Larry Swedroe: Non-US Valuations Look Attractive

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PuddlesTheDuck
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by PuddlesTheDuck » Thu Oct 12, 2017 4:01 pm

inbox788 wrote:
Thu Oct 12, 2017 3:52 pm
Slippery slope switching asset classes. If you time your AA between US vs non-US and Developed vs Emerging, why not Growth vs Value? Consumer Staples vs Discretionary? Healthcare vs Biotech? Financials vs Technology? Small-cap vs Value vs Small-cap Value? Whether you call it timing or tilt, it all sounds similar to me. Maybe the difference is how long you switch back and forth vs permanent strategy. The active management types call this Tactical Asset Allocation.
I agree, which is why I said what I did was market timing, but there's also a slippery slope calling everything market timing. If I'm getting older and want to make my allocation less risky, I'll time the market and switch some stocks into bonds, because I feel that bonds will be less risky in the future and help preserve my capital. In a way anyone who isn't invested in global market cap weights is market timing by this logic, though, so I don't know where to draw the line. I personally wanted more risk in my AA, which is the only reason I even considered adding more EM. Maybe the valuations were just an easy way to convince myself that right now was the right time to do it, or maybe they actually had an impact on my ability to go through with the decision. Either way, I made a change to my AA.

There's probably an interesting semantics debate to be had on what "market timing" actually means, but unfortunately I'm not good at those types of things. Maybe it's like porn: you know it when you see it.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by FIREchief » Thu Oct 12, 2017 4:04 pm

azanon wrote:
Thu Oct 12, 2017 1:24 pm
So someone's math is wrong, and as analytical as the folks at researchaffiliates are, i don't like Larry's odds in that competition.
Predicting the future and math are really two different things. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by MindTheGAAP » Thu Oct 12, 2017 4:09 pm

azanon wrote:
Thu Oct 12, 2017 3:43 pm
I imagine that's less contrarian than what I do. I'm over 50% foreign now. The typical US investor is pretty heavy home-country bias.
Agree with you. I was raised in England and live in the US now - I'm 55/45 on US/Int'l Equities - just as the US has major multinationals, so does the rest of the world: BP, Nestle, Tencent, Shell, Samsung, Unilever, Siemens, Toyota, etc. People here seem to ignore/forget that (as you point out earlier) - some act as if it is solely US companies selling abroad!
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Random Walker » Thu Oct 12, 2017 4:17 pm

Azanon,
I think the difference between Larry’s expected returns and some other people’s is that Larry’s firm assumes no change in the speculative component.

Dave

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Thu Oct 12, 2017 4:24 pm

asif408 wrote:
Thu Oct 12, 2017 3:17 pm
visualguy wrote:
Thu Oct 12, 2017 12:32 pm
Ex-US indexing hasn't worked well in the past - under-performance over long periods of time as mentioned above in this thread. It's possible to argue about the reasons and whether the next century will be like the last century, but the reality so far is what it is, and it's a huge red flag.
So should I be concerned that ex-US outperformed US for the 12 years between 2002 and 2014: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D,
or that emerging markets have outperformed US markets from late 1998 until today (almost 20 straight years):
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
No. In the long run, ex-US has under-performed significantly. If you invest in it, you're betting that this will change, or that your timing will happen to be such that you'll do well within the limited time-frame that matters to you. The interesting question is what the reasons are for this long-term under-performance, and if anything is going to change. Part of it may be currency-related, part of it may be that you can't capture the growth of China and India through their stock markets, part of it may be the stagnation in other countries' economies and populations, or maybe less focus on the shareholders in other cultures, who knows... Whatever the factors are, if you think things will change, and the last 50 or 100 years or whatever don't reflect the future, then fine, but I don't have such insight, so I have to base things on past long-term results.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by azanon » Thu Oct 12, 2017 5:04 pm

FIREchief wrote:
Thu Oct 12, 2017 4:04 pm
azanon wrote:
Thu Oct 12, 2017 1:24 pm
So someone's math is wrong, and as analytical as the folks at researchaffiliates are, i don't like Larry's odds in that competition.
Predicting the future and math are really two different things. 8-)
That's a Strawman. If you want to discuss that, it's about assessing probabilities of an occurrence, which is a far cry from predicting the future.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by azanon » Thu Oct 12, 2017 5:09 pm

Random Walker wrote:
Thu Oct 12, 2017 4:17 pm
Azanon,
I think the difference between Larry’s expected returns and some other people’s is that Larry’s firm assumes no change in the speculative component.

