Ben Felix: International Diversification.

[Apathizer]

Yes, that's right, yet another ex-US thread. Felix just released a video discussing international diversification in great detail. Since Felix is esteemed by many of us (and disdained by others), I thought a new thread might worthwhile. Ready, set, go!

"If you enjoyed this video, please share it with someone who only owns US stocks." - Ben Felix
https://www.youtube.com/watch?v=1FXuMs6YRCY

[brad.clarkston]

[Inappropriate comment remoived. Moderator Pops1860]

He's right but didn't make a compelling anything.

[happyisland]

[Inappropriate comment remoived. Moderator Pops1860]


He's right but didn't make a compelling anything.

Wow, I couldn't disagree more. I really love the plain language Felix uses to lay out fairly complicated topics, and his knowledge and intellectual curiosity are second to none. (In my opinion, obviously. haha)

[Apathizer]

[Inappropriate comment remoived. Moderator Pops1860]


He's right but didn't make a compelling anything.

Wow, I couldn't disagree more. I really love the plain language Felix uses to lay out fairly complicated topics, and his knowledge and intellectual curiosity are second to none. (In my opinion, obviously. haha)

I agree. He articulates complex financial information understandably without oversimplifying. As you said, he also seems open to new information and understands how complex and ambiguous some aspects of investing and finance are.

[Gort]

[Inappropriate comment remoived. Moderator Pops1860]

He's right but didn't make a compelling anything.

Wow, I couldn't disagree more. I really love the plain language Felix uses to lay out fairly complicated topics, and his knowledge and intellectual curiosity are second to none. (In my opinion, obviously. haha)

I agree. He articulates complex financial information understandably without oversimplifying. As you said, he also seems open to new information and understands how complex and ambiguous some aspects of investing and finance is.

+1. Very informative video. Thanks for sharing.

[Nathan Drake]

Great video that succinctly summarizes the entire “debate“

[typical.investor]

[Inappropriate comment remoived. Moderator Pops1860]


He's right but didn't make a compelling anything.

Wow, I couldn't disagree more. I really love the plain language Felix uses to lay out fairly complicated topics, and his knowledge and intellectual curiosity are second to none. (In my opinion, obviously. haha)

I agree. He articulates complex financial information understandably without oversimplifying. As you said, he also seems open to new information and understands how complex and ambiguous some aspects of investing and finance is.

+1. Very informative video. Thanks for sharing.

I dislike YouTube as a medium for financial information.

Swedroe for example, like him or not, cites his sources.

OK, so Felix contends that US outperformance is due to luck of expected disasters not materializing and investors learning the US is safer which drives up valuations.

To me, discussion of Felix's presentation style is irrelevant. What I want to know, is what is his criterion of 'expected disasters'? Are we see fewer nuclear meltdowns? Is it a climate (drought) thing? Is this geography related? Or is is related to the devastating effects of war? Are avoidance of these 'expected disasters' truly due to luck or explained by something else. Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

I diversify internationally and have for a long time, but geopolitical risk seems on the rise and I question if some of the countries in which I invest are committed to economic development. And I wonder if that is the thing explaining the luck that Felix cites. Perhaps my losses in Russian energy stocks is short cited, but China too may purse such a road. They are pretty explicitly signaling they will and then what.

So in a bifurcation of the global economy, will international diversification be desirable. There is that risk and seemingly little reward for taking it. I mean what might be in the interest of an autocrat may be very different from what's in the interest of the companies in that country.

So Felix did nothing to answer the questions I have.

[Ben Felix]

[Inappropriate comment remoived. Moderator Pops1860]


He's right but didn't make a compelling anything.

I don't really like to hear my voice, but thanks for the feedback otherwise.

[Forester]

Ben Felix sees everything through the CAPM factor model lens, so it's an "appeal to authority" bias of sorts.

[Nathan Drake]

[Inappropriate comment remoived. Moderator Pops1860]


He's right but didn't make a compelling anything.

