The problem is you are framing the issue incorrectly. The question is whether adding international to your portfolio increases your risk adjusted returns of the portfolio. The question is not whether international is better or worse or riskier vs US by itself.galawdawg wrote: ↑Fri Sep 25, 2020 8:04 amAs 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.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 FundSo, 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?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.
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?
The fidelity article suggests over the time frame they picked international increased the risk adjusted return of a diversified portfolio. I have seen other articles that suggest having 20% to market weight increases your risk adjusted returns. Of course, you can cherry pick points in time that show the opposite. Seems to me 1950 to present is as reasonable and representative as you can get.
Also, I also happen to believe, but there may not be evidence to support it, is having some currency risk is a good thing, as somewhat of a hedge. If things go to crap here in the US, and not as much elsewhere, the dollar likely goes down, which is a portfolio hedge and also a hedge against most aspects of our financial well being which are highly linked to the economic health of the home country. Japan is an example. Of course, the US hasn't really had a protracted period of economic underperformance in the modern era, so I likely can't prove my point with historical US data.