Why International again?

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Shikoku
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Re: Why International again?

Post by Shikoku » Mon Mar 12, 2018 6:03 am

"I don't worry too much about pointing fingers at the past. I operate on the theory that every saint has a past, every sinner has a future." -- Warren Buffett

cjking
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Re: Why International again?

Post by cjking » Mon Mar 12, 2018 6:52 am

To go back to the original question, if you look at this link

https://www.starcapital.de/en/research/ ... valuation/

You will see CAPE for USA (at end January) at 32.1 and for "developed markets" at 26.4. If we take the US to be roughly 50% of developed markets, that implies world-ex-US is at 26.4 - (32.1-26.4) = 20.7.

So a rough estimate of the expected return of US equities at the end of January was 1/32.1 = 3.1%.

A rough estimate for developed-world-ex-us is 1/20.7 = 4.8%. Even after subtracting 0.1% for extra expenses and 0.2% for withholding taxes on dividends, that still leaves you with roughly 50% higher expected return.

Of course return isn't everything. As a non-US investor it would be relatively easy for me to be 0% US, but I'm willing to sacrifice some return for the sake of diversification. I'm currently holding my nose while my strategy forces me to have exposure as high as 18% to US equities...

cjking
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Re: Why International again?

Post by cjking » Mon Mar 12, 2018 6:56 am

Note that in that link, you can sort the table by column headings. On the CAPE metric, the US is more expensive than everywhere except Ireland and Denmark. Even Japan is slightly cheaper. (I'm also underweight Japan.)

cjking
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Re: Why International again?

Post by cjking » Mon Mar 12, 2018 6:59 am

I've just seen there is a "WORLD AC" entry I could have used instead of "developed markets" but at CAPE=25.2 instead of 26.4 it would have given results only slightly more favourable to my argument.

Ari
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Re: Why International again?

Post by Ari » Mon Mar 12, 2018 8:50 am

cjking wrote:
Mon Mar 12, 2018 6:52 am
I'm currently holding my nose while my strategy forces me to have exposure as high as 18% to US equities...
I know what you mean. :) I'm 20% US and staying the course is not easy, but I'm not going to try to time this. Just happy that my allocation keeps me with plenty of other exposures to diversify.

I actually find it problematic that the US is ~50% of the equity market. It's far from 50% of the economy, and it gives non-US investors a pretty skewed allocation. I think there's a fair argument to be made for underweighting the US (unless you're an American, in which case 50% US seems a pretty decent allocation), no matter what the valuation. I wish there was a "World Ex-US" fund that I could invest in without having to buy a US fund and exposing myself to exchange fees and withheld taxes. It's rather ironic that I need to invest in a US fund to get exposure to "Everything except the US".
All in, all the time.

MnD
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Re: Why International again?

Post by MnD » Mon Mar 12, 2018 9:28 am

Ari wrote:
Mon Mar 12, 2018 8:50 am
I think there's a fair argument to be made for underweighting the US (unless you're an American, in which case 50% US seems a pretty decent allocation), no matter what the valuation.
The security of my govt job, and expected govt pension, my expected social security benefits and the value and marketability of my home are all closely tied to the health of the US economy and US political system. I can make a pretty good case as a US investor for under-weighting US stocks given the long position I have in the US economy in virtually ever other financial aspect of my life. You don't want all or most of your eggs in one basket.

I in fact don't don't under-weigh US, but I would be much more comfortable doing so than over-weighting US equity. In fact I'd be comfortable 100% ex-US given the other very significant stakes I have that depend largely on the health of the US economy. And given that companies like Samsung, Toyota, Shell, Nestle, Novartis etc. derive very significant percentages of sales and profits from US - its not like the ex-US investor doesn't have any US exposure.

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cfs
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Re: Why International again?

