International vs US funds [Europe to US and return]

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loklav
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International vs US funds [Europe to US and return]

Post by loklav »

Hi,

Since I moved recently to Europe and I have all my money in the US, I'm wondering how/if I should rebalance and adopt a different allocation: I have currently 80% in US stocks and 20% in international.
Globally, I'm fine with keeping all my funds in the US.
But I have now a salary in Euros and bought a house in Europe. So I was planning to rebalance all my stocks to 100% US, since my international tilt will gradually grow in Europe...
What are your thoughts?

thx
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Re: International vs US funds

Post by Outer Marker »

loklav wrote: Wed Jul 14, 2021 4:45 am Since I moved recently to Europe and I have all my money in the US, I'm wondering how/if I should rebalance and adopt a different allocation: I have currently 80% in US stocks and 20% in international.
Globally, I'm fine with keeping all my funds in the US.
But I have now a salary in Euros and bought a house in Europe. So I was planning to rebalance all my stocks to 100% US, since my international tilt will gradually grow in Europe...
What are your thoughts?
Don't. Stay the course. You are better diversified as you are. No one knows whether US or non-US stocks will outperform in the future. 20% international is the sweet spot in achieving nearly full diversification benefit, and paying heed to the historic outperformace of US equities.
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Re: International vs US funds

Post by Da5id »

loklav wrote: Wed Jul 14, 2021 4:45 am Hi,

Since I moved recently to Europe and I have all my money in the US, I'm wondering how/if I should rebalance and adopt a different allocation: I have currently 80% in US stocks and 20% in international.
Globally, I'm fine with keeping all my funds in the US.
But I have now a salary in Euros and bought a house in Europe. So I was planning to rebalance all my stocks to 100% US, since my international tilt will gradually grow in Europe...
What are your thoughts?

thx
Doesn't make sense somehow. If your plan was to be 20% international stocks why move to 0%? As you grow your investments in Europe you can decrease the US based international holdings.

And there are sometimes tax and other issues with living abroad while owning US domiciled funds, perhaps you should post in the non-US forum if you have concerns there.
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Re: International vs US funds [Europe to US and return]

Post by LadyGeek »

This thread is now in the Non-US Investing forum (non-US investor).

loklav - Based on 529 colorado and parents living abroad, you are a European who lived in the US for 8 years and have now returned home. I retitled the thread for clarity.

It is very, very important that you understand how US taxation will impact your investments. What is your home country? What is your tax status in the US (citizen, resident alien "green card" holder, etc.)?

Please post your portfolio in this thread using the My portfolio: seeking advice (or the US version Asking Portfolio Questions as appropriate). It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them here.

To start, see the wiki: Outline of non-US domiciles

We have lots of relevant articles, but it's difficult to point you to the appropriate pages without further information.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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Re: International vs US funds [Europe to US and return]

Post by Valuethinker »

loklav wrote: Wed Jul 14, 2021 4:45 am Hi,

Since I moved recently to Europe and I have all my money in the US, I'm wondering how/if I should rebalance and adopt a different allocation: I have currently 80% in US stocks and 20% in international.
Globally, I'm fine with keeping all my funds in the US.
But I have now a salary in Euros and bought a house in Europe. So I was planning to rebalance all my stocks to 100% US, since my international tilt will gradually grow in Europe...
What are your thoughts?

thx
I would go for global weighting (ie US is about 60%). Eurozone stocks would be less than 20% of the remainder (because you have UK + Asian markets + Australia + Canada).

If you do decide to underweight the Eurozone, then don't ignore Asian markets (Japan + various "emerging markets" like South Korea, Taiwan (although one index provider counts SK as "developed"). Australia is less important but gives you natural resources exposure (along with Russia + Canada + UK market).
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Re: International vs US funds [Europe to US and return]

Post by Outer Marker »

I'm fond of Taylor's simple and straightforward analysis. 20% international is (or was) the figure bracketed by the experts. Vanguard has since upped its recommendation. I'd add to the expert survey that Warren Buffett falls in the 0% foreign camp. I'm sticking with 20%. viewtopic.php?t=196956
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Re: International vs US funds [Europe to US and return]