Wow, I couldn't disagree more. I really love the plain language Felix uses to lay out fairly complicated topics, and his knowledge and intellectual curiosity are second to none. (In my opinion, obviously. haha)

I agree. He articulates complex financial information understandably without oversimplifying. As you said, he also seems open to new information and understands how complex and ambiguous some aspects of investing and finance is.

+1. Very informative video. Thanks for sharing.

I dislike YouTube as a medium for financial information.

Swedroe for example, like him or not, cites his sources.

OK, so Felix contends that US outperformance is due to luck of expected disasters not materializing and investors learning the US is safer which drives up valuations.

To me, discussion of Felix's presentation style is irrelevant. What I want to know, is what is his criterion of 'expected disasters'? Are we see fewer nuclear meltdowns? Is it a climate (drought) thing? Is this geography related? Or is is related to the devastating effects of war? Are avoidance of these 'expected disasters' truly due to luck or explained by something else. Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

I diversify internationally and have for a long time, but geopolitical risk seems on the rise and I question if some of the countries in which I invest are committed to economic development. And I wonder if that is the thing explaining the luck that Felix cites. Perhaps my losses in Russian energy stocks is short cited, but China too may purse such a road. They are pretty explicitly signaling they will and then what.

So in a bifurcation of the global economy, will international diversification be desirable. There is that risk and seemingly little reward for taking it. I mean what might be in the interest of an autocrat may be very different from what's in the interest of the companies in that country.

So Felix did nothing to answer the questions I have.

An era of increasing geopolitical tension would be another reason to embrace international investing.

The US is only one country. The world ex-US is many.

[Apathizer]

Ben Felix sees everything through the CAPM factor model lens, so it's an "appeal to authority" bias of sorts.

To me it seems more like an appeal to the best theoretical understanding of available evidence lens. In other words, the approach that has shown to be more consistently practical than any other.

[typical.investor]

Wow, I couldn't disagree more. I really love the plain language Felix uses to lay out fairly complicated topics, and his knowledge and intellectual curiosity are second to none. (In my opinion, obviously. haha)

I agree. He articulates complex financial information understandably without oversimplifying. As you said, he also seems open to new information and understands how complex and ambiguous some aspects of investing and finance is.

+1. Very informative video. Thanks for sharing.

I dislike YouTube as a medium for financial information.

Swedroe for example, like him or not, cites his sources.

OK, so Felix contends that US outperformance is due to luck of expected disasters not materializing and investors learning the US is safer which drives up valuations.

To me, discussion of Felix's presentation style is irrelevant. What I want to know, is what is his criterion of 'expected disasters'? Are we see fewer nuclear meltdowns? Is it a climate (drought) thing? Is this geography related? Or is is related to the devastating effects of war? Are avoidance of these 'expected disasters' truly due to luck or explained by something else. Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

I diversify internationally and have for a long time, but geopolitical risk seems on the rise and I question if some of the countries in which I invest are committed to economic development. And I wonder if that is the thing explaining the luck that Felix cites. Perhaps my losses in Russian energy stocks is short cited, but China too may purse such a road. They are pretty explicitly signaling they will and then what.

So in a bifurcation of the global economy, will international diversification be desirable. There is that risk and seemingly little reward for taking it. I mean what might be in the interest of an autocrat may be very different from what's in the interest of the companies in that country.

So Felix did nothing to answer the questions I have.

An era of increasing geopolitical tension would be another reason to embrace international investing.

The US is only one country. The world ex-US is many.

Your answer is too simplistic. Yes, I know the theory.

In reality though, if the global economy bifurcates (say China goes for Taiwan and Russia and company including much of Africa and parts of Asia go with), then what? I lost my Russian energy holdings due to being American, and if I lose all my holdings in all those other countries due to being American, I must conclude that being American perhaps suggests I should invest in friendly shores.

I am not questioning international investing, but rather perhaps if it's less risky to limit it to friendly shores. I didn't find Felix addressing my concern.

[Nathan Drake]

I agree. He articulates complex financial information understandably without oversimplifying. As you said, he also seems open to new information and understands how complex and ambiguous some aspects of investing and finance is.

+1. Very informative video. Thanks for sharing.

I dislike YouTube as a medium for financial information.