Post by cfs » Mon Mar 12, 2018 2:17 pm

Ari wrote:
Mon Mar 12, 2018 4:58 am
cfs wrote:
Sat Mar 10, 2018 12:38 pm
"Past results are no guarantee for future returns" . . .
I don't agree that this is a good argument for choosing passive over active . . .
Thank you for your note. Good luck with your investments, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~

InvestInLife
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Re: Why International again?

Post by InvestInLife » Tue Mar 13, 2018 10:41 am

Just to make sure, the recommendation to hold 20-40% in international equities applies only to the equity part of one's portfolio? So if one's AA is 50/50, one aims to hold 10-20% of their total portfolio in intl equities?

chevca
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Re: Why International again?

Post by chevca » Tue Mar 13, 2018 10:54 am

InvestInLife wrote:
Tue Mar 13, 2018 10:41 am
Just to make sure, the recommendation to hold 20-40% in international equities applies only to the equity part of one's portfolio? So if one's AA is 50/50, one aims to hold 10-20% of their total portfolio in intl equities?
Correct.

rj49
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Re: Why International again?

Post by rj49 » Tue Mar 13, 2018 2:01 pm

To me, using past data to predict future international returns isn't wise, since the international indices were dominated completely by the Japan bubble and it's fall, which dragged down international returns until 2000 or so. It also ignores the strength of emerging market economies--you rarely saw a Brazilian, Chinese, Russian, or Indian tourist, but now they are all over the world, reflecting a rising standard of living and purchasing power.

If you look to the future, instead of to the past, Morgan Stanley believes Asia will eclipse North America in terms of market cap by 2027, so if you invest only in the US you'll be missing out on the rise of all these companies, even if US companies benefit from their growth and spending .

https://www.marketwatch.com/story/asia- ... 2018-03-12

If half of your groceries are made by US companies and half by Unilever and Nestle, wouldn't you want to capture some of those businesses, or of all the Asian and German autos we drive? Instead of looking at past data, I prefer to invest in as many of the world's economies and companies as possible, for maximum diversification, especially since it's now so easy and inexpensive to do so. I also look at valuations instead of past returns, since a lot of smart people have been saying international and emerging markets are undervalued compared to US stocks, so it's one way to buy what's cheapest and thus make it more likely to have stronger returns going forward. The one year returns are 16% for US, 20% for developed international, and 25% for EM, and if you care about income, the developed foreign index yields 2.8%, versus 1.7% for TSM, plus a tax credit for international if you have it in taxable.

To me, all the data mining of past returns is largely an attempt to justify home bias, as were a lot of the reasons Mr. Bogle used to avoid international investing, along with currency swings, lack of rule of law and accounting standards, and capturing foreign spending through US companies (by the same logic, you could capture much of US spending by investing only in foreign internationals). Personally, I find the easiest way to combat that home bias and fear of foreign markets is simply to go through the list of portfolio holdings in the Total International fund, which are companies I feel comfortable investing in and wouldn't want to pass over. Mr. Bogle's advice is to think of investing as buying ownership in companies, and the same should happen with investing in foreign companies, regardless of the country or region or currency.

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Noobvestor
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Re: Why International again?

Post by Noobvestor » Wed Mar 14, 2018 1:15 pm

Ari wrote:
Mon Mar 12, 2018 4:58 am
cfs wrote:
Sat Mar 10, 2018 12:38 pm
"Past results are no guarantee for future returns"
It depends. Sometimes our investment decisions are based on the past. The number one reason given for using "passive" instead of "active" is that only a few [actively managed funds] have managed to beat their index counterpart. So, based on past performance, what would you pick, active or passive? Something to think about.
I don't agree that this is a good argument for choosing passive over active. Or rather, it's not sufficient. The reason is mathematical: It's impossible for the average active dollar to beat the average passive dollar before costs, and as long as active is more expensive than passive, they will necessarily underperform. We can look at past data to confirm this, but we need a good explanation that makes sense, not just looking at the past data.

Same thing with stocks vs. bonds. Stocks have no guarantee of future payment and are last in line when a company goes under. Because of this, they are more risky investments than bonds. We expect that risk to be rewarded. Again, we can look at past data to confirm that this has been the case, but we need that explanation.