Dave
I'd like to see him explain more why they exclude so many components (like fx change estimation), particularly because most sites that are doing valuation-based estimations are more in line with what researchaffiliates is estimating since they include all available, quantitative data.

And what other sites am I referring to? Here's Gurufocus' estimates (US is -1.5% estimated return) https://www.gurufocus.com/global-market-valuation.php Star Captial. Meb Faber's work. list goes on.... Heck, I'm relatively sure even Bogle's estimates are lower than Larry's.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by nedsaid » Thu Oct 12, 2017 6:07 pm

asif408 wrote:
Thu Oct 12, 2017 8:11 am
nedsaid wrote:
Wed Oct 11, 2017 4:38 pm
If you went back to 2007 or even early 2008, I saw articles saying that International Stocks were the "must have" asset class because their long term performance was better than U.S. with limited correlation. A great diversifier. That shows what eight years of underperformance relative to US can do to long term results. International went from hero to zero in eight years.
Like here: http://www.aaii.com/objects/get/908.gif

It just shows how the starting and ending points chosen can paint any picture you want to see. The above starts with the beginning of a bull market in EM stocks and ends near the end of the EM bull market. If I start in 1994 and go to 2014 I get a different picture: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D. Obviously this one begins with a US bull market and (possibly?) ends with a US bull market.

My prediction is that the 2002-2022 time frame will again show international as the better performer, because 2002 was the start of a period of international outperformance, and everyone will flock to international. And then between 2008-2028 US will be the best, because 2008 was the beginning of US outperformance, and 2028 will be the end of a US bull run, and everyone will flock to US. And the performance chasing will go on and on and on..........
My source is from Paul Merriman and his organization, I went to a couple of his seminars in 2007-2008 and this was the data they presented back then. Performance data is from 1970-2007.

US Large Companies 10.9% Annualized Return
US Small Companies 12.1%
Int'l Large Companies 10.7%
Int'l Small Companies 16.1%

Doesn't look so bad to me.
A fool and his money are good for business.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by nedsaid » Thu Oct 12, 2017 6:26 pm

It is interesting that when I did a stock by stock analysis in another thread comparing financial stocks versus stocks in other industries, I couldn't help but notice that trailing P/E ratios were looking rather high.

JP Morgan Chase Trailing P/E 14 Forward P/E 12.6
US Bancorp Trailing P/E 16 Forward P/E 14.6
Coca Cola P/E 48 Forward P/E 23.2
Microsoft Trailing P/E 28 Forward P/E 21.3
Exxon-Mobil Trailing P/E 30 Forward P/E 22.7

Trailing P/E ratios from Marketwatch and Forward P/E ratios from Morningstar.

These are all stocks that I own individually. Yes, to my untrained eye, particularly when you look at trailing P/E ratios, the US Market does look expensive. The debate is how expensive is it really? My guess is not as expensive as we think.
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Hustlinghustling » Thu Oct 12, 2017 7:25 pm

visualguy wrote:
Thu Oct 12, 2017 12:32 pm
Hustlinghustling wrote:
Thu Oct 12, 2017 12:14 pm
Always perplexed by how many Bogleheads insist on not picking single stocks to simply take what the market will bear. Yet have no issue holding a US only or US dominant portfolio that's so far out of line with global market proportions.
Mr. Bogle himself (or even Warren Buffet for that matter) likes US-only indexing, so why would Bogleheads have an issue with it? Ex-US indexing hasn't worked well in the past - under-performance over long periods of time as mentioned above in this thread. It's possible to argue about the reasons and whether the next century will be like the last century, but the reality so far is what it is, and it's a huge red flag.
It's an issue because being US only based on past results is precisely the same mentality that Bogleheads reject for stock picking.

Not intending to offend, but it would seem some of it may be a tendency for Americans to disregard the significance of things happening outside the US, having a sort of tunnel-visioned home bias. Understandable, because US has far and away been the biggest market for some time.