Swedroe for example, like him or not, cites his sources.

OK, so Felix contends that US outperformance is due to luck of expected disasters not materializing and investors learning the US is safer which drives up valuations.

To me, discussion of Felix's presentation style is irrelevant. What I want to know, is what is his criterion of 'expected disasters'? Are we see fewer nuclear meltdowns? Is it a climate (drought) thing? Is this geography related? Or is is related to the devastating effects of war? Are avoidance of these 'expected disasters' truly due to luck or explained by something else. Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

I diversify internationally and have for a long time, but geopolitical risk seems on the rise and I question if some of the countries in which I invest are committed to economic development. And I wonder if that is the thing explaining the luck that Felix cites. Perhaps my losses in Russian energy stocks is short cited, but China too may purse such a road. They are pretty explicitly signaling they will and then what.

So in a bifurcation of the global economy, will international diversification be desirable. There is that risk and seemingly little reward for taking it. I mean what might be in the interest of an autocrat may be very different from what's in the interest of the companies in that country.

So Felix did nothing to answer the questions I have.

An era of increasing geopolitical tension would be another reason to embrace international investing.

The US is only one country. The world ex-US is many.

Your answer is too simplistic. Yes, I know the theory.

In reality though, if the global economy bifurcates (say China goes for Taiwan and Russia and company including much of Africa and parts of Asia go with), then what? I lost my Russian energy holdings due to being American, and if I lose all my holdings in all those other countries due to being American, I must conclude that being American perhaps suggests I should invest in friendly shores.

I am not questioning international investing, but rather perhaps if it's less risky to limit it to friendly shores. I didn't find Felix addressing my concern.

Sometimes the simple answer is the best one

I imagine many of the top names in the S&P 500 would be hit extremely hard if there’s a Chinese conflict with Taiwan, there’s no escaping that risk in the US stock market

[rockstar]

Is international really a thing post 90s globalization? Can’t I buy Apple and say I’m globally diversified?

[typical.investor]

+1. Very informative video. Thanks for sharing.

I dislike YouTube as a medium for financial information.

Swedroe for example, like him or not, cites his sources.

OK, so Felix contends that US outperformance is due to luck of expected disasters not materializing and investors learning the US is safer which drives up valuations.

To me, discussion of Felix's presentation style is irrelevant. What I want to know, is what is his criterion of 'expected disasters'? Are we see fewer nuclear meltdowns? Is it a climate (drought) thing? Is this geography related? Or is is related to the devastating effects of war? Are avoidance of these 'expected disasters' truly due to luck or explained by something else. Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

I diversify internationally and have for a long time, but geopolitical risk seems on the rise and I question if some of the countries in which I invest are committed to economic development. And I wonder if that is the thing explaining the luck that Felix cites. Perhaps my losses in Russian energy stocks is short cited, but China too may purse such a road. They are pretty explicitly signaling they will and then what.

So in a bifurcation of the global economy, will international diversification be desirable. There is that risk and seemingly little reward for taking it. I mean what might be in the interest of an autocrat may be very different from what's in the interest of the companies in that country.

So Felix did nothing to answer the questions I have.

An era of increasing geopolitical tension would be another reason to embrace international investing.

The US is only one country. The world ex-US is many.

Your answer is too simplistic. Yes, I know the theory.

In reality though, if the global economy bifurcates (say China goes for Taiwan and Russia and company including much of Africa and parts of Asia go with), then what? I lost my Russian energy holdings due to being American, and if I lose all my holdings in all those other countries due to being American, I must conclude that being American perhaps suggests I should invest in friendly shores.

I am not questioning international investing, but rather perhaps if it's less risky to limit it to friendly shores. I didn't find Felix addressing my concern.

Sometimes the simple answer is the best one

I imagine many of the top names in the S&P 500 would be hit extremely hard if there’s a Chinese conflict with Taiwan, there’s no escaping that risk in the US stock market

Of course, the S&P 500 would be hit. But perhaps all of my investments in China or companies that align with China would be completely lost and irrecoverable. That's what I experienced with Russia.