Now, looking at the US, we need an explanation as to why it would outperform the rest of the world. we can then look at past performance to confirm this, but we need an explanation. I've seen a few explanations about things like investor protection, culture, institutions and corruption. But these all sound like post-hoc explanations to me. If you do think that, for example, countries with less corruption or better institutions perform better, then we can then look at past data to see if this is the case. But then we need to see that as a general trend. I haven't seen any study that looks at this, so feel free to share if you want. But I know a few things:

* The US is far from number one in these measures. There are many countries that are better in these measures than the US.
* Countries like Switzerland and Japan, with great work ethics, low corruption and stable institutions, have been poor investments, while many less stable and more corrupt countries like South Africa have been great investments.

Of course, these are anecdotes, not data. Feel free to point me to studies if they exist.

But there's more: Let's say there is a specific factor that makes the US a better investment. Let's say this is the reason it has outperformed in the past. You STILL have a significant problem. The two examples I mentioned above (active vs. passive and stocks vs. bonds) are things that cannot be arbitraged away. In active vs. passive, it's simply mathematics, and nobody can arbitrage that. In the stocks vs. bonds, it's already arbitraged. It's because of the risk. But if we look at the US vs. International, I don't see any reason why this US advantage cannot be arbitraged. In the past, this was not the case. It was not easy in the 1960s for a French investor to move their capital to US stocks if they thought the US would outperform. There were many roadblocks preventing capital to flow freely and the world market could not be efficient. It makes sense that the US could outperform without people buying US and selling France until that advantage was cancelled. But today a French investor can move their investments to US stocks with the click of a button. The barriers are significantly lower than in the past.

So not only do you need to find a good explanation as to why the US is a better investment than the rest of the world, you also need to find a reason as to why this difference will not be arbitraged away in a world with few barriers for capital. Once you have that, I will admit that the past results are a good guide. We have these things for active vs. passive investments and for stocks vs. bonds. I have not seen anything like this for US vs. international.
+1 Bolded some highlights of this great post. You have to know why it outperformed, and why that outperformance should persist, then square that with a belief in passive indexing and some form of efficient market hypothesis.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Nowizard
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Re: Why International again?

Post by Nowizard » Wed Mar 14, 2018 4:06 pm

The debate centers around whether international is necessary rather than whether it is a poor investment. It provides further diversification, but it does require additional analysis in order to incorporate another fund in one's portfolio. Occam's Razor supports adopting the simplest explanation that works. International works for me, and the reason for incorporating it is defensible just as not incorporating international is defensible. It is similar to the debate over selection of the Total Stock Market or S&P500. Some say "TomAtoe," some say "TomAAHtoe."

Tim

guyesmith
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Re: Why International again?

Post by guyesmith » Thu Apr 19, 2018 12:46 pm

Dulocracy wrote:
Fri Mar 09, 2018 12:28 pm
arcticpineapplecorp. wrote:
Thu Mar 08, 2018 10:15 pm
here's a good reason:

it's called the "randomness of global equity returns" page 40 of the DFA matrix book 2017:

https://www.ifa.com/pdf/matrix%20book%202017.pdf

what do you see? That's right. The good 'ol USA was only the top dog once since 1997 (in 2014 to be exact). All other years, there was some other country(ies) that did better. Don't you want some of that?
This is the answer. I am stealing your post for a discussion with a friend about this issue. Thanks!
I love this chart! I've been torn between 100% VTSAX or 100% VTWSX. ER difference is .04% (VTSAX) and .19% (VTWSX) so it seems large but is still very low. This chart just may be the selling point I need to go 100% VTWSX.

guyesmith
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Re: Why International again?

Post by guyesmith » Thu Apr 19, 2018 1:05 pm

rj49 wrote:
Tue Mar 13, 2018 2:01 pm
To me, using past data to predict future international returns isn't wise, since the international indices were dominated completely by the Japan bubble and it's fall, which dragged down international returns until 2000 or so. It also ignores the strength of emerging market economies--you rarely saw a Brazilian, Chinese, Russian, or Indian tourist, but now they are all over the world, reflecting a rising standard of living and purchasing power.

