicts the future, especially last decade, US will outperform.
The world equity market is incapable of efficient valuing the superiority of the US market and other specific international market risks, leading to higher US returns.


I don't buy into those arguments.
Many people on this forum seem to believe that "efficient markets" guarantee that US and ex-US expected returns must be the same. Consider the following:

Home country bias among all investors is massive. Either this is rational or not rational. If it's not rational, then the global equity market is not efficient since investors are not rationally allocating capital. If it is rational, then investors in different countries have differing utility preferences/constraints that cause their optimal portfolio to differ from those in other countries. These differing utility preferences mean that a European investor might not invest in the US even if the US has higher expected returns. Either way, the conclusion is that higher expected returns for the US market is not necessarily easily arbitraged away.
I've seen posters here smarter than me post info that shows that some degree of home country bias is efficient in the case of most countries. But that doesn't mean 100% home is most efficient.
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Re: Myth's of international investing - Fidelity

Post by petulant »

JBTX wrote: Thu Sep 24, 2020 3:45 pm
langlands wrote: Thu Sep 24, 2020 3:00 pm
JBTX wrote: Thu Sep 24, 2020 2:37 pm
burritoLover wrote: Thu Sep 24, 2020 10:45 am That's not a balanced perspective. There are certainly downsides to investing outside your home country that should be taken into consideration.
Not balanced? Downsides to diversification?

The arguments for no international are:

Past predicts the future, especially last decade, US will outperform.
The world equity market is incapable of efficient valuing the superiority of the US market and other specific international market risks, leading to higher US returns.


I don't buy into those arguments.
Many people on this forum seem to believe that "efficient markets" guarantee that US and ex-US expected returns must be the same. Consider the following:

Home country bias among all investors is massive. Either this is rational or not rational. If it's not rational, then the global equity market is not efficient since investors are not rationally allocating capital. If it is rational, then investors in different countries have differing utility preferences/constraints that cause their optimal portfolio to differ from those in other countries. These differing utility preferences mean that a European investor might not invest in the US even if the US has higher expected returns. Either way, the conclusion is that higher expected returns for the US market is not necessarily easily arbitraged away.
I've seen posters here smarter than me post info that shows that some degree of home country bias is efficient in the case of most countries. But that doesn't mean 100% home is most efficient.
Yeah, I think that's my issue. There are good arguments for a reduced allocation, but it's hard to see strong reasons for a 0% allocation. About the only thing that seems compelling to me is that if you can rationally argue down the allocation to 20% or lower, maybe you can argue from there that the allocation isn't going to have that big of an effect on the outcome, and there's a value to more simplicity.
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Re: Myth's of international investing - Fidelity

Post by BogleMelon »

I stopped reading after this:
History suggest that actively managed funds may offer potential outperformance in international markets
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Re: Myth's of international investing - Fidelity

Post by UpperNwGuy »

I'm sitting here waiting patiently for one of the pro-international forum members to post that same tired old chart that shows the periods in which ex-US and US took turns outperforming each other. This isn't an official international thread until that chart appears.
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Re: Myth's of international investing - Fidelity

Post by petulant »

UpperNwGuy wrote: Thu Sep 24, 2020 3:51 pm I'm sitting here waiting patiently for one of the pro-international forum members to post that same tired old chart that shows the periods in which ex-US and US took turns outperforming each other. This isn't an official international thread until that chart appears.
I dunno, I think the chart you're talking about is already in the article.
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Re: Myth's of international investing - Fidelity

Post by langlands »

JBTX wrote: Thu Sep 24, 2020 3:45 pm
langlands wrote: Thu Sep 24, 2020 3:00 pm
JBTX wrote: Thu Sep 24, 2020 2:37 pm
burritoLover wrote: Thu Sep 24, 2020 10:45 am That's not a balanced perspective. There are certainly downsides to investing outside your home country that should be taken into consideration.
Not balanced? Downsides to diversification?

The arguments for no international are:

Past predicts the future, especially last decade, US will outperform.
The world equity market is incapable of efficient valuing the superiority of the US market and other specific international market risks, leading to higher US returns.


I don't buy into those arguments.
Many people on this forum seem to believe that "efficient markets" guarantee that US and ex-US expected returns must be the same. Consider the following:

Home country bias among all investors is massive. Either this is rational or not rational. If it's not rational, then the global equity market is not efficient since investors are not rationally allocating capital. If it is rational, then investors in different countries have differing utility preferences/constraints that cause their optimal portfolio to differ from those in other countries. These differing utility preferences mean that a European investor might not invest in the US even if the US has higher expected returns. Either way, the conclusion is that higher expected returns for the US market is not necessarily easily arbitraged away.
I've seen posters here smarter than me post info that shows that some degree of home country bias is efficient in the case of most countries. But that doesn't mean 100% home is most efficient.
I'm not making a claim about whether 100% home is most efficient. That is up to each individual to decide. Before you get to the question of allocation, you first need to decide what you think the expected returns of your asset is going forward. Many people who tilt US think that US will have higher expected returns than ex-US going forward. Obviously, this is not a very Boglehead take. But my point is that unlike many Boglehead ideas which have a strong theoretical and empirical basis, the idea that all countries must have the same expected return going forward does not.

I'm making an argument using the empirical fact that home country bias among all investors is very high to show that equality of US and ex-US expected returns does not follow from the EMH. This is unlike the case of domestic US stocks where for instance there is a very strong argument that Coke and Pepsi have the same expected returns going forward.
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Re: Myth's of international investing - Fidelity

Post by Gort »

Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
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Re: Myth's of international investing - Fidelity

Post by langlands »

Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
Sorry, but this is a horrible argument. If you're going to argue from authority (which I'm not fond of), you should know that Bogle himself and Buffett are famously pro-US. Also, guess what Vanguard and Fidelity are and what they want to sell...that's right they are fund managers who sell international ETFs and make money from asset accumulation. Perhaps they're not the most neutral source on this topic.