It's the loss with no chance of recovery that is a unique international risk. Did Felix address that? If it happens, will that fall into his 'luck' category?

[Ben Felix]

Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

This statement fairly clearly references the source for the claim:

The 2022 paper Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach finds that realized US equity returns have exceeded their expected returns by about 2% per year and that this observation is equally explained by luck, where US companies ended up doing better than expected due to disasters that did not materialize, and learning, where investors have deemed US stocks safer over time, driving up their valuations.

It is a very interesting paper.

Throughout the video there are animations on the screen with the papers I am referencing. This one was unfortunately missed, but I do say the title of the paper and when it was written.

For your reading pleasure the sources in order of appearance are in the video description.

[typical.investor]

Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

This statement fairly clearly references the source for the claim:

The 2022 paper Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach finds that realized US equity returns have exceeded their expected returns by about 2% per year and that this observation is equally explained by luck, where US companies ended up doing better than expected due to disasters that did not materialize, and learning, where investors have deemed US stocks safer over time, driving up their valuations.

It is a very interesting paper.

Throughout the video there are animations on the screen with the papers I am referencing. This one was unfortunately missed, but I do say the title of the paper and when it was written.

For your reading pleasure the sources in order of appearance are in the video description.

Cool! Yeah, I will have a look at that. Thanks.

[Forester]

Ben Felix sees everything through the CAPM factor model lens, so it's an "appeal to authority" bias of sorts.

To me it seems more like an appeal to the best theoretical understanding of available evidence lens. In other words, the approach that has shown to be more consistently practical than any other.

I just think he's biased. In his video on low volatility stocks he presented selective evidence from a 2014 paper against the "low vol anomaly", a paper which has been refuted by others. I have a problem with this approach, of essentially standing as an impartial authority (literally the "rational reminder") on platforms such as YouTube which are used by the general public, all the while having a closed mind.

[9-5 Suited]

[Inappropriate comment remoived. Moderator Pops1860]

He's right but didn't make a compelling anything.

I don't really like to hear my voice, but thanks for the feedback otherwise.

Ben, you’re the man. Best personal finance content available and the most humble personality. You can sense the passion and intellectual curiosity as a reader and listener. Love how you’ve branched out the content to related areas as well.

[Nathan Drake]

I dislike YouTube as a medium for financial information.

Swedroe for example, like him or not, cites his sources.

OK, so Felix contends that US outperformance is due to luck of expected disasters not materializing and investors learning the US is safer which drives up valuations.

To me, discussion of Felix's presentation style is irrelevant. What I want to know, is what is his criterion of 'expected disasters'? Are we see fewer nuclear meltdowns? Is it a climate (drought) thing? Is this geography related? Or is is related to the devastating effects of war? Are avoidance of these 'expected disasters' truly due to luck or explained by something else. Without examination of that fundamental assertion, how do we know if his claim is true?

Maybe he has a pdf on it someplace with footnotes of the source of his claims.

I diversify internationally and have for a long time, but geopolitical risk seems on the rise and I question if some of the countries in which I invest are committed to economic development. And I wonder if that is the thing explaining the luck that Felix cites. Perhaps my losses in Russian energy stocks is short cited, but China too may purse such a road. They are pretty explicitly signaling they will and then what.

So in a bifurcation of the global economy, will international diversification be desirable. There is that risk and seemingly little reward for taking it. I mean what might be in the interest of an autocrat may be very different from what's in the interest of the companies in that country.

So Felix did nothing to answer the questions I have.

An era of increasing geopolitical tension would be another reason to embrace international investing.

The US is only one country. The world ex-US is many.

Your answer is too simplistic. Yes, I know the theory.

In reality though, if the global economy bifurcates (say China goes for Taiwan and Russia and company including much of Africa and parts of Asia go with), then what? I lost my Russian energy holdings due to being American, and if I lose all my holdings in all those other countries due to being American, I must conclude that being American perhaps suggests I should invest in friendly shores.

I am not questioning international investing, but rather perhaps if it's less risky to limit it to friendly shores. I didn't find Felix addressing my concern.