If you look to the future, instead of to the past, Morgan Stanley believes Asia will eclipse North America in terms of market cap by 2027, so if you invest only in the US you'll be missing out on the rise of all these companies, even if US companies benefit from their growth and spending .

https://www.marketwatch.com/story/asia- ... 2018-03-12

If half of your groceries are made by US companies and half by Unilever and Nestle, wouldn't you want to capture some of those businesses, or of all the Asian and German autos we drive? Instead of looking at past data, I prefer to invest in as many of the world's economies and companies as possible, for maximum diversification, especially since it's now so easy and inexpensive to do so. I also look at valuations instead of past returns, since a lot of smart people have been saying international and emerging markets are undervalued compared to US stocks, so it's one way to buy what's cheapest and thus make it more likely to have stronger returns going forward. The one year returns are 16% for US, 20% for developed international, and 25% for EM, and if you care about income, the developed foreign index yields 2.8%, versus 1.7% for TSM, plus a tax credit for international if you have it in taxable.

To me, all the data mining of past returns is largely an attempt to justify home bias, as were a lot of the reasons Mr. Bogle used to avoid international investing, along with currency swings, lack of rule of law and accounting standards, and capturing foreign spending through US companies (by the same logic, you could capture much of US spending by investing only in foreign internationals). Personally, I find the easiest way to combat that home bias and fear of foreign markets is simply to go through the list of portfolio holdings in the Total International fund, which are companies I feel comfortable investing in and wouldn't want to pass over. Mr. Bogle's advice is to think of investing as buying ownership in companies, and the same should happen with investing in foreign companies, regardless of the country or region or currency.
You make very strong points. JL Collins is 100% VTSAX, but if expense ratios were even he'd lean towards VTWSX. Here's what he says in his book and on his stock series:

"Take a look at a Global Fund like VTWSX. This is an index fund that invests all over the globe. In some ways I like it even better than my beloved VTSAX. In fact the only reason I don’t recommend it instead, is because of it’s relatively steep expense ratio (.35%) [FYI THIS IS NOW .19% IN 2018] and because VTSAX covers international pretty well for the reasons I describe in that International Funds post linked to above."

Resourse: http://jlcollinsnh.com/2013/05/02/stock ... -vanguard/

Fits with your comments.

Valuethinker
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Re: Why International again?

Post by Valuethinker » Thu Apr 19, 2018 1:06 pm

Nowizard wrote:
Wed Mar 14, 2018 4:06 pm
The debate centers around whether international is necessary rather than whether it is a poor investment. It provides further diversification, but it does require additional analysis in order to incorporate another fund in one's portfolio. Occam's Razor supports adopting the simplest explanation that works. International works for me, and the reason for incorporating it is defensible just as not incorporating international is defensible. It is similar to the debate over selection of the Total Stock Market or S&P500. Some say "TomAtoe," some say "TomAAHtoe."

Tim
if you are not a US-based investor there is no case for avoiding international.

You wind avoiding the biggest market and deepest capital market - the USA.

asif408
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Re: Why International again?

Post by asif408 » Thu Apr 19, 2018 3:29 pm

Nowizard wrote:
Wed Mar 14, 2018 4:06 pm
The debate centers around whether international is necessary rather than whether it is a poor investment. It provides further diversification, but it does require additional analysis in order to incorporate another fund in one's portfolio. Occam's Razor supports adopting the simplest explanation that works. International works for me, and the reason for incorporating it is defensible just as not incorporating international is defensible. It is similar to the debate over selection of the Total Stock Market or S&P500. Some say "TomAtoe," some say "TomAAHtoe."