I'm not saying anyone should tilt US. I'm saying that the argument to tilt international is not as automatic as you might think. Bogleheads love the default option. Stay the course. Keep things simple and go on auto-pilot. Well sometimes you have to make a decision.
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Re: Myth's of international investing - Fidelity

Post by Robot Monster »

BogleMelon wrote: Thu Sep 24, 2020 3:49 pm I stopped reading after this:
History suggest that actively managed funds may offer potential outperformance in international markets
Agreed. That made me stop reading, as well, for the following two reasons:

Reason #1: How deeply into history did they look? Did they delve into ancient Mesopotamia in order to unlock the answer? I don't know, guys. I feel like if Fidelity didn't personally break into King Tut's tomb, they shouldn't be trusted.

Reason #2: Shouldn't it be "history suggests"?
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Re: Myth's of international investing - Fidelity

Post by rkhusky »

langlands wrote: Thu Sep 24, 2020 4:28 pm. Also, guess what Vanguard and Fidelity are and what they want to sell...that's right they are fund managers who sell international ETFs and make money from asset accumulation. Perhaps they're not the most neutral source on this topic.
Do Vanguard and Fidelity make more money with International funds than US funds?
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Re: Myth's of international investing - Fidelity

Post by nisiprius »

It has actually convinced me of the opposite. The article is full of such nonsense that it makes me feel that I am being sold something, at high pressure, by a clever salesperson who is trying to mislead without technically lying.
Investors who lack international exposure miss out on the world's best-performing stock markets. The world's top-performing developed stock markets, from 2005 to 2018 (calendar year returns in USD)
Oh, please. This is such terrible nonsense that it disqualifies the rest of the article from serious consideration. Literally true yet completely misleading.

It's the exact intellectual equivalent of saying "You should play the lottery, because if you don't play the lottery you're going to miss out on all the jackpots."

0) Misspelling "Belgium" does not give me confidence that the article was developed carefully or reviewed thoroughly.

1) I don't think there is any widespread "myth" that the US is the world's best-performing stock market every year.

2) Investors who invest only in the US will avoid investing in the world's worst-performing stock markets. For example, a US-only investor avoided investing in Japan in 1989-2012. That is obviously a stupid "reason" not to invest outside the US--but it is just as good as Fidelity's "reason" for investing internationally.

3) For each country, I used total percentage of world stock capitalization by using the current percentages for VTWAX. It will have varied 2005-present but not enough to invalidate my point.

Year Top market % of global total stock capitalization
2005 Canada 2.6%
2006 Spain 0.6%
2007 Finland 0.4%
2008 Israel 0.1%
2009 Norway 0.2%
2010 Sweden 1.0%
2011 Ireland 0.1%
2012 "Belguim" 0.3%
2013 Finland 0.4%
2014 Israel 0.1%
2015 Denmark 0.6%
2016 New Zealand 0.1%
2017 Austria 0.1%
2018 Finland 0.4%

Except for Canada in 2005, not a single one of their "winners" amounted to more than 1% of world capitalization. On the average, the "winning" country was only 0.5% of world capitalization. Without suggesting that US-only is a good strategy, my guess is that a US-only investor would not suffer much regret over having missed out on New Zealand in 2016, rather than holding it as 0.1% of their portfolio.
Last edited by nisiprius on Thu Sep 24, 2020 7:04 pm, edited 1 time in total.
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Re: Myth's of international investing - Fidelity

Post by FiveSigmas »

nisiprius wrote: Thu Sep 24, 2020 5:49 pm Except for Canada in 2005, not a single one of their "winners" amounted to more than 1% of world capitalization. On the average, the "winning" country was only 0.5% of world capitalization. Without suggesting that US-only is a good strategy, my guess is that a US-only investor would not suffer much regret over having missed out on New Zealand in 2016, rather than holding it as 0.1% of their portfolio.
Ah, but the article also mentions:
History suggest that actively managed funds may offer potential outperformance in international markets.
Clearly, Fidelity may have developed a proprietary trading strategy that seeks to target these outperforming countries. This may offer potential portfolio benefits.
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Re: Myth's of international investing - Fidelity

Post by Wanderingwheelz »

langlands wrote: Thu Sep 24, 2020 4:28 pm
Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
Sorry, but this is a horrible argument. If you're going to argue from authority (which I'm not fond of), you should know that Bogle himself and Buffett are famously pro-US. Also, guess what Vanguard and Fidelity are and what they want to sell...that's right they are fund managers who sell international ETFs and make money from asset accumulation. Perhaps they're not the most neutral source on this topic.

I'm not saying anyone should tilt US. I'm saying that the argument to tilt international is not as automatic as you might think. Bogleheads love the default option. Stay the course. Keep things simple and go on auto-pilot. Well sometimes you have to make a decision.
You might want to pay closer attention to what Buffet has been/is doing. His most recent large investments that are publicly known were in Japan, and he famously dumped US airlines in a big way, and also aggressively sold US banks. I wouldn’t be surprised if he continues to deploy Berkshire cash overseas. I actually expect him to.