Sometimes the simple answer is the best one

I imagine many of the top names in the S&P 500 would be hit extremely hard if there’s a Chinese conflict with Taiwan, there’s no escaping that risk in the US stock market

Of course, the S&P 500 would be hit. But perhaps all of my investments in China or companies that align with China would be completely lost and irrecoverable. That's what I experienced with Russia.

It's the loss with no chance of recovery that is a unique international risk. Did Felix address that? If it happens, will that fall into his 'luck' category?

China represents a very small part of a globally diversified portfolio. You could see a higher drawdown in Apple stock than writing off all your Chinese stocks to zero.

Russia’s loss was hardly noticeable unless you highly concentrated into the country

[Ben Felix]

Ben, you’re the man. Best personal finance content available and the most humble personality. You can sense the passion and intellectual curiosity as a reader and listener. Love how you’ve branched out the content to related areas as well.

Thanks! I really appreciate it.

[GaryA505]

[Inappropriate comment remoived. Moderator Pops1860]


He's right but didn't make a compelling anything.

I don't really like to hear my voice, but thanks for the feedback otherwise.

Your voice seems fine to me. At least it doesn't put me to sleep like some others.

[GRP]

How can anyone accuse Ben Felix of not citing his sources when being evidence-based is literally the thing that separates him from other YouTubers?

[rockstar]

How can anyone accuse Ben Felix of not citing his sources when being evidence-based is literally the thing that separates him from other YouTubers?

I’m trying to wrap my head around how papers can model the stock market when it has periods of time when it doesn’t distribute normally. I remember this causing problems for LTCM.

[exodusing]

OK, so Felix contends that US outperformance is due to luck of expected disasters not materializing and investors learning the US is safer which drives up valuations.

To me, discussion of Felix's presentation style is irrelevant. What I want to know, is what is his criterion of 'expected disasters'? Are we see fewer nuclear meltdowns? Is it a climate (drought) thing? Is this geography related? Or is is related to the devastating effects of war? Are avoidance of these 'expected disasters' truly due to luck or explained by something else. Without examination of that fundamental assertion, how do we know if his claim is true?

Markets perform relative to expectations. High performance likely means doing better than expected (or that everyone else did worse than expected).

If the US economy performs twice as well as the rest of the world, but markets expect 2.5x, US stocks are not likely to do well. If the market expected 1.5x, then US stocks should do very nicely. Expected disasters not materializing would be an example of this general phenomenon.

I didn't watch the video. Perhaps Ben will say whether I'm on the right track or not.

[Apathizer]

Ben Felix sees everything through the CAPM factor model lens, so it's an "appeal to authority" bias of sorts.

To me it seems more like an appeal to the best theoretical understanding of available evidence lens. In other words, the approach that has shown to be more consistently practical than any other.

I just think he's biased. In his video on low volatility stocks he presented selective evidence from a 2014 paper against the "low vol anomaly", a paper which has been refuted by others. I have a problem with this approach, of essentially standing as an impartial authority (literally the "rational reminder") on platforms such as YouTube which are used by the general public, all the while having a closed mind.

Finance and investing is really complicated, and there's seldom anything resembling unanimous consensus. To me it sounds like your argument is essentially that because you disagree with the general consensus it's not actually the general consensus.

Outliers are seldom correct. Occasionally they are but not usually. That's why peer reviewed consensus is usually more reliable. That's the approach been takes I think.

[typical.investor]

How can anyone accuse Ben Felix of not citing his sources when being evidence-based is literally the thing that separates him from other YouTubers?

It wasn’t an accusation against Ben, it was the fact that it’s more difficult to catch the name of an author and paper title spoken in YouTube than in a text document.

I listened twice to make sure I had his argument down accurately and honestly didn’t catch him citing the title since the name wasn’t displayed on screen, he spoke the name quickly, and graphical icon he used (horseshoe) to represent the claim appeared after he had completed saying the paper’s name.

So I stand by my claim that YouTube isn’t a great medium for info. Buy hey, if that’s how you can reach people -fine.

[abc132]

Thanks Ben!