Having said that, it's dominance in marketshare is slipping. as an example, I'm guessing many have never heard of Tencent even though it has a market cap bigger than Exxonmobile and Facebook.

I consider it misguided that being US only is something other than active management and in fact, no different than stock picking. You're not passively accepting market returns, but deciding what that market will be.
Last edited by Hustlinghustling on Fri Oct 13, 2017 1:55 am, edited 1 time in total.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Portfolio7 » Thu Oct 12, 2017 7:46 pm

inbox788 wrote:
Thu Oct 12, 2017 3:52 pm
PuddlesTheDuck wrote:
Thu Oct 12, 2017 2:57 pm
That's certainly market timing, but it's a very different type of timing than the one people usually think about. You haven't changed your risk profile (kept the same stock:bond ratio, though I guess you could have switch out of consumer staples or something like that) or your expected returns. But you have changed what you're invested in based on what you believe the market will do in the future. But unlike how most people view market timing, you're not making any claims about market movements. You're only saying you believe that over the next few years, one class of assets will outperform another.

I did the same thing shifting to a healthier dose of emerging markets early this year both because of the valuations but also because I felt like I could stomach the ups and downs. I'd be lying to myself if I didn't call it market timing of some sort, but like your shift it wasn't done anticipating any single event.
Slippery slope switching asset classes. If you time your AA between US vs non-US and Developed vs Emerging, why not Growth vs Value? Consumer Staples vs Discretionary? Healthcare vs Biotech? Financials vs Technology? Small-cap vs Value vs Small-cap Value? Whether you call it timing or tilt, it all sounds similar to me. Maybe the difference is how long you switch back and forth vs permanent strategy. The active management types call this Tactical Asset Allocation.
I think every investor has to decide what they are comfortable with. Even Bernstein talks about adjusting AA for market conditions, but only under certain conditions. I also overweighted EM and Int'l to begin the year, underweighting US. Particularly in EM, returns had been depressed for a long time and valuations were low. Could they have stayed low? Sure... people have been talking about low valuations in EM and in Europe for years. It could have bounced back earlier, but when any asset class exhibits years of below average returns, there's usually a pretty good chance for a strong rebound. I see market timing as trying to buy what's hot, or what someone tells you is going to be hot. I see what I did as identifying a good value with a high probability for growth, and buying low. I don't think of it as TAA either, TAA tends to be based on short-term considerations as I see it (1 year or less). I'm looking at a decade or so of performance and noting if something looks beaten down despite the fundamentals such as earnings and growth and central market actions and other considerations. I didn't overweight anything from 2009-2015... some areas looked interesting, but the substance was lacking, and when in doubt my default position is my AA. Maybe I'm just fooling myself, I'm not particularly sophisticated in my understanding of the markets, and I can't even say I have a 'system'.... which DQ's my approach in the eyes of many, and it probably should.
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by grok87 » Thu Oct 12, 2017 8:52 pm

DavidRoseMountain wrote:
Wed Oct 11, 2017 4:27 pm
US stocks command a higher P/E ratio partly because US law on contracts and securities is stronger and more solid than in emerging market economies. This doesn't take into account the discrepancy between the US and Europe/Japan. One can argue that Europe and Japan are experiencing secular stagnation in their economies.
+1
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Noobvestor » Fri Oct 13, 2017 12:51 am

visualguy wrote:
Thu Oct 12, 2017 4:24 pm
asif408 wrote:
Thu Oct 12, 2017 3:17 pm
visualguy wrote:
Thu Oct 12, 2017 12:32 pm
Ex-US indexing hasn't worked well in the past - under-performance over long periods of time as mentioned above in this thread. It's possible to argue about the reasons and whether the next century will be like the last century, but the reality so far is what it is, and it's a huge red flag.
So should I be concerned that ex-US outperformed US for the 12 years between 2002 and 2014: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D,
or that emerging markets have outperformed US markets from late 1998 until today (almost 20 straight years):
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
No. In the long run, ex-US has under-performed significantly. If you invest in it, you're betting that this will change, or that your timing will happen to be such that you'll do well within the limited time-frame that matters to you. The interesting question is what the reasons are for this long-term under-performance, and if anything is going to change. Part of it may be currency-related, part of it may be that you can't capture the growth of China and India through their stock markets, part of it may be the stagnation in other countries' economies and populations, or maybe less focus on the shareholders in other cultures, who knows... Whatever the factors are, if you think things will change, and the last 50 or 100 years or whatever don't reflect the future, then fine, but I don't have such insight, so I have to base things on past long-term results.
I'll never understand this kind of argument. You don't use that logic for individual stocks or sectors, so why countries? We don't say 'well healthcare has done well and utilities poorly over the last 50 or 100 years so you should tilt toward one over the other.' Makes no sense for a passive investor to simply disregard half the global market on the basis that the US had an exceptional century (which may or may not repeat, we don't know).
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Fri Oct 13, 2017 1:39 am

