- American exceptionalism/Structural Advantages - Including technological leadership, business environment (tax policy, regulation, ability of corporations to influence gov't policy), culture (dominance of individualism over collectivism, widespread entrepreneurship), geography (weak neighbors, isolated from rivals, resource rich) & relative ease of integrating immigrants into society (allowing top talent to more consistently rise to top).
- 10% CAGR (last 100 years) says US is all you need.
- Int’l has NOT proven itself in the long run…, so what if it occasionally outperforms..
- US Government has proven its willingness and ability to support its interests with massive cash infusions. (Translates to US Stock support)
- Valuations Aren’t Actionable
- Foreign-Stock ETF’s tend to have a bit higher tax-cost ratio than U.S. stock ETFs because foreign companies often pay higher dividends than U.S companies. Per Morningstar.
- US companies do business around the world so the S&P 500 is actually a global index under governance by US regulation.
- Maximizing shareholder returns may not be the highest priority for some International markets. Examples like China with Alibaba and S. Korea with its Chaebols create a lot of concern.
- "Taylor’s compromise" between Bogles (0-20) and VG (20-40)
- A slightly toned down version of 100% US'rs
- Some believe holding a little Int’l is like adding insurance or a bond to one's portfolio.
- A 20% allocation may harvest a good fraction of the diversification benefits of exUS”
- Valuations Aren’t Actionable
- Neither US nor Int'l stocks have demonstrated sustainably superior returns over the last 70 year, post-WW2 period
- Let the market decide who wins. (US and Int'l have traded periods of Outperformance) https://www.whitecoatinvestor.com/why-y ... al-stocks/
- 1970-2012 US, Int'l CAGR's = 9.7%, 9.6%, respectively (https://awealthofcommonsense.com/2023/0 ... ification/ )
- 2013-2023 US Out-performance largely attributed to Valuation and Currency changes (both at historical highs in favor of US).
==> (E.g. NOT the combination of Earnings growth and Dividends). See Vanguard explanation below:
https://corporate.vanguard.com/content/ ... tions.html
- US valuation increases can't continue to outpace Int'l "forever". US CAPE = 31.5 (96th percentile), Dev. Ex-US CAPE = 18.1 (37th percentile)
- US dollar has increased since 2008, to an inflation adjusted level not seen since the early 1980's. It can't increase forever.
- Vanguard/Fidelity forecast Int’l outperformance, who am I to argue?
- If I knew how to pick the next winner, I would have put it all in Apple a long time ago.
- QE (2008-2022), coincided with a period of extreme US out-performance - but it has ended.
- From 1990-2022, US Valuations rose 3X Int’l, accounting for most of the US outperformance. US seems a likely candidate for reversion, Swedroe, Asness et al.
- While global diversification may not provide protection from the initial crash, it does create the potential for a significantly faster recovery. Swedroe, Asness et al. https://www.kitces.com/blog/internation ... anagement/
- Everything is already priced in, except black swan events... So avoid single country risk... (e.g. invest globally lest a Japan-like scenario happens again).
- Diversifying globally can boost the probability of success of safe withdrawal rates. https://corporate.vanguard.com/content/ ... Online.pdf
- Once you are financially independent, the focus should be less about achieving the best outcome, and more about avoiding the worst outcome. Single country risk should be avoided.
- Efficient Frontier chart (1970-2008): Adding EAFE to an all-U.S. S&P 500 portfolio increased return while also decreasing standard deviation: https://www.bogleheads.org/w/images/1/1 ... tional.png
- Paraphrasing Buffett,"When reinvesting dividends, we hope that the stock underperforms in the market for a long time...." https://www.oldfieldpartners.com/static ... d_Ziff.pdf
- "The closer you come to holding the entire market portfolio, the higher your expected return for the risk you take" - William Sharpe. https://money.cnn.com/2007/05/21/pf/sha ... /index.htm
- Valuations "Might" or "Might Not" Matter, so don't tilt.
- Valuation differences are too good to pass up
- Reversion to the mean always happens eventually (e.g. currency, valuation, opinion)
- US is at 60% global market cap already - Trees don’t grow to the sky.
- I’m paid in US dollars, hedge that risk with my investments
- Increased risk, which is diversified, tends to lead to higher outcomes
- Int'l includes a very long list of world class companies - Someday this will again become obvious
- We have reached full capitulation in Int’l -
- US is priced for perfection. Int'l is priced to fail. All Int'l has to do is "show up" to beat US
Note 1: The attached link has an MSCI EAFE Index (1970) calculator about halfway down the post:
https://www.mindfullyinvesting.com/hist ... al-stocks/
Note2: The Boglehead Forum prohibits the discussion of politics, economic policy, and religion. It should therefore be recognized that the above list of “Arguments” attempts to not reflect any personal biases anyone may have on these topics. However, an investor may be influenced by personal biases when deciding International and US asset allocations. Rationale for selecting this allocation should be documented in an IPS (Investment policy statement) which can be updated if the investor’s personal bias changes.
Original Post is below:
During a recent related thread, I did a quick scan of all the threads debating International vs US stock allocations.
I didn't count them, but it is truly amazing how many times this topic has been debated on this forum!
And yet, I can't point to one where any widely accepted conclusion was reached....
Other than, pretty much everyone must decide for themselves...
So, assuming that we will continue to get more of these types of threads, I thought it might be useful to capture the range of arguments used to support the various positions...
To be clear, the intent of this thread is NOT to decide the appropriate balance between International versus US stock AA.
Rather it is to capture the various categories of arguments made to support the wide range of positions...
In my very unscientific approach, the types of arguments seem to mostly boil down to the following:
Question: Did I miss any?
1. Appeals to authority (Buffett, Bogle, Vanguard, et al)
2. Cherry-picked charts to show periods of either US or Int'l outperforming, or sometimes to establish the "seesaw" pattern.
3. Published forecasts by one firm or another to show bull or bear cases for either position...
4. American Exceptionalism vs This-time-is-different vs Recency-bias...
5. Discredit-the-witness type comments in attempts to "win" a particular debate against a particularly stubborn "opponent"
6. Stay-the-course versus You-have-to-pick-the-right-course
7. Nobody-knows-nutt'n versus How-do-you-know
8. Compromise is best versus Compromise-between-which-alternatives.
P.S. The thinking is that once we have our list, we can refer any future debates on this topic to the master list of "The Arguments" (Linked at top of this post).... One can then just grab the argument that resonates the best with their world view....because as a great man once said, invest we must...