Post by SeaScape »

loklav wrote: Wed Jul 14, 2021 4:45 am Hi,

Since I moved recently to Europe and I have all my money in the US, I'm wondering how/if I should rebalance and adopt a different allocation: I have currently 80% in US stocks and 20% in international.
Globally, I'm fine with keeping all my funds in the US.
But I have now a salary in Euros and bought a house in Europe. So I was planning to rebalance all my stocks to 100% US, since my international tilt will gradually grow in Europe...
What are your thoughts?

thx
loklav - Based on viewtopic.php?p=5742043#p5742043 you are now a US citizen. If so, then you need to be aware of the whole kind of special treatment you will have from the IRS. Welcome to FATCA. And PFIC. Your investment opportunities, at least for owning mutual funds or owning your own company, are quite limited as long as you are a US citizen. [link fixed by admin LadyGeek]
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Re: International vs US funds [Europe to US and return]

Post by Valuethinker »

Outer Marker wrote: Thu Jul 15, 2021 4:57 am I'm fond of Taylor's simple and straightforward analysis. 20% international is (or was) the figure bracketed by the experts. Vanguard has since upped its recommendation. I'd add to the expert survey that Warren Buffett falls in the 0% foreign camp. I'm sticking with 20%. viewtopic.php?t=196956
That's fine if you are a US-based investor.

For those of us who are not, life is a little more complex.

Home country bias is basically unjustifiable. No other market has the level of diversification of the US market, as a whole.

(there's a separate point about hedging currency exposure and "it's not simple". Basically most equity funds don't, and for the longer time horizons, that's probably acceptable).

Conversely you don't want to overweight anywhere. There's no reason to overweight the USA more than its 60% or so market weight. You are just sacrificing diversification. To believe that somehow the US will outperform AND the market hasn't worked that out before you (and adjusted US stock market valuations accordingly) is contrary to the efficient markets hypothesis. And since we do everything else here in accordance with EMH (the whole notion of indexation by market capitalisation, in particular) it seems very ad hoc and not well thought out to just chuck it out the window when considering asset allocation between stock markets.

For a US person home country bias is less of a risk. They are 60% of world markets, roughly, in any case. Agreed that, by the Vanguard data at least, the volatility minimizing porfolio is c 30% non-US equities.The tradeoff curve though for a US investor is very shallow - many percentages between 20% and 40% have similar volatility.

Vanguard has also produced a paper showing the position for Canadian, Australian and UK investors.
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Re: International vs US funds [Europe to US and return]

Post by Outer Marker »

Valuethinker wrote: Fri Jul 16, 2021 11:23 am
Outer Marker wrote: Thu Jul 15, 2021 4:57 am I'm fond of Taylor's simple and straightforward analysis. 20% international is (or was) the figure bracketed by the experts. Vanguard has since upped its recommendation. I'd add to the expert survey that Warren Buffett falls in the 0% foreign camp. I'm sticking with 20%. viewtopic.php?t=196956
That's fine if you are a US-based investor.

For those of us who are not, life is a little more complex.

Home country bias is basically unjustifiable. No other market has the level of diversification of the US market, as a whole.
...
Conversely you don't want to overweight anywhere. There's no reason to overweight the USA more than its 60% or so market weight. You are just sacrificing diversification. To believe that somehow the US will outperform AND the market hasn't worked that out before you (and adjusted US stock market valuations accordingly) is contrary to the efficient markets hypothesis. . . .
I'm not sure that I buy that your world market allocation should be any different depending on where you live. I especially don't think it's appropriate in the OP's case, since, per the thread title, this appears to be only a temporary move, and one's investment portfolio is for the long term. Both Bogle and Buffett think the best allocation to international is zero. US companies are the the largest and most successful in the world, and we have a generally pro business climate. In Buffett's words at the last shareholder meeting, "never bet against the USA."