I also wouldn’t have been surprised if Jack Bogle was living today he’d be more inclined to sing the virtues of international equities. The world is changing faster than ever.
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Re: Myth's of international investing - Fidelity

Post by willthrill81 »

I agree with others that the article is just abominable.
In any given year, the best performing stock market is usually outside the US.
So what? That doesn't mean that ex-U.S. in total is likely to outperform the U.S. in any given year.
International diversification has historically improved risk-adjusted returns.
That depends greatly on which time periods are being used. Since 1986 (all available data in Portfolio Visualizer), the Sharpe ratio for U.S. stocks was .53 but only .28 for ex-U.S.
History suggest that actively managed funds may offer potential outperformance in international markets.
:oops:
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Re: Myth's of international investing - Fidelity

Post by abuss368 »

willthrill81 wrote: Thu Sep 24, 2020 7:54 pm I agree with others that the article is just abominable.
In any given year, the best performing stock market is usually outside the US.
So what? That doesn't mean that ex-U.S. in total is likely to outperform the U.S. in any given year.
International diversification has historically improved risk-adjusted returns.
That depends greatly on which time periods are being used. Since 1986 (all available data in Portfolio Visualizer), the Sharpe ratio for U.S. stocks was .53 but only .28 for ex-U.S.
History suggest that actively managed funds may offer potential outperformance in international markets.
:oops:
Will -

This is well said. The arguments for international are weak and continue to get weaker.

The most important aspect to a strategy that one can stay with in all markets. If that is US only that is fine.
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Re: Myth's of international investing - Fidelity

Post by galawdawg »

Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
Neither. I took my "international or not" cues from Jack Bogle decades ago as I trusted (and still trust) his investing advice and guidance. I have simply stayed the course since then. And during my thirty odd year investing lifetime, that decision has proven to have been a sound one and has paid off with much higher returns than I would have realized f I had included international in my portfolio.
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Re: Myth's of international investing - Fidelity

Post by ChrisBenn »

willthrill81 wrote: Thu Sep 24, 2020 7:54 pm (...)
History suggest that actively managed funds may offer potential outperformance in international markets.
:oops:
I think active management in international small cap tended to do significantly better than (active management) in most other facets, per the SPIVA active/passive score card. It was 2018ish where more than half beat the index, though I think on average it's closer to 30%. Still it was noticeably different than large cap, domestic, etc which were in the 10-15% outperform area.

Not making a case for active (30% isn't 51%) - plus there is always the question of can you identify the outperformers apriori -- but international small cap does appear different than the rest in this respect.

https://www.ifa.com/articles/spiva_-yea ... scorecard/
Last edited by ChrisBenn on Fri Sep 25, 2020 6:17 am, edited 1 time in total.
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Re: Myth's of international investing - Fidelity

Post by nisiprius »

I have to wonder if there weren't some "frontier markets" countries that had even higher returns in some years than the ones Fidelity showed. That is, some years in which the highest return was from a "frontier market," and thus you could make a phony case that you ought to include frontier markets in order to avoid missing out on the highest-earning countries. :twisted: And, of course, there were specific years in which bitcoin had a higher return than any of them.
Last edited by nisiprius on Fri Sep 25, 2020 6:18 am, edited 1 time in total.
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Re: Myth's of international investing - Fidelity

Post by abuss368 »

galawdawg wrote: Fri Sep 25, 2020 6:00 am
Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
Neither. I took my "international or not" cues from Jack Bogle decades ago as I trusted (and still trust) his investing advice and guidance. I have simply stayed the course since then. And during my thirty odd year investing lifetime, that decision has proven to have been a sound one and has paid off with much higher returns than I would have realized f I had included international in my portfolio.
Jack Bogle has certainly been right. I pulled “Bogle on Mutual Funds” from the shelf and looked at the recommended portfolios near the back. Value/Growth (which is essentially Total Stock), a sector/specialty, and an equity income (dividend or income fund) with bonds. Simple and effective. No international.
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Re: Myth's of international investing - Fidelity

Post by flaccidsteele »

Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
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Re: Myth's of international investing - Fidelity

Post by abuss368 »

flaccidsteele wrote: Fri Sep 25, 2020 6:20 am
Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
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Re: Myth's of international investing - Fidelity

Post by lostdog »

If a young investor is reading this, please consider some of the comments from members above are arm chair experts that suffer personal biases and over the top idolatry of Jack Bogle and Warren Buffet. There is no place for over the top hero worship and human emotion in investing. Stick with a Lifestrategy or Target Retirement fund if you feel the need to tinker when you see these comments.
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Re: Myth's of international investing - Fidelity

Post by nisiprius »

"Myth 2: International investing is too risky." Now, of course, they get off the hook by saying "too." But it's no myth that international investing is riski-ER. Not an awful lot, but some, and that shouldn't be swept under the rug. There are all sorts of legitimate ways to say "there is more risk, but it is worth it." But you have to say that there is more risk, and in the marketing piece they never do.

But Fidelity says so in their summary prospectus for the Fidelity Diversified International Fund
Principal Investment Risks...

Foreign Exposure. Foreign markets, particularly emerging markets, can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market, or economic developments and can perform differently from the U.S. market. Emerging markets can be subject to greater social, economic, regulatory, and political uncertainties and can be extremely volatile. Foreign exchange rates also can be extremely volatile.
So, who are you going to believe? Fidelity's marketing pieces or Fidelity when they're on the hook and legally responsible for what they say?

Moreover, there is always the haze of confusion surrounding "low correlation" and risk-adjusted return. To the extent that it works, it is a statistical edge that you hope will accumulate over long periods of time. But if it's not explained, it's easy to imagine that international "diversification" will protect you against crashes. The elephant in the room here is 2008-2009. I'm using the "Globally Balanced Portfolio 70% US/30% Int'l" ratio they suggest. Because of changes in ticker symbols which PortfolioVisualizer has trouble following, rather than using a Fidelity fund, I used the S&P 500 ETF, SPY. For international I again used Fidelity Diversified International, FDIVX, for these reasons: a) I actually was invested in it myself, once; b) it's actively managed and they say that can help in international stock funds. As you can see, FDIVX tanked somewhat more than US in 2008-2009. The important thing here is that the 70/30 mix didn't work any low correlation magic. The diversification benefit of international didn't offset its deeper decline.