The key takeaway for me was
1) diversification is a free lunch
2) diversification is defined through correlation
3) US owned businesses that operate internationally are still more correlated with US and don't give the diversification of international stocks

Follow-up questions...
1) what percentage of international is recommended and how do the correlations determine this percentage?
2) where can we find free breakfast and dinners?

[happyisland]

2) where can we find free breakfast and dinners?

subscribing to this thread

[Apathizer]

How can anyone accuse Ben Felix of not citing his sources when being evidence-based is literally the thing that separates him from other YouTubers?

It wasn’t an accusation against Ben, it was the fact that it’s more difficult to catch the name of an author and paper title spoken in YouTube than in a text document.

I listened twice to make sure I had his argument down accurately and honestly didn’t catch him citing the title since the name wasn’t displayed on screen, he spoke the name quickly, and graphical icon he used (horseshoe) to represent the claim appeared after he had completed saying the paper’s name.

So I stand by my claim that YouTube isn’t a great medium for info. Buy hey, if that’s how you can reach people -fine.

I think the specific research is cited in the description.

Your last sentence. The reality he's probably reaching more people on YouTube than writing papers, but I think he does both. Most of his work is also on the PWL site, which includes citations

[AlwaysLearningMore]

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

[Nathan Drake]

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

[Apathizer]

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

I can't check right now, but if my approximate math is accurate, VT only allocates about 4% to China? If that's correct, a global MCW investor isn't overly exposed.

[typical.investor]

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

Because of the geo-political risk that ownership in an entire set of countries is disallowed overnight. China, Hong Kong, maybe Taiwan if things go badly and any other countries that side with them if sanctions caused a bifurcation of the economy (or certain countries dropping out of the free economy like Russia did).

Sure Apple has bankrupcy risk, but so do all the countries in China. My holdings in Apple, though, won’t be nullified by my citizenship.

It’s two different risks. China has both. Apple has one.

That’s what Russia taught me anyway. The companies I held are hugely profitable now. They didn’t go bankrupt but we’re just removed from my portfolio due to citizenship.

[burritoLover]

So don’t invest in EM but developed.

[Apathizer]

So don’t invest in EM but developed.

Not sure I agree. EM is riskier, but has been less correlated with the US than developed ex-US markets.

The risk is a valid concern though.

[AlwaysLearningMore]

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

It's up to the individual investor to discern if 8.4% of their int'l equities represents "a very small amount."

Since you brought up Apple and Microsoft, perhaps real concern for US investors would arise if either Tim Cook or Satya Nadella "disappeared" for months like China's Jack Ma did. https://www.bbc.com/news/technology-56448688 https://www.forbes.com/sites/georgecalh ... ce76637c7e

[happyisland]

The world of investors has heard of Jack Ma and has put a lot of effort into pricing Chinese shares.

[typical.investor]

So don’t invest in EM but developed.

Yeah, good suggestion.

Or I wonder, Yellen and others have talked about friendly shoring. I suppose if there ever is an ETF with a decent ER and meaningful definition of a friendly shore, then I’d like to market weight by that.

I will have to read the paper on luck more, but is suspect that geo-political losses would get tallied in the luck category. I think rather though that gov. and legal structures may actually be what is explanatory. Some leaders readily have the power to take their country off the rails.

[happyisland]

So don’t invest in EM but developed.

Yeah, good suggestion.

Or I wonder, Yellen and others have talked about friendly shoring. I suppose if there ever is an ETF with a decent ER and meaningful definition of a friendly shore, then I’d like to market weight by that.

I will have to read the paper on luck more, but is suspect that geo-political losses would get tallied in the luck category. I think rather though that gov. and legal structures may actually be what is explanatory. Some leaders readily have the power to take their country off the rails.

It seems like you're saying two things here:
1) the USA is better than other countries, and
2) other investors aren't aware of this and are mis-pricing USA shares.

[Nathan Drake]

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

It's up to the individual investor to discern if 8.4% of their int'l equities represents "a very small amount."