Noobvestor wrote:
Fri Oct 13, 2017 12:51 am
I'll never understand this kind of argument. You don't use that logic for individual stocks or sectors, so why countries? We don't say 'well healthcare has done well and utilities poorly over the last 50 or 100 years so you should tilt toward one over the other.' Makes no sense for a passive investor to simply disregard half the global market on the basis that the US had an exceptional century (which may or may not repeat, we don't know).
The problem is that many countries outside the US had a great century too, but this was not reflected in the ex-US index like the success in the US was reflected in the US index. Evidently, buying the ex-US index hasn't been a good way to benefit from the success of foreign economies, so I stay away from it.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by asif408 » Fri Oct 13, 2017 9:01 am

visualguy wrote:
Fri Oct 13, 2017 1:39 am
Noobvestor wrote:
Fri Oct 13, 2017 12:51 am
I'll never understand this kind of argument. You don't use that logic for individual stocks or sectors, so why countries? We don't say 'well healthcare has done well and utilities poorly over the last 50 or 100 years so you should tilt toward one over the other.' Makes no sense for a passive investor to simply disregard half the global market on the basis that the US had an exceptional century (which may or may not repeat, we don't know).
The problem is that many countries outside the US had a great century too, but this was not reflected in the ex-US index like the success in the US was reflected in the US index. Evidently, buying the ex-US index hasn't been a good way to benefit from the success of foreign economies, so I stay away from it.
Someone recently showed me this chart of a the performance of a global growth mutual fund (Templeton) vs. a US only growth mutual fund (Fidelity):

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

It appears the global growth fund has outperformed for almost 50 years. Is this just an anomaly?

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by inbox788 » Fri Oct 13, 2017 11:42 am

asif408 wrote:
Fri Oct 13, 2017 9:01 am
It appears the global growth fund has outperformed for almost 50 years. Is this just an anomaly?
No, you're misreading the graph. Templeton outperformed the first 10 years, but Fidelity outperformed the next 40. What you don't see are the dozen Templeton funds that underperformed and were closed during those first 10 years. Survival bias!

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Fri Oct 13, 2017 3:01 pm

In my view, the biggest international development is the rise of China as a major world power. The effects of that can be profound. Even just from an economy size perspective, China is expected to surpass the US by 2030. By 2050, the US is expected to be #3 behind China and India. It will most likely be a different world. Not sure if there's a good way for us to benefit from this, or even just protect ourselves from the potentially bad implications to the US. Buying the ex-US index doesn't really make you a beneficiary of this profound global shift over the next few decades because of the nature of those economies/stock markets.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Noobvestor » Sun Oct 15, 2017 6:29 pm

visualguy wrote:
Fri Oct 13, 2017 1:39 am
Noobvestor wrote:
Fri Oct 13, 2017 12:51 am
I'll never understand this kind of argument. You don't use that logic for individual stocks or sectors, so why countries? We don't say 'well healthcare has done well and utilities poorly over the last 50 or 100 years so you should tilt toward one over the other.' Makes no sense for a passive investor to simply disregard half the global market on the basis that the US had an exceptional century (which may or may not repeat, we don't know).
The problem is that many countries outside the US had a great century too, but this was not reflected in the ex-US index like the success in the US was reflected in the US index. Evidently, buying the ex-US index hasn't been a good way to benefit from the success of foreign economies, so I stay away from it.
What does that mean: 'had a great century too?' Some markets did well, others didn't, but the US came out toward the top. So ... yes, it was a great century for the US stock market, thanks in part to factors like escaping WWII without a lot of damage, and then associated brain drain/immigration, lots of reasons. Some of that market success came from foreign sources depending on how you reckon it but a lot of foreign businesses get money from the US too. I have no idea how that's going to be reflected in the future, but I'm positioned to be relatively agnostic with my 50/50 US/international portfolio. Anyway, this argument seems incredibly flimsy to me - I'm not really sure what you even mean by it.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by harvestbook » Sun Oct 15, 2017 7:03 pm