I'm not willing to totally eschew foreign stocks, but as I can get nearly all the diversification benefit at 20%, I don't see the need to hold a historically underperforming asset class at market weight, and I'm certainly not going to overweight non-US equities to some other temporary home country, especially if I was living someplace like China.
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Re: International vs US funds [Europe to US and return]

Post by Valuethinker »

Outer Marker wrote: Fri Jul 16, 2021 2:10 pm
Valuethinker wrote: Fri Jul 16, 2021 11:23 am
Outer Marker wrote: Thu Jul 15, 2021 4:57 am I'm fond of Taylor's simple and straightforward analysis. 20% international is (or was) the figure bracketed by the experts. Vanguard has since upped its recommendation. I'd add to the expert survey that Warren Buffett falls in the 0% foreign camp. I'm sticking with 20%. viewtopic.php?t=196956
That's fine if you are a US-based investor.

For those of us who are not, life is a little more complex.

Home country bias is basically unjustifiable. No other market has the level of diversification of the US market, as a whole.
...
Conversely you don't want to overweight anywhere. There's no reason to overweight the USA more than its 60% or so market weight. You are just sacrificing diversification. To believe that somehow the US will outperform AND the market hasn't worked that out before you (and adjusted US stock market valuations accordingly) is contrary to the efficient markets hypothesis. . . .
I'm not sure that I buy that your world market allocation should be any different depending on where you live. I especially don't think it's appropriate in the OP's case, since, per the thread title, this appears to be only a temporary move, and one's investment portfolio is for the long term. Both Bogle and Buffett think the best allocation to international is zero. US companies are the the largest and most successful in the world, and we have a generally pro business climate. In Buffett's words at the last shareholder meeting, "never bet against the USA."

I'm not willing to totally eschew foreign stocks, but as I can get nearly all the diversification benefit at 20%, I don't see the need to hold a historically underperforming asset class at market weight, and I'm certainly not going to overweight non-US equities to some other temporary home country, especially if I was living someplace like China.
Actually I am not (meaning to) arguing that your equity allocation should be different depending on where you live.

In an efficient market, you should own the broadest possible world index you can. Thus gaining maximum diversification.

It's less of an error for an American-based investor to ignore that and have a home country bias, than it is for a non-US based investor (basically a home country bias there is a big mistake; and if you are going to own international stocks, you might as well own the world).
I especially don't think it's appropriate in the OP's case, since, per the thread title, this appears to be only a temporary move,
I must admit I read it the other way -- OP was unlikely to return to USA. But perhaps I didn't read it closely enough.
and one's investment portfolio is for the long term. Both Bogle and Buffett think the best allocation to international is zero. US companies are the the largest and most successful in the world, and we have a generally pro business climate. In Buffett's words at the last shareholder meeting, "never bet against the USA."
This conflicts with the Efficient Market Hypothesis. The point is the market *knows* these truths (if they are truths) about the US market and values it accordingly. Thus, the return prospects (for a given volatility) are no higher for the US market than for other markets - no free lunch.

This is a point that devotees of the "America tilt" can't get their heads around.

The believe in efficient markets -- low cost indexation. But on the other hand, they think they are smarter than the markets when it comes to picking which stock market will be the future winner. That information has somehow eluded those whose buy and sell decisions set the value of companies at the margin.

I have a psychological bias in this. I live in Great Britain. Thus, I know all about world hegemon's unravelling, and psychologically being unable to come to terms with it. See recent British politics -- but really any time since 1945. You will see that London, also, was the world's largest stock market in the early 1900s (I think - I don't think Wall Street had yet surpassed it in total market cap). British returns over the 20th century were uninspiring compared to many other markets.
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Re: International vs US funds [Europe to US and return]

Post by Outer Marker »

Valuethinker wrote: Fri Jul 16, 2021 4:26 pm This conflicts with the Efficient Market Hypothesis. The point is the market *knows* these truths (if they are truths) about the US market and values it accordingly. Thus, the return prospects (for a given volatility) are no higher for the US market than for other markets - no free lunch.

This is a point that devotees of the "America tilt" can't get their heads around.
I hear you - and from an economic theory standpoint you are right. But, it has not worked out that way, and the S&P continues to outperform EM, SCV, and International generally. American companies are ruthlessly efficient in rooting out opportunities wherever they exist around the globe. And, they are "too big to fail" and propped up by the full faith and credit of the USG when things go sour as during the pandemic. The big US airlines are all doing great, and would have been bankrupt not for USG stepping in. We are also still, for however long it lasts, the world's reserve currency. And, we don't step in and kneecap companies when someone like Jack Ma says something to offend the government. I'm not sure all that is factored into the price.