Tim
Actually, for a risk averse investor, the debate should center around what is the worst case scenario for an investor in stocks. Investing abroad (whether you live in the US or in another country) protects the investor from a country specific issue, and lessens the possibility of very poor returns from their home country or region. Of course, it also eliminates the possibility of great relative equity returns to the world market, as has been observed in the last decade with the US markets returning 3-4x the return of the rest of the world.

Occam's Razor in this situation suggests a total world fund would be the simplest explanation that works. It requires no additional work over purchasing a country specific fund such as an S&P 500 fund, and only slightly more cost in the US. As Valuethinker pointed out, viewed from a non-US investor's perspective, there is no case for avoiding international stocks, so it doesn't seem rational that the same can't be said for US investors.

lostdog
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Re: Why International again?

Post by lostdog » Thu Apr 19, 2018 4:36 pm

guyesmith wrote:
Thu Apr 19, 2018 12:46 pm
Dulocracy wrote:
Fri Mar 09, 2018 12:28 pm
arcticpineapplecorp. wrote:
Thu Mar 08, 2018 10:15 pm
here's a good reason:

it's called the "randomness of global equity returns" page 40 of the DFA matrix book 2017:

https://www.ifa.com/pdf/matrix%20book%202017.pdf

what do you see? That's right. The good 'ol USA was only the top dog once since 1997 (in 2014 to be exact). All other years, there was some other country(ies) that did better. Don't you want some of that?
This is the answer. I am stealing your post for a discussion with a friend about this issue. Thanks!
I love this chart! I've been torn between 100% VTSAX or 100% VTWSX. ER difference is .04% (VTSAX) and .19% (VTWSX) so it seems large but is still very low. This chart just may be the selling point I need to go 100% VTWSX.
+1 . I did.
Hear the clock ticking? That’s your life flying by while you listen to market pundits and watch stock prices fluctuate. -Humble Dollar

chatbotte
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Re: Why International again?

Post by chatbotte » Fri Apr 20, 2018 3:07 am

Valdeselad wrote:
Fri Mar 09, 2018 3:11 am
Also keep in mind that your returns will be highly influenced by the relative strength (or weakness) of the USD. By investing in international, you are just as exposed to currrency movements as you are to the performance of the underlying companies.
That's true. Currency is a big part of the equation. PPP doesn't hold, so you take on currency risk by going international. I'm really struggling to see the benefits of going international if you live in the U.S.

guyesmith
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Re: Why International again?

Post by guyesmith » Fri Apr 20, 2018 4:40 am

chatbotte wrote:
Fri Apr 20, 2018 3:07 am
Valdeselad wrote:
Fri Mar 09, 2018 3:11 am
Also keep in mind that your returns will be highly influenced by the relative strength (or weakness) of the USD. By investing in international, you are just as exposed to currrency movements as you are to the performance of the underlying companies.
That's true. Currency is a big part of the equation. PPP doesn't hold, so you take on currency risk by going international. I'm really struggling to see the benefits of going international if you live in the U.S.
How does currency risk effect the historical returns I see? If VTWSX is pacing with VTSAX and has the potential to beat it based on the weighted world chart above, then why does it matter to the investor? I personally as a US investor won’t ever deal directly with currency exchange.

chatbotte
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Re: Why International again?

Post by chatbotte » Fri Apr 20, 2018 4:58 am

guyesmith wrote:
Fri Apr 20, 2018 4:40 am
chatbotte wrote:
Fri Apr 20, 2018 3:07 am
Valdeselad wrote:
Fri Mar 09, 2018 3:11 am
Also keep in mind that your returns will be highly influenced by the relative strength (or weakness) of the USD. By investing in international, you are just as exposed to currrency movements as you are to the performance of the underlying companies.
That's true. Currency is a big part of the equation. PPP doesn't hold, so you take on currency risk by going international. I'm really struggling to see the benefits of going international if you live in the U.S.
How does currency risk effect the historical returns I see?
It doesn't, because risk is forward-looking, not backward-looking. Realized returns have zero risk. That doesn't mean your international stocks are riskfree going forward.

