Kevin22751 wrote:Question: Do I really need to have International equities in my portfolio ? I am in the process of re-balancing and did some research on the International category using Morningstar data. What I found was that over the past 10-15 years the correlation between international equities and the US stock market has risen to about 85%. I also found that the international category has produced lower average returns with a higher standard deviation than the US stock market over this period. So, given that the international category has lower returns with higher risk and is 85% correlated to the US stock market, why would I want to include international equities in my portfolio ? Wouldn't I be better off with a two fund portfolio using VTSAX and VBTLX ? If not, why not ? Thanks !!
No you don't need to, but many of us do. I split my equities 50/50 b/w domestic and international. If you only own Total Stock Market for your equities I think you won't be as well diversified as you could be (by adding Total International) but there are far worse portfolios out there.
As far as international having lower returns and higher standard deviation, the key is not these metrics for Total International and Total Stock Market in isolation, but how these metrics are for a mixed portfolio. Search for TrevH's posts. He's done a lot of work showing how you get lower standard deviation and higher returns from mixing (though he also includes domestic and international small caps). I haven't bothered to crunch the numbers myself, I just went for the option of greater diversification and took TrevH's analysis at face value. YMMV.