Markets are not always effecient, and can get it hopelessly wrong sometimes. I don't believe bitcoin has any real value and don't own it despite crypto having become an asset class onto its own. Tulip investors in the Netherlands were also disappointed by the price the market had set for their investments. You might do better elsewhere, but it is hard to go too far wrong "betting on the USA." That said, I'm sticking with my 20% hedge bet on foreign equities.
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Re: International vs US funds [Europe to US and return]

Post by Laurizas »

Outer Marker wrote: Fri Jul 16, 2021 2:10 pm I don't see the need to hold a historically underperforming asset class at market weight
Over the past 70 years the US stock market has been a darling, outperforming foreign stocks by 1% per year. $10k invested in US stocks in 1950 turned into $14 million vs. only $8m in foreign stocks.
Want to know how much of that outperformance has come since 2009? All of it
https://twitter.com/MebFaber/status/109 ... 53184?s=20
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Re: International vs US funds [Europe to US and return]

Post by Outer Marker »

Laurizas wrote: Fri Jul 16, 2021 6:54 pm
Outer Marker wrote: Fri Jul 16, 2021 2:10 pm I don't see the need to hold a historically underperforming asset class at market weight
Over the past 70 years the US stock market has been a darling, outperforming foreign stocks by 1% per year. $10k invested in US stocks in 1950 turned into $14 million vs. only $8m in foreign stocks.
Want to know how much of that outperformance has come since 2009? All of it
https://twitter.com/MebFaber/status/109 ... 53184?s=20
Does that make you more or less favorably inclined toward US stocks? I'd say favorable given the "guardrails" that USG has put on the S&P500 companies during the 2008/09 global financial crisis and pandemic.
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Re: International vs US funds [Europe to US and return]

Post by Laurizas »

Outer Marker wrote: Fri Jul 16, 2021 7:09 pm Does that make you more or less favorably inclined toward US stocks? I'd say favorable given the "guardrails" that USG has put on the S&P500 companies during the 2008/09 global financial crisis and pandemic.
I would say less. It somehow resonates with the saying that "You can win any argument in the markets by simply changing your start and end dates."
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Re: International vs US funds [Europe to US and return]

Post by Da5id »

Laurizas wrote: Sat Jul 17, 2021 7:59 am
Outer Marker wrote: Fri Jul 16, 2021 7:09 pm Does that make you more or less favorably inclined toward US stocks? I'd say favorable given the "guardrails" that USG has put on the S&P500 companies during the 2008/09 global financial crisis and pandemic.
I would say less. It somehow resonates with the saying that "You can win any argument in the markets by simply changing your start and end dates."
While I agree (and am 40% int'l), future returns are obviously a murky topic. As an argument "the rules changed in 08/09 because ..." isn't the best I've heard.

Regardless of the standard (and rather weary) Int'l vs US argument, I'm still not sure I understand the OPs issues and reasoning. Their case isn't the same as most of ours based on their posting history (moved to US, moved back to Europe, apparently settling in Europe). The were talking about going from 20% int'l to 0% based on "their international tilt growing in Europe". Perhaps they can come back and clarify?
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Re: International vs US funds [Europe to US and return]

Post by Valuethinker »

Outer Marker wrote: Fri Jul 16, 2021 6:16 pm
Valuethinker wrote: Fri Jul 16, 2021 4:26 pm This conflicts with the Efficient Market Hypothesis. The point is the market *knows* these truths (if they are truths) about the US market and values it accordingly. Thus, the return prospects (for a given volatility) are no higher for the US market than for other markets - no free lunch.

This is a point that devotees of the "America tilt" can't get their heads around.
I hear you - and from an economic theory standpoint you are right. But, it has not worked out that way, and the S&P continues to outperform EM, SCV, and International generally. American companies are ruthlessly efficient in rooting out opportunities wherever they exist around the globe. And, they are "too big to fail" and propped up by the full faith and credit of the USG when things go sour as during the pandemic. The big US airlines are all doing great, and would have been bankrupt not for USG stepping in. We are also still, for however long it lasts, the world's reserve currency. And, we don't step in and kneecap companies when someone like Jack Ma says something to offend the government. I'm not sure all that is factored into the price.