The internationally diversified investor did a little bit worse in 2008-2009 than the all-US investor. Not a lot, but enough to show that international stocks are not any powerful shield of invulnerability to US crashes.

Source

Image

Vanguard puts Total [US] Stock into risk category level 4, Total International into 5.

Significantly, they put Total World into risk category 4. What this tells us on the face of it is that, in Vanguard's opinion, adding about 50% international stock to US stock doesn't increase the risk enough to matter, but neither does international diversification lower the risk enough to matter.
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Re: Myth's of international investing - Fidelity

Post by bogledogle87 »

This discussion is often way more complicated than it needs to be. Historical performance of US vs International is completely irrelevant. Bogle and Buffet's past claims are equally irrelevant.

Here is what actually matters when it comes to any investment asset:
- The price you buy
- The price you sell
- The risk that you might sell at less than you bought
- The cut of profits distributed to you
- The cost of ownership

That's it. These factors know no geographical, regulatory, or political bounds. We buy investments because they have a positive expected return based on fundamental financial and pricing metrics. What we actually get is that a Total Return = Expected + Unexpected Return. Unexpected return can often dwarf the expected in a positive or negative way. Just look at TSLA this year as a prime example, or Technology stocks for the last 10.

Prices are a direct reflection of market expectations to deliver future earnings based on available information. If someone tells you that that price of US stocks will outperform the price of International, they are claiming that the US is undervalued (investors are still underpaying despite high expectations) today and International overvalued (investors still overpaying) for those earnings. There is currently no pricing metric that would support this - the data starkly demonstrates the opposite. International fundamentally has a higher expected 10 year forward looking return by all available information.

Does that mean International is a guarantee over US for the next decade? Of course not, but the notion that US will continue to outperform ultimately comes down to a claim to enlightened understanding of unexpected returns. This is basically a contrarian bet against all available statistics. As a passive index investor, I have no interest in participating in such speculation, so I stick with VTWAX.
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Re: Myth's of international investing - Fidelity

Post by galawdawg »

lostdog wrote: Fri Sep 25, 2020 6:47 am If a young investor is reading this, please consider some of the comments from members above are arm chair experts that suffer personal biases and over the top idolatry of Jack Bogle and Warren Buffet. There is no place for over the top hero worship and human emotion in investing. Stick with a Lifestrategy or Target Retirement fund if you feel the need to tinker when you see these comments.
When these types of responses are posted it often means the data does not support the poster's position.

But you need look no further than 2016 to see the position that this poster took concerning a wise portfolio allocation, particularly whether or not international should be included:
lostdog wrote: Thu May 26, 2016 10:27 am My Jack Bogle portfolio is Vanguard Total Stock Market Admiral and Vanguard Intermediate-Term Bond Index Fund. Very simple. Re-balance once a year with a 5% band in my retirement accounts. I am not interested in International investing as it most likely won't make a difference anyway ("When experts disagree, it is often because it does not make a foreseeable difference." -- Taylor Larimore, author of The Bogleheads' Guide to Investing).

In my taxable I have the Vanguard Balanced Index Fund Admiral. I have a different goal for my taxable account and it is not part of my retirement AA. I call my taxable account the semi-retirement goal. I am in a low tax bracket, the fund doesn't create capital gains distributions, it's always at a 60/40 AA with no capital gains for rebalancing and I don't care about the long term capital gains when selling small portions of the fund.
I wonder when this poster became such an international convert to the extent that the poster now seems to pop-up in every international thread to engage in unproductive commentary and personal and offensive criticism directed at those who choose not to hold international???
lostdog wrote: Wed Sep 16, 2020 7:45 am Here to save novice investors from people like you.
Supposedly buying the haystack is a hard concept for the human brain to grasp.
lostdog wrote: Sun May 17, 2020 9:09 am This tends to be the older crowd. There are are other reasons that are not allowed to be discussed here. I'll just say overly patriotic with some extra agendas and you can follow the trail from there. This is a public forum so...

They don't want you to invest your money into foreign powers so they'll say whatever they can to stop you from doing it. Most likely in their mind, you're a traitor if you do.

Then you have the performance chasers. Might as well talk to a wall.

It's the same thing over and over and over. I've noticed some of the prominent members have given up arguing with these people.
lostdog wrote: Fri Apr 10, 2020 8:42 am What bothers me is this crusade to down play and give subtle jabs to international funds because of past and current performance. At least you're honest about performance chasing and your constantly comparing US and International performance, bolded above. I see it in other threads also.
Also the crusade to communicate that international funds are not needed at all while at the same time giving each other virtual high fives for constant reassurance of your decisions.
A young and novice investor seeing something like this could be dangerous for them in the long run.
One wonders what it is about this topic that causes some here to feel that they must resort to such unproductive and destructive dialog in order to make their point...

Perhaps we all should leave the divisiveness of our current culture at the door, engage in thoughtful discussions of the issues respectfully and considerately, and when consensus is not possible, simply agree to disagree. :beer
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Re: Myth's of international investing - Fidelity

Post by abuss368 »

lostdog wrote: Fri Sep 25, 2020 6:47 am If a young investor is reading this, please consider some of the comments from members above are arm chair experts that suffer personal biases and over the top idolatry of Jack Bogle and Warren Buffet. There is no place for over the top hero worship and human emotion in investing. Stick with a Lifestrategy or Target Retirement fund if you feel the need to tinker when you see these comments.
Are you sure? The Target and LifeStrategy are excellent funds for many investors. However, Jack Bogle and Warren Buffett provide a lot of support for why simply owning the US Markets with Total Stock or S&P 500 works.