Imagine the dollar appreciates 10 percent, as measured by DXY. Your foreign stock holdings lose 10 percent in value, unless they tend to zig when DXY zags. And they don't. If anything, they seem to zag a little bit when DXY zags (positive correlation).

guyesmith
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Re: Why International again?

Post by guyesmith » Fri Apr 20, 2018 6:36 am

chatbotte wrote:
Fri Apr 20, 2018 4:58 am
guyesmith wrote:
Fri Apr 20, 2018 4:40 am
chatbotte wrote:
Fri Apr 20, 2018 3:07 am
Valdeselad wrote:
Fri Mar 09, 2018 3:11 am
Also keep in mind that your returns will be highly influenced by the relative strength (or weakness) of the USD. By investing in international, you are just as exposed to currrency movements as you are to the performance of the underlying companies.
That's true. Currency is a big part of the equation. PPP doesn't hold, so you take on currency risk by going international. I'm really struggling to see the benefits of going international if you live in the U.S.
How does currency risk effect the historical returns I see?
It doesn't, because risk is forward-looking, not backward-looking. Realized returns have zero risk. That doesn't mean your international stocks are riskfree going forward.

Imagine the dollar appreciates 10 percent, as measured by DXY. Your foreign stock holdings lose 10 percent in value, unless they tend to zig when DXY zags. And they don't. If anything, they seem to zag a little bit when DXY zags (positive correlation).
I see what you mean. Thanks for the explanation. When I look backwards though does the zig and zag come out in the wash because of our global economy? I realize we don’t know the appreciation/depreciation of the future.

guyesmith
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Re: Why International again?

Post by guyesmith » Fri Apr 20, 2018 6:38 am

lostdog wrote:
Thu Apr 19, 2018 4:36 pm
guyesmith wrote:
Thu Apr 19, 2018 12:46 pm
Dulocracy wrote:
Fri Mar 09, 2018 12:28 pm
arcticpineapplecorp. wrote:
Thu Mar 08, 2018 10:15 pm
here's a good reason:

it's called the "randomness of global equity returns" page 40 of the DFA matrix book 2017:

https://www.ifa.com/pdf/matrix%20book%202017.pdf

what do you see? That's right. The good 'ol USA was only the top dog once since 1997 (in 2014 to be exact). All other years, there was some other country(ies) that did better. Don't you want some of that?
This is the answer. I am stealing your post for a discussion with a friend about this issue. Thanks!
I love this chart! I've been torn between 100% VTSAX or 100% VTWSX. ER difference is .04% (VTSAX) and .19% (VTWSX) so it seems large but is still very low. This chart just may be the selling point I need to go 100% VTWSX.
+1 . I did.
Cool! Are you hoping and anticipating an eventual admiral share?
I talked to one vanguard rep who agreed that could be the future as it grows. Trends well with the types of funds vanguard has as admiral. Though I got an email response from them too and it said they have no plans right now.

lostdog
Posts: 1116
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Re: Why International again?

Post by lostdog » Fri Apr 20, 2018 8:18 am

guyesmith wrote:
Fri Apr 20, 2018 6:38 am
lostdog wrote:
Thu Apr 19, 2018 4:36 pm
guyesmith wrote:
Thu Apr 19, 2018 12:46 pm
Dulocracy wrote:
Fri Mar 09, 2018 12:28 pm
arcticpineapplecorp. wrote:
Thu Mar 08, 2018 10:15 pm
here's a good reason:

it's called the "randomness of global equity returns" page 40 of the DFA matrix book 2017:

https://www.ifa.com/pdf/matrix%20book%202017.pdf

what do you see? That's right. The good 'ol USA was only the top dog once since 1997 (in 2014 to be exact). All other years, there was some other country(ies) that did better. Don't you want some of that?
This is the answer. I am stealing your post for a discussion with a friend about this issue. Thanks!
I love this chart! I've been torn between 100% VTSAX or 100% VTWSX. ER difference is .04% (VTSAX) and .19% (VTWSX) so it seems large but is still very low. This chart just may be the selling point I need to go 100% VTWSX.
+1 . I did.
Cool! Are you hoping and anticipating an eventual admiral share?
I talked to one vanguard rep who agreed that could be the future as it grows. Trends well with the types of funds vanguard has as admiral. Though I got an email response from them too and it said they have no plans right now.
I think they eventually will as more money flows into the fund. I don't mind paying extra for the simplicity. It's the most bogleheadish fund there is. No home bias, no guessing on how much to tilt between international and domestic, no speculation. Just buying the haystack. There will always be a needle in there somewhere.

When admiral shares do come, I'll celebrate.
Hear the clock ticking? That’s your life flying by while you listen to market pundits and watch stock prices fluctuate. -Humble Dollar

chatbotte
Posts: 295
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Re: Why International again?

Post by chatbotte » Fri Apr 20, 2018 11:18 am

guyesmith wrote:
Fri Apr 20, 2018 6:36 am
I see what you mean. Thanks for the explanation. When I look backwards though does the zig and zag come out in the wash because of our global economy? I realize we don’t know the appreciation/depreciation of the future.
No, it does not. PPP (purchasing power parity) doesn't hold, so there's always currency risk when you invest in foreign assets: not all currency movements are due to inflation differentials.

guyesmith
Posts: 200
Joined: Fri Mar 23, 2018 11:16 am

Re: Why International again?

Post by guyesmith » Fri Apr 20, 2018 12:08 pm

lostdog wrote:
Thu Apr 19, 2018 4:36 pm

I think they eventually will as more money flows into the fund. I don't mind paying extra for the simplicity. It's the most bogleheadish fund there is. No home bias, no guessing on how much to tilt between international and domestic, no speculation. Just buying the haystack. There will always be a needle in there somewhere.

When admiral shares do come, I'll celebrate.
Makes sense. I see it's up to 16 billion too. The 'Select' Fund explanation says funds need to be over 10 Billion. That's a good news piece too.

Granted VTSAX is pushing 700 billion - which is nuts! It's been around since 1992 though AND has a lot of institutional and funds of funds working in it's favor.

Boxtrap
Posts: 86
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Re: Why International again?

Post by Boxtrap » Thu May 03, 2018 8:15 pm

BogleMelon wrote:
Fri Mar 09, 2018 9:33 am
InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
They are wrong of course, and so you are by comparing past performance and assuming it is going to repeat.

The only 1 right thing is: no one knows nothing!

I hold intl to diversify, not to chase performance. I can control diversification, but I can not control the future performance.
I agree with the idea that for the most part, the key benefit of holding international seems to be reducing volatility through diversification as opposed to increasing return. That’s based on my own experience so far as an investor as well as portfolio backtesting. Back testing of course must be taken with a grain of salt, but I can’t ignore that when every time I added Total International to my backtest simulations and compared to portfolios without, the result was lower volatility and lower CAGR. Personally I prefer options that lower volatility through diversification AND increase return at the same time - like a small (10%) slice of US REIT’s.

So I do think owning Total International as many here do is a smart move to reduce overall portfolio risk. But I wouldn’t expect it to do any heavy lifting on returns.

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Re: Why International again?

Post by chatbotte » Thu May 03, 2018 8:36 pm

Boxtrap wrote:
Thu May 03, 2018 8:15 pm
Personally I prefer options that lower volatility through diversification AND increase return at the same time - like a small (10%) slice of US REIT’s.
Boxtrap,

I don't think this can work, because an asset that's a diversifier will have a low expected return: investors want it to the extent it is a diversifier, pushing up its price and lowering its expected return. So chances are your backtested US REIT returns overstate expected US REIT returns.

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Re: Why International again?