Markets are not always effecient, and can get it hopelessly wrong sometimes. I don't believe bitcoin has any real value and don't own it despite crypto having become an asset class onto its own. Tulip investors in the Netherlands were also disappointed by the price the market had set for their investments. You might do better elsewhere, but it is hard to go too far wrong "betting on the USA." That said, I'm sticking with my 20% hedge bet on foreign equities.
It's just great to have such perfect foresight. Better than stock markets.
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Re: International vs US funds [Europe to US and return]

Post by Outer Marker »

Valuethinker wrote: Sun Jul 18, 2021 11:45 am It's just great to have such perfect foresight. Better than stock markets.
Yes, that skill has served me well. :wink:

Actually, what has severed me well is doing the opposite of what the markets are doing. I was buying like crazy in 2008/2009, and the same in March of last year. The markets were seriously wrong on those valuations - just as I believe them to be over-frothed at the moment. I never stray far from my target 70/30 AA, but don't hesitate to do a bit of strategic "over-balancing" when the opportunity presents.

At the end of the day, I don't think it will make much difference being 80/20 domestic:international or 60/40. I happen to believe U.S. companies are better run, more aggressive, and have a more stable and pro-business platform to support them. I could be wrong. So, I do hedge my bets.

If you want true international diversification, I think you need to dig a little deeper and overweight small caps that are more country and region specific. There's not much difference between holding Shell or ExxonMobile. Or any of the megacap multinationals (which dominate the index). Those are going to respond to global sector factors; it does not mattered where their headquarters are. 15% of my total portfolio is international. 5 of the 15% is international small cap.
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Re: International vs US funds [Europe to US and return]

Post by Valuethinker »

Outer Marker wrote: Sun Jul 18, 2021 1:30 pm
Valuethinker wrote: Sun Jul 18, 2021 11:45 am It's just great to have such perfect foresight. Better than stock markets.
Yes, that skill has served me well. :wink:

Actually, what has severed me well is doing the opposite of what the markets are doing. I was buying like crazy in 2008/2009, and the same in March of last year. The markets were seriously wrong on those valuations - just as I believe them to be over-frothed at the moment. I never stray far from my target 70/30 AA, but don't hesitate to do a bit of strategic "over-balancing" when the opportunity presents.

At the end of the day, I don't think it will make much difference being 80/20 domestic:international or 60/40. I happen to believe U.S. companies are better run, more aggressive, and have a more stable and pro-business platform to support them. I could be wrong. So, I do hedge my bets.

If you want true international diversification, I think you need to dig a little deeper and overweight small caps that are more country and region specific. There's not much difference between holding Shell or ExxonMobile. Or any of the megacap multinationals (which dominate the index). Those are going to respond to global sector factors; it does not mattered where their headquarters are. 15% of my total portfolio is international. 5 of the 15% is international small cap.
Thank you. You've stated clearly you don't believe in Efficient Markets. I get that.*

The international small cap (or, better, small cap value) point is again a good one from the point of view of the US investor.

Since we are discussing the position of the non US-based investor here, I will revert to my main point. It's a mistake, costing diversification benefit, not to globally index by market cap.

* BTW the intra-stock risk in a sector is usually greater than the intra-sectoral risk - in terms of the portfolio. It's convenient to think that Glaxo SK is essentially the same as Pfizer, but it's not at all the case. The stock-specific volatility is greater than the sectoral volatility, in many cases. Shell BP Exxon Total *might* be more similar given the common commodity price factor, but, even then - there's big performance dispersion between those companies. As there is between the big 3 miners (Rio Tinto, BHP, Glencore).

Even within the tech sector - Amazon Google Facebook Microsoft Apple - they are all "tech" but they respond to very different product cycles. There has been a degree of covergence in terms of them all competing in the digital advertising market, say, but they are quite different companies. We just lump them together due to them all being internet-related, and all having done very well in the last 10 years. Let alone Tesla of coruse.