Since you brought up Apple and Microsoft, perhaps real concern for US investors would arise if either Tim Cook or Satya Nadella "disappeared" for months like China's Jack Ma did. https://www.bbc.com/news/technology-56448688 https://www.forbes.com/sites/georgecalh ... ce76637c7e

It shouldn't be viewed from the lens of "is 8.4% of my international equities too large", but rather "is 4% or less of my overall portfolio too large? in a single country"?

Many investors, when considering all of their stocks, bonds, mortgage, etc. are likely less than 2-3% invested into China. If it goes to zero, that's a 2-3% drawdown. Insignificant.

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

Because of the geo-political risk that ownership in an entire set of countries is disallowed overnight. China, Hong Kong, maybe Taiwan if things go badly and any other countries that side with them if sanctions caused a bifurcation of the economy (or certain countries dropping out of the free economy like Russia did).

Sure Apple has bankrupcy risk, but so do all the countries in China. My holdings in Apple, though, won’t be nullified by my citizenship.

It’s two different risks. China has both. Apple has one.

That’s what Russia taught me anyway. The companies I held are hugely profitable now. They didn’t go bankrupt but we’re just removed from my portfolio due to citizenship.

It's not the same. You are comparing DIVERSIFIED risk (many companies in China collectively) to SINGLE COMPANY (idiosyncratic risk). They are not the same. You have geopolitical risk, which has no borders (YES, there's geopolitical risk in the US), to single company risk.

Look at the top companies throughout the decades. Idisyncratic risk is real. There are also countries that get expropriated, that risk is real. But on a relative basis, is much smaller and less frequent than single company risk.

[Gaston]

I suppose if there ever is an ETF with a decent ER and meaningful definition of a friendly shore, then I’d like to market weight by that.

FRDM ETF?

https://freedometfs.com/frdm/

[lostdog]

Just VT/VTWAX and chill...

It's really that easy.

It's really sad to see social media, especially Twitter, constantly promote just VTI and SCHD. The performance chasing is all over the place.

[AlwaysLearningMore]

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

It's up to the individual investor to discern if 8.4% of their int'l equities represents "a very small amount."

Since you brought up Apple and Microsoft, perhaps real concern for US investors would arise if either Tim Cook or Satya Nadella "disappeared" for months like China's Jack Ma did. https://www.bbc.com/news/technology-56448688 https://www.forbes.com/sites/georgecalh ... ce76637c7e

It shouldn't be viewed from the lens of "is 8.4% of my international equities too large", but rather "is 4% or less of my overall portfolio too large? in a single country"?

Many investors, when considering all of their stocks, bonds, mortgage, etc. are likely less than 2-3% invested into China. If it goes to zero, that's a 2-3% drawdown. Insignificant.

China represents a very small part of a globally diversified portfolio....

China is currently 8.4% of VG's Total Int'l Stock Index Fund. Investors can decide if they think 8.4% represents "a very small part of" their international equity sleeve and where that fits in their portfolio. Some who post here hold 20% int'l, some 40%, some 50%. (And some with as little as 0%.)

So if we look at two investors, one that owns VT (US and exUS) and the other that owns only VTI (US only), the US only investor has more allocated to single companies (Apple, Microsoft, etc) than the global investor has allocated to an ENTIRE country comprising of many companies within China.

Why are we so concerned about a small allocation to a large country but we aren’t when it comes to a single company?

Because of the geo-political risk that ownership in an entire set of countries is disallowed overnight. China, Hong Kong, maybe Taiwan if things go badly and any other countries that side with them if sanctions caused a bifurcation of the economy (or certain countries dropping out of the free economy like Russia did).

Sure Apple has bankrupcy risk, but so do all the countries in China. My holdings in Apple, though, won’t be nullified by my citizenship.

It’s two different risks. China has both. Apple has one.

That’s what Russia taught me anyway. The companies I held are hugely profitable now. They didn’t go bankrupt but we’re just removed from my portfolio due to citizenship.

It's not the same. You are comparing DIVERSIFIED risk (many companies in China collectively) to SINGLE COMPANY (idiosyncratic risk). They are not the same. You have geopolitical risk, which has no borders (YES, there's geopolitical risk in the US), to single company risk.