Here is an excellent thread that may be useful: viewtopic.php?f=10&t=188176
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Re: Myth's of international investing - Fidelity

Post by abuss368 »

pkcrafter wrote: Thu Sep 24, 2020 10:39 am Myths of international investing

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

The international allocation in Vanguard's Total World Stock Index is 39-40%. Are you comfortable with that much? Did reading this article change your view?

Paul
Hi Paul -

Very interesting paper from Fidelity and thank you sharing. In any expected year, there is a stock market that is out performing the US. I would agree.
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Re: Myth's of international investing - Fidelity

Post by galawdawg »

nisiprius wrote: Fri Sep 25, 2020 6:48 am "Myth 2: International investing is too risky." Now, of course, they get off the hook by saying "too." But it's no myth that international investing is riski-ER. Not an awful lot, but some, and that shouldn't be swept under the rug. There are all sorts of legitimate ways to say "there is more risk, but it is worth it." But you have to say that there is more risk, and in the marketing piece they never do.

But Fidelity says so in their summary prospectus for the Fidelity Diversified International Fund
Principal Investment Risks...

Foreign Exposure. Foreign markets, particularly emerging markets, can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market, or economic developments and can perform differently from the U.S. market. Emerging markets can be subject to greater social, economic, regulatory, and political uncertainties and can be extremely volatile. Foreign exchange rates also can be extremely volatile.
So, who are you going to believe? Fidelity's marketing pieces or Fidelity when they're on the hook and legally responsible for what they say?
As I have posted elsewhere in a discussion of this issue, investors generally seek to be compensated for taking on increased risk. That compensation comes in the way of higher returns than one would likely realize from a less risky investment. And if that asset class has extra risk but fails to provide a risk premium, then an investor has to consider whether investment in that asset class is a wise decision. When an investor can realize the same or better returns by investing in an asset class with less risk, it is completely logical that the investor would choose the less-risky option.

In my opinion, that is a significant consideration for new investors when assessing whether to invest in international funds and if so, to what extent. As pointed out by nisiprius, Fidelity (as well as Vanguard and others) acknowledge in their disclosures that foreign investment involves increased risks. That being the case, where is the risk premium for investors?
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Re: Myth's of international investing - Fidelity

Post by hisdudeness »

galawdawg wrote: Fri Sep 25, 2020 7:55 am
lostdog wrote: Fri Sep 25, 2020 6:47 am If a young investor is reading this, please consider some of the comments from members above are arm chair experts that suffer personal biases and over the top idolatry of Jack Bogle and Warren Buffet. There is no place for over the top hero worship and human emotion in investing. Stick with a Lifestrategy or Target Retirement fund if you feel the need to tinker when you see these comments.
When these types of responses are posted it often means the data does not support the poster's position.

But you need look no further than 2016 to see the position that this poster took concerning a wise portfolio allocation, particularly whether or not international should be included:
lostdog wrote: Thu May 26, 2016 10:27 am My Jack Bogle portfolio is Vanguard Total Stock Market Admiral and Vanguard Intermediate-Term Bond Index Fund. Very simple. Re-balance once a year with a 5% band in my retirement accounts. I am not interested in International investing as it most likely won't make a difference anyway ("When experts disagree, it is often because it does not make a foreseeable difference." -- Taylor Larimore, author of The Bogleheads' Guide to Investing).

In my taxable I have the Vanguard Balanced Index Fund Admiral. I have a different goal for my taxable account and it is not part of my retirement AA. I call my taxable account the semi-retirement goal. I am in a low tax bracket, the fund doesn't create capital gains distributions, it's always at a 60/40 AA with no capital gains for rebalancing and I don't care about the long term capital gains when selling small portions of the fund.
I wonder when this poster became such an international convert to the extent that the poster now seems to pop-up in every international thread to engage in unproductive commentary and personal and offensive criticism directed at those who choose not to hold international???
lostdog wrote: Wed Sep 16, 2020 7:45 am Here to save novice investors from people like you.
Supposedly buying the haystack is a hard concept for the human brain to grasp.
lostdog wrote: Sun May 17, 2020 9:09 am This tends to be the older crowd. There are are other reasons that are not allowed to be discussed here. I'll just say overly patriotic with some extra agendas and you can follow the trail from there. This is a public forum so...

They don't want you to invest your money into foreign powers so they'll say whatever they can to stop you from doing it. Most likely in their mind, you're a traitor if you do.

Then you have the performance chasers. Might as well talk to a wall.

It's the same thing over and over and over. I've noticed some of the prominent members have given up arguing with these people.
lostdog wrote: Fri Apr 10, 2020 8:42 am What bothers me is this crusade to down play and give subtle jabs to international funds because of past and current performance. At least you're honest about performance chasing and your constantly comparing US and International performance, bolded above. I see it in other threads also.
Also the crusade to communicate that international funds are not needed at all while at the same time giving each other virtual high fives for constant reassurance of your decisions.
A young and novice investor seeing something like this could be dangerous for them in the long run.
One wonders what it is about this topic that causes some here to feel that they must resort to such unproductive and destructive dialog in order to make their point...