That's more obvious when you throw in Tencent and Alibaba.
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Re: International vs US funds [Europe to US and return]

Post by Outer Marker »

Well, if you count me with Jack Bogle and Warren Buffett as "non-believers" in Efficient Markets, I suppose I'm flattered. Not only do they not hold international at market weight - they don't hold any of it. That's a little extreme in my view, but it worked out for them. US firms are stronger, less regulated, and better supported by their government that others around the world. Microsoft and Apple might get spanked once in a while by our antitrust regulators, but its nowhere near what EU companies endure on a daily basis. And, tencent and alibaba can get smacked down at any moment just if their CEOs make a snide comment about the regime.

I don't see why where you live has anything to do with where your money is invested. If I had compelling reason to think that internatoinal would crush US equities over the next two decades, I'd put most of my money there. But, I don't and I won't. Remember Buffett's words, "never bet against the USA." That is just as true for someone sitting in London as New York.
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Re: International vs US funds [Europe to US and return]

Post by Valuethinker »

Outer Marker wrote: Mon Jul 19, 2021 1:22 pm Well, if you count me with Jack Bogle and Warren Buffett as "non-believers" in Efficient Markets, I suppose I'm flattered. Not only do they not hold international at market weight - they don't hold any of it. That's a little extreme in my view, but it worked out for them. US firms are stronger, less regulated, and better supported by their government that others around the world. Microsoft and Apple might get spanked once in a while by our antitrust regulators, but its nowhere near what EU companies endure on a daily basis. And, tencent and alibaba can get smacked down at any moment just if their CEOs make a snide comment about the regime.

I don't see why where you live has anything to do with where your money is invested. If I had compelling reason to think that internatoinal would crush US equities over the next two decades, I'd put most of my money there. But, I don't and I won't. Remember Buffett's words, "never bet against the USA." That is just as true for someone sitting in London as New York.
1. proof by Authority. That's not a strong form of proof.

There's no proof offered there about why US companies should be "better" than other companies and the market should not price that in. It's that latter that is a violation of Efficient Markets Hypothesis (you can't beat the market with only publicly available information - type II efficiency).

But you don't believe in EMH. You've stated that.

Buffett can be explained very much by the audience whom he is addressing, plus the corporate governance structure of Berkshire Hathaway. It's not as if BH does not own lots of businesses outside the USA (British utilities, Israeli metalforming companies etc). Bogle? Vanguard is not the organization that he founded ... *they* don't think that foreign equities are a bad idea ...

2. the issue is one of uncompensated currency risk. In that the dividend income comes out from the portfolio in the home currency of the listing.

But also, more importantly, what I said was that not globally diversifying for a US-based investor is a minor sin. The investor is not throwing away a lot of diversification.

For a Canadian, say, it is a huge sin. Losing 97% of the investible stocks in the world. Even for a UK-based investor (possibly the most global market index there is - but almost no tech stocks) it's a 90% throwing away.

"Home country bias" is a thing, and there's a huge literature about it.
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Re: International vs US funds [Europe to US and return]

Post by Outer Marker »

^^^ But, 'ya gotta admit, those are damn good authorities!

Agree that if you're sitting in Japan, France or Italy, home country bias is a much more of a concern. Not so much for US investors, particularly as long as the dollar remains the word's reserve currency.
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loklav
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Re: International vs US funds [Europe to US and return]

Post by loklav »

With my move back to France I have to admit that I haven't logged on BoggleHead for several months and did not follow this thread.
So yes my move to France is temporary (4-5 years...?) and yes I have dual citizenship.
Since I bought a home in France, this is why I wanted to revisit my asset allocation, and not increase any more my home country bias by investing in international stocks.
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BeBH65
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Re: International vs US funds [Europe to US and return]

Post by BeBH65 »

loklav wrote: Wed Jul 14, 2021 4:45 am Hi,

Since I moved recently to Europe and I have all my money in the US, I'm wondering how/if I should rebalance and adopt a different allocation: I have currently 80% in US stocks and 20% in international.
Globally, I'm fine with keeping all my funds in the US.
But I have now a salary in Euros and bought a house in Europe. So I was planning to rebalance all my stocks to 100% US, since my international tilt will gradually grow in Europe...
What are your thoughts?

thx
Why would you do that?

Your liabilities are now in Europe and in Euro. You are exposed to different risks: eg currency volatility USD/EUR. You should investigate how much you should lower your USD investments and augment the ones in Euro to ensure your portfolio matches your risks,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
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