I like 50/50 and have been close to it all along (inspired by Paul Merriman). I won't have the same investing window that Bogle and Buffet did or even live in the same world. When they were beginning their careers, China was the 45th-ranked economy in the world. Now it's second and the gap is closing fast (http://statisticstimes.com/economy/coun ... ed-gdp.php)

I don't care about valuations and expected 10-year returns because that's not my time horizon. I'll spread my bets across the globe and take my chances.
I'm not smart enough to know, and I can't afford to guess.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by 3funder » Sun Oct 15, 2017 10:00 pm

Random Walker wrote:
Wed Oct 11, 2017 12:13 am
For those looking to improve portfolio efficiency, I would consider this time, with these relative valuations, a good opportunity to increase one’s international allocation towards it’s market cap weighting of 50%.

Dave
I'm at 40%, but I certainly don't plan on lowering it.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by pokebowl » Sun Oct 15, 2017 10:07 pm

visualguy wrote:
Wed Oct 11, 2017 2:05 pm
The problem is that international (ex-US) has done poorly over very long periods of time, so the track record is frightening. I would have to look it up, but there was a thread here a couple of months ago showing performance over very long time frames (starting at 100 years ago or so), and it didn't look good for international. That may or may not change in the coming decades, but if you think it will change, the question is why.
Well consider globally the last 100 years had two very significant world wars...and one cold one, those may have been a factor. Also the fact the U.S had a good generational leap due to not being targeted directly also played a role. What we are seeing over the last 3 decades and the next several is the start of all the other economies maturing and coming to scale. The U.S which once dominated the market, is now only ~50% and that share of the pie is decreasing, not increasing.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Fundhunter » Sun Oct 15, 2017 11:36 pm

pokebowl wrote:
Sun Oct 15, 2017 10:07 pm
visualguy wrote:
Wed Oct 11, 2017 2:05 pm
The problem is that international (ex-US) has done poorly over very long periods of time, so the track record is frightening. I would have to look it up, but there was a thread here a couple of months ago showing performance over very long time frames (starting at 100 years ago or so), and it didn't look good for international. That may or may not change in the coming decades, but if you think it will change, the question is why.
Well consider globally the last 100 years had two very significant world wars...and one cold one, those may have been a factor. Also the fact the U.S had a good generational leap due to not being targeted directly also played a role. What we are seeing over the last 3 decades and the next several is the start of all the other economies maturing and coming to scale. The U.S which once dominated the market, is now only ~50% and that share of the pie is decreasing, not increasing.
Part of the problem here is the statement that Jack Bogle made some time back to the effect that he thought international equity investing was not necessary. Those of you think that whatever Jack Bogle says is gospel and should never be questioned can justify zero international that way. I think Bogle is a genius in many ways and he was way ahead of his time, particularly on his phiklosphy about index investing and the importance of expenses in mutual funds. But if he still feels that way, I disagree (based on other expert opinions) and I think some percentage of the equity position should be in international. Most of mine is in Vanguard Total International Fund.

Deciding that because US equities outperformed over long periods in the past means that you should go 100% USA doesn't make any sense to me. Diversification has a lot to do with managing risk- I would like to mitigate the risk that the USA might underperform in the future.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by vitaflo » Mon Oct 16, 2017 10:58 am

Keep in mind total Int is made up of 16% EM. Depending on your AA, you may already have enough EM exposure for your liking.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Fundhunter » Mon Oct 16, 2017 5:28 pm

vitaflo wrote:
Mon Oct 16, 2017 10:58 am
Keep in mind total Int is made up of 16% EM. Depending on your AA, you may already have enough EM exposure for your liking.
The Vanguard website's fund description says VTIAX has 19.7% Emerging Markets. Most of my international is in that fund, and I do not have a problem with that, as it is part of the non-USA index the fund tries to follow. My international is 25% of my equities, smaller than some posters on this thread.

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