Perhaps we all should leave the divisiveness of our current culture at the door, engage in thoughtful discussions of the issues respectfully and considerately, and when consensus is not possible, simply agree to disagree. :beer
+1000 Galawdawg
Thanks for exposing the hypocrisy
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Re: Myth's of international investing - Fidelity

Post by pkcrafter »

nisiprius wrote: Thu Sep 24, 2020 5:49 pm It has actually convinced me of the opposite. The article is full of such nonsense that it makes me feel that I am being sold something, at high pressure, by a clever salesperson who is trying to mislead without technically lying.
Investors who lack international exposure miss out on the world's best-performing stock markets. The world's top-performing developed stock markets, from 2005 to 2018 (calendar year returns in USD)
Oh, please. This is such terrible nonsense that it disqualifies the rest of the article from serious consideration. Literally true yet completely misleading.

It's the exact intellectual equivalent of saying "You should play the lottery, because if you don't play the lottery you're going to miss out on all the jackpots."

0) Misspelling "Belgium" does not give me confidence that the article was developed carefully or reviewed thoroughly.

1) I don't think there is any widespread "myth" that the US is the world's best-performing stock market every year.

2) Investors who invest only in the US will avoid investing in the world's worst-performing stock markets. For example, a US-only investor avoided investing in Japan in 1989-2012. That is obviously a stupid "reason" not to invest outside the US--but it is just as good as Fidelity's "reason" for investing internationally.

3) For each country, I used total percentage of world stock capitalization by using the current percentages for VTWAX. It will have varied 2005-present but not enough to invalidate my point.

Year Top market % of global total stock capitalization
2005 Canada 2.6%
2006 Spain 0.6%
2007 Finland 0.4%
2008 Israel 0.1%
2009 Norway 0.2%
2010 Sweden 1.0%
2011 Ireland 0.1%
2012 "Belguim" 0.3%
2013 Finland 0.4%
2014 Israel 0.1%
2015 Denmark 0.6%
2016 New Zealand 0.1%
2017 Austria 0.1%
2018 Finland 0.4%

Except for Canada in 2005, not a single one of their "winners" amounted to more than 1% of world capitalization. On the average, the "winning" country was only 0.5% of world capitalization. Without suggesting that US-only is a good strategy, my guess is that a US-only investor would not suffer much regret over having missed out on New Zealand in 2016, rather than holding it as 0.1% of their portfolio.
Does this mean you don't hold any international and do not recommended it to new investors?

Paul
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Re: Myth's of international investing - Fidelity

Post by RadAudit »

UpperNwGuy wrote: Thu Sep 24, 2020 3:51 pm I'm sitting here waiting patiently for one of the pro-international forum members to post that same tired old chart that shows the periods in which ex-US and US took turns outperforming each other. This isn't an official international thread until that chart appears.
Wait's over. It's in the linked article.
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Re: Myth's of international investing - Fidelity

Post by hagridshut »

Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
Neither :mrgreen:

My perspective is that allocations need to be tailored towards each individual investor's risk tolerance. Some people may not be able to stick with a plan that includes international, because they become upset at periods of underperformance relative to the U.S. market.

I also believe that some investors are not well served by Index-only investing, because they have the talent and psychological characteristics necessary to pick and keep winning stocks over the long haul, despite risk/volatility (this is a minority of investors, but they do exist). They will beat the indexes. The chief problem is that many people believe they are in this minority, when they actually are not.
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Re: Myth's of international investing - Fidelity

Post by AlwaysLearningMore »

Wanderingwheelz wrote: Thu Sep 24, 2020 6:47 pm
langlands wrote: Thu Sep 24, 2020 4:28 pm
Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
Sorry, but this is a horrible argument. If you're going to argue from authority (which I'm not fond of), you should know that Bogle himself and Buffett are famously pro-US. Also, guess what Vanguard and Fidelity are and what they want to sell...that's right they are fund managers who sell international ETFs and make money from asset accumulation. Perhaps they're not the most neutral source on this topic.

I'm not saying anyone should tilt US. I'm saying that the argument to tilt international is not as automatic as you might think. Bogleheads love the default option. Stay the course. Keep things simple and go on auto-pilot. Well sometimes you have to make a decision.
You might want to pay closer attention to what Buffet has been/is doing. His most recent large investments that are publicly known were in Japan, and he famously dumped US airlines in a big way, and also aggressively sold US banks. I wouldn’t be surprised if he continues to deploy Berkshire cash overseas. I actually expect him to.

I also wouldn’t have been surprised if Jack Bogle was living today he’d be more inclined to sing the virtues of international equities. The world is changing faster than ever.
"My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers." Berkshire Hathaway Annual Shareholder letter, 2013.
Taylor Larimore wrote: Thu Nov 14, 2019 9:11 pm Bogleheads:

When I was writing The Bogleheads' Guide to the Three-Fund Portfolio, I asked Mr. Bogle if he would write the Forward. He immediately replied "of course." I was thrilled.

I sent Jack an advance copy of the book which included my recommendation for an international fund. He called me back to say an international fund was not necessary....
Best wishes.
Taylor
Jack Bogle's Words of Wisdom from his Forward in The Bogleheads' Three-Fund Portfolio: "Since 1994 (when Jack wrote his first book suggesting international stocks are unnecessary) the U.S. S&P 500 Index was to rise by 743%, while the EAFE Index of non-U.S. stocks rose by 237%."
The Bogleheads' Guide to the Three-Fund Portfolio was published on July 3, 2018, and Mr. Bogle would likely not be surprised when comparing the performance of Vanguard Total Stock Market Index Fund vs Vanguard Total International Stock Index Fund since the publication of Mr. Larimore's book.