Look at the top companies throughout the decades. Idisyncratic risk is real. There are also countries that get expropriated, that risk is real. But on a relative basis, is much smaller and less frequent than single company risk.

While Chinese companies may post good returns, it doesn't appear the largess is widely dispersed among shareholders. I suppose 8.4% of a small number is an even smaller number.
https://www.morningstar.ca/ca/news/2251 ... where.aspx https://www.morningstar.com/articles/10 ... went-wrong

[Gaston]

How can anyone accuse Ben Felix of not citing his sources when being evidence-based is literally the thing that separates him from other YouTubers?

Well said. But let me pile on: If Ben (and Cameron Passmore, his co-host on the Rational Reminder podcast) does not follow an evidence-based investing approach, then no one does. Nor is it surprising that the portfolio that his company recommends is heavy on Boglehead principles, with a meaningful tilt toward Avantis and Dimensional products.

[burritoLover]

So don’t invest in EM but developed.

Not sure I agree. EM is riskier, but has been less correlated with the US than developed ex-US markets.

The risk is a valid concern though.

Interesting take also from Ben Felix. Personally, I limit to 10%.

Episode 191: Emerging Markets: Diversifying Asset or a Reverse Lottery

https://rationalreminder.ca/podcast/191?format=amp

[Apathizer]

How can anyone accuse Ben Felix of not citing his sources when being evidence-based is literally the thing that separates him from other YouTubers?

Well said. But let me pile on: If Ben (and Cameron Passmore, his co-host on the Rational Reminder podcast) does not follow an evidence-based investing approach, then no one does. Nor is it surprising that the portfolio that his company recommends is heavy on Boglehead principles, with a meaningful tilt toward Avantis and Dimensional products.

Yes I'm not sure why some focus so heavily on YouTube as a medium. I recognize the quality of information on the internet runs the full gamut of the good, bad, and ugly, and there's certainly more bad information on the internet than professional reviewed sources.

But the are also credible sources on YouTube like Felix. The key is learning to distinguish them from from the bad and the ugly.

[typical.investor]

I suppose if there ever is an ETF with a decent ER and meaningful definition of a friendly shore, then I’d like to market weight by that.

FRDM ETF?

https://freedometfs.com/frdm/

The ER is higher than a straight index but of course … anyway thanks. I am looking into it….

Country inclusion and weights are determined based on third-party quantified data covering 83 personal and economic freedom variables. Variables can be categorized into three main types of freedom metrics: civil freedom (such as absence of terrorism, human trafficking, torture, disappearances and detainments), political freedom (such as rule of law, due process, freedom of the press, freedom of expression, freedom of religion, and freedom of assembly), and economic freedom (such as marginal tax rates, access to international trade, business regulations, soundness of the money supply, and size of government). A quantitative model is used to assign country weights based on the above metrics as described below. Securities within each included country are selected using minimum market capitalization (“market cap”) and liquidity (90-day average daily value of shares traded on a public exchange) requirements, and are subsequently market cap-weighted. For clarification, country weights are established first, then security weights are established (within previously established country weights). The Index excludes state owned enterprises (“SOEs”). The Index was developed in 2017 by Life + Liberty Indexes, LLC, the Fund’s index provider (the “Index Provider”).

[Gaston]

But they're also credible sources on YouTube like Felix. The key is learning to distinguish them from from the bad and the ugly

Agree. I first came across Ben and Cameron via their podcast. I didn’t even know until recently that Ben also did YouTube videos. I still prefer the podcast, where (as you probably know) they go into vastly greater depth on investing topics.

[AlwaysLearningMore]

How can anyone accuse Ben Felix of not citing his sources when being evidence-based is literally the thing that separates him from other YouTubers?

Well said. But let me pile on: If Ben (and Cameron Passmore, his co-host on the Rational Reminder podcast) does not follow an evidence-based investing approach, then no one does. Nor is it surprising that the portfolio that his company recommends is heavy on Boglehead principles, with a meaningful tilt toward Avantis and Dimensional products.

Yes I'm not sure why some focus so heavily on YouTube as a medium....

Is his YouTube channel monetized?