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Re: Myth's of international investing - Fidelity

Post by JoMoney »

...Myth 2....
... the absolute return of the globally balanced portfolio is almost level with that of the all-US portfolio, despite the recent multiyear rally in US stocks. And given the cyclicality of US and foreign stock returns, history suggests their relationship could revert to its historical norms at some stage...
This might have been briefly true 12-14 years ago, but is certainly not the case since "the recent multiyear rally in US stocks". If one looks at the long run returns of the MSCI EAFE index since 1970, it was only true that it's returns were 'almost level' with US if you ignore foreign tax withholdings looking only at 'Gross Return index'... looking at the 'MSCI EAFE Net Return Index' which would be the index a fund might track to properly reflect returns after foreign taxes are withheld, the case of it being 'almost level' is harder to make.

There might have been periods where international was less correlated with US stocks, and periods where mean-reversion or 'cyclicality' occurred. There have also been long periods where those things did not occur. Those who insist on chasing returns might experience a fleeting sense that it worked when those diverting uncorrelated assets start 'reverting', but the strategy also implies (requires) those assets go back to a state of diverting, taking any "rebalancing bonus" of holding both with it.
If both assets had the same returns, were also 'equally volatile', with the same costs and taxes, (which is not the case with US/Intl) then it would be true that it creates a less volatile portfolio with the same expected return to hold both... But since broad international does have additional costs/taxes, is more volatile (in addition to risks that can be described in other ways), there is no 'free lunch' here. If you want to chase returns in international, it makes sense to limit your exposure to the risks (and costs) inherent there. Mr. Bogle was clearly right that a full market-cap weighting exposure is too much for most people, and simply hasn't been necessary for U.S. investors to have a well diversified portfolio.
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Re: Myth's of international investing - Fidelity

Post by AlwaysLearningMore »

JoMoney wrote: Fri Sep 25, 2020 9:36 am
...Myth 2....
... the absolute return of the globally balanced portfolio is almost level with that of the all-US portfolio, despite the recent multiyear rally in US stocks. And given the cyclicality of US and foreign stock returns, history suggests their relationship could revert to its historical norms at some stage...
This might have been briefly true 12-14 years ago, but is certainly not the case since "the recent multiyear rally in US stocks". If one looks at the long run returns of the MSCI EAFE index since 1970, it was only true that it's returns were 'almost level' with US if you ignore foreign tax withholdings looking only at 'Gross Return index'... looking at the 'MSCI EAFE Net Return Index' which would be the index a fund might track to properly reflect returns after foreign taxes are withheld, the case of it being 'almost level' is harder to make.
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Re: Myth's of international investing - Fidelity

Post by JBTX »

Like I said - "no international" arguments are:

- past performance -= future performance
- world markets are incapable of correctly valuing international stocks and US exceptionalism. Bogleheads have superior insight on such matters.
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Re: Myths of international investing - Fidelity

Post by LadyGeek »

The discussion is getting contentious regarding a member's position. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters.
The points have been made, let's move on.

I also fixed a typo in the thread title.
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Re: Myth's of international investing - Fidelity

Post by JoMoney »

JBTX wrote: Fri Sep 25, 2020 10:00 am Like I said - "no international" arguments are:

- past performance -= future performance
- world markets are incapable of correctly valuing international stocks and US exceptionalism. Bogleheads have superior insight on such matters.
"- past performance -= future performance "
As I pointed out, that's the argument the Fidelity article tries to imply (incorrectly) for investing in international
...Myth 2....
... the absolute return of the globally balanced portfolio is almost level with that of the all-US portfolio, despite the recent multiyear rally in US stocks. And given the cyclicality of US and foreign stock returns, history suggests their relationship could revert to its historical norms at some stage...
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Re: Myth's of international investing - Fidelity

Post by Gort »

langlands wrote: Thu Sep 24, 2020 4:28 pm
Gort wrote: Thu Sep 24, 2020 4:07 pm Both Vanguard and Fidelity recommend international asset allocations, up to 50%. So who are you going to believe, them or some anonymous US only posters in this forum?
Sorry, but this is a horrible argument. If you're going to argue from authority (which I'm not fond of), you should know that Bogle himself and Buffett are famously pro-US. Also, guess what Vanguard and Fidelity are and what they want to sell...that's right they are fund managers who sell international ETFs and make money from asset accumulation. Perhaps they're not the most neutral source on this topic.

I'm not saying anyone should tilt US. I'm saying that the argument to tilt international is not as automatic as you might think. Bogleheads love the default option. Stay the course. Keep things simple and go on auto-pilot. Well sometimes you have to make a decision.
I don't think it's that horrible. It's as good as any other argument I read on this forum.
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Re: Myths of international investing - Fidelity

Post by S4C5 »

Everybody has their opinion. I do not buy any international funds and rarely non-US stocks.

If you are buying international funds as a way to outperform US funds, I think that's a bad idea. I haven't seen that happening and have no reason to believe it will soon.
If you are buying international funds as a way to hedge against catastrophic non-recoverable US economic turmoil, I also don't think this is a good idea. Holding a small amount of precious metals seems to make more sense for this unlikely scenario.
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Re: Myth's of international investing - Fidelity

Post by nisiprius »

pkcrafter wrote: Fri Sep 25, 2020 8:25 am...Does this mean you don't hold any international?...
No. About 20% of my stock allocation is invested in the Vanguard Total International Stock Index Fund.
...and do not recommend it to new investors?...
No. New investors need to make a decision and stick to it, and 0% is one end of a range of perfectly acceptable personal choices.

What I believe is that Fidelity's arguments are wildly exaggerated nonsense, that many arguments that imply that it is terribly important, or even necessary, are wildly exaggerated nonsense. And that the truth is that it lies in the grey area of maybe.

What I believe is that 0% international, 1/6th international (Burton Malkiel's recommendation in 1990), 20% international (Vanguard's former recommendation and practice about fifteen years ago), 30% international (which seems to be Fidelity's suggestion), 40% international (Vanguard's current recommendation and practice), and global cap weight (as in Total World, currently about 42% international but let's say "about half") are all perfectly reasonable choices.

And that new investors should spend enough time to make some kind of decision that feels right to them, acknowledge that it is a matter of personal preference, and stick to it.

For the record, Bogle's recommendation was that all-US is fine, up to 20% international is fine, but don't exceed 20%.

I know that one thing that's worked out well for me is that 20% international is a number that theoretically--according to something Vanguard published once--gives most of the diversification benefit, andat the same time is low enough that I have been able to stay the course and not get upset by a decade of underperformance.
Last edited by nisiprius on Fri Sep 25, 2020 10:34 am, edited 1 time in total.
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Re: Myth's of international investing - Fidelity

Post by MCSquared »

galawdawg wrote: Fri Sep 25, 2020 8:04 am
nisiprius wrote: Fri Sep 25, 2020 6:48 am "Myth 2: International investing is too risky." Now, of course, they get off the hook by saying "too." But it's no myth that international investing is riski-ER. Not an awful lot, but some, and that shouldn't be swept under the rug. There are all sorts of legitimate ways to say "there is more risk, but it is worth it." But you have to say that there is more risk, and in the marketing piece they never do.

But Fidelity says so in their summary prospectus for the Fidelity Diversified International Fund
Principal Investment Risks...

Foreign Exposure. Foreign markets, particularly emerging markets, can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market, or economic developments and can perform differently from the U.S. market. Emerging markets can be subject to greater social, economic, regulatory, and political uncertainties and can be extremely volatile. Foreign exchange rates also can be extremely volatile.
So, who are you going to believe? Fidelity's marketing pieces or Fidelity when they're on the hook and legally responsible for what they say?
As I have posted elsewhere in a discussion of this issue, investors generally seek to be compensated for taking on increased risk. That compensation comes in the way of higher returns than one would likely realize from a less risky investment. And if that asset class has extra risk but fails to provide a risk premium, then an investor has to consider whether investment in that asset class is a wise decision. When an investor can realize the same or better returns by investing in an asset class with less risk, it is completely logical that the investor would choose the less-risky option.

In my opinion, that is a significant consideration for new investors when assessing whether to invest in international funds and if so, to what extent. As pointed out by nisiprius, Fidelity (as well as Vanguard and others) acknowledge in their disclosures that foreign investment involves increased risks. That being the case, where is the risk premium for investors?
Curious, did you ask yourself the same question of "where is the risk premium" when LT corporate bonds and LT Treasuries crushed the S&P 500 the past twenty years or so? Should folks dump their S&P allocation when US Agg Bonds provide a similar return (with less risk) as it did in the past 20 years? I certainly am not advocating that position just trying to understand your theory.
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Re: Myth's of international investing - Fidelity

Post by abuss368 »

galawdawg wrote: Fri Sep 25, 2020 8:04 am
nisiprius wrote: Fri Sep 25, 2020 6:48 am "Myth 2: International investing is too risky." Now, of course, they get off the hook by saying "too." But it's no myth that international investing is riski-ER. Not an awful lot, but some, and that shouldn't be swept under the rug. There are all sorts of legitimate ways to say "there is more risk, but it is worth it." But you have to say that there is more risk, and in the marketing piece they never do.

But Fidelity says so in their summary prospectus for the Fidelity Diversified International Fund
Principal Investment Risks...

Foreign Exposure. Foreign markets, particularly emerging markets, can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market, or economic developments and can perform differently from the U.S. market. Emerging markets can be subject to greater social, economic, regulatory, and political uncertainties and can be extremely volatile. Foreign exchange rates also can be extremely volatile.
So, who are you going to believe? Fidelity's marketing pieces or Fidelity when they're on the hook and legally responsible for what they say?
As I have posted elsewhere in a discussion of this issue, investors generally seek to be compensated for taking on increased risk. That compensation comes in the way of higher returns than one would likely realize from a less risky investment. And if that asset class has extra risk but fails to provide a risk premium, then an investor has to consider whether investment in that asset class is a wise decision. When an investor can realize the same or better returns by investing in an asset class with less risk, it is completely logical that the investor would choose the less-risky option.

In my opinion, that is a significant consideration for new investors when assessing whether to invest in international funds and if so, to what extent. As pointed out by nisiprius, Fidelity (as well as Vanguard and others) acknowledge in their disclosures that foreign investment involves increased risks. That being the case, where is the risk premium for investors?
That has been one of the key points for me as well. I invested in Total International for a long time. It returned 10% cumulative for me. For that additional risk! I would have a much higher portfolio today if I simply listed to Jack Bogle’s.
John C. Bogle: “Simplicity is the master key to financial success."
JBTX
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Re: Myth's of international investing - Fidelity

Post by JBTX »

JoMoney wrote: Fri Sep 25, 2020 10:17 am
JBTX wrote: Fri Sep 25, 2020 10:00 am Like I said - "no international" arguments are:

- past performance -= future performance
- world markets are incapable of correctly valuing international stocks and US exceptionalism. Bogleheads have superior insight on such matters.
"- past performance -= future performance "
As I pointed out, that's the argument the Fidelity article tries to imply (incorrectly) for investing in international
...Myth 2....
... the absolute return of the globally balanced portfolio is almost level with that of the all-US portfolio, despite the recent multiyear rally in US stocks. And given the cyclicality of US and foreign stock returns, history suggests their relationship could revert to its historical norms at some stage...
Your point is valid.

The two anti international arguments I stated may be/may turn out to be true. Only time will tell. But let's be clear almost all of the arguments presented are a subset of those 2 (the tax one perhaps being the exception)
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