Post by Boxtrap » Thu May 03, 2018 8:52 pm

chatbotte wrote:
Thu May 03, 2018 8:36 pm
Boxtrap wrote:
Thu May 03, 2018 8:15 pm
Personally I prefer options that lower volatility through diversification AND increase return at the same time - like a small (10%) slice of US REIT’s.
Boxtrap,

I don't think this can work, because an asset that's a diversifier will have a low expected return: investors want it to the extent it is a diversifier, pushing up its price and lowering its expected return. So chances are your backtested US REIT returns overstate expected US REIT returns.
Hmmm...good point. I’ll run it again and see what I come up with. Maybe I erred somewhere but I didn’t think so. I’ll try to post the link with the results too so I can get your and others’ assessment.

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Re: Why International again?

Post by chatbotte » Thu May 03, 2018 9:02 pm

Boxtrap,

I'm not talking about actual (ex post or realized) returns that you can use PV to analyze, but expected (ex ante) returns. You likely are looking at a streak of very high US REIT returns relative to what investors expected before the fact. It's like looking at a series of 10 fair coin tosses that came up heads 8 times.

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Re: Why International again?

Post by abuss368 » Thu May 03, 2018 9:11 pm

For us, investment experts much smarter than I recommend the asset class and additional diversification. We intend to stay the course and hopefully over time the allocation to international provides diversification, value, and growing dividends!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why International again?

Post by abuss368 » Thu May 03, 2018 9:19 pm

Vanguard investment experts have only increased the recommended equity allocation to international (and now international bonds) over the past decade. From 20% of equity, to 30% and now the current 40%.

I would not be surprised if at some point the recommendation may be 50% of equity to domestic and 50% of equity to international.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why International again?

Post by guyesmith » Thu May 03, 2018 9:25 pm

abuss368 wrote:
Thu May 03, 2018 9:19 pm
Vanguard investment experts have only increased the recommended equity allocation to international (and now international bonds) over the past decade. From 20% of equity, to 30% and now the current 40%.

I would not be surprised if at some point the recommendation may be 50% of equity to domestic and 50% of equity to international.
VTWSX/VT Total World Index is very close to 50/50.

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Re: Why International again?

Post by abuss368 » Thu May 03, 2018 9:27 pm

guyesmith wrote:
Thu May 03, 2018 9:25 pm
abuss368 wrote:
Thu May 03, 2018 9:19 pm
Vanguard investment experts have only increased the recommended equity allocation to international (and now international bonds) over the past decade. From 20% of equity, to 30% and now the current 40%.

I would not be surprised if at some point the recommendation may be 50% of equity to domestic and 50% of equity to international.
VTWSX/VT Total World Index is very close to 50/50.
Indeed. However I would be surprised if Vanguard ever removes the Total funds from the LifeStrategy and Target funds to replace with Total World.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why International again?

Post by guyesmith » Thu May 03, 2018 9:34 pm

abuss368 wrote:
Thu May 03, 2018 9:27 pm
guyesmith wrote:
Thu May 03, 2018 9:25 pm
abuss368 wrote:
Thu May 03, 2018 9:19 pm
Vanguard investment experts have only increased the recommended equity allocation to international (and now international bonds) over the past decade. From 20% of equity, to 30% and now the current 40%.

I would not be surprised if at some point the recommendation may be 50% of equity to domestic and 50% of equity to international.
VTWSX/VT Total World Index is very close to 50/50.
Indeed. However I would be surprised if Vanguard ever removes the Total funds from the LifeStrategy and Target funds to replace with Total World.
Agreed. I’m just saying that what the Vanguard experts create for Target Date Retirement funds is so similar that it does make VTWSX more appealing.

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Re: Why International again?

Post by abuss368 » Thu May 03, 2018 9:54 pm

guyesmith wrote:
Thu May 03, 2018 9:34 pm
abuss368 wrote:
Thu May 03, 2018 9:27 pm
guyesmith wrote:
Thu May 03, 2018 9:25 pm
abuss368 wrote:
Thu May 03, 2018 9:19 pm
Vanguard investment experts have only increased the recommended equity allocation to international (and now international bonds) over the past decade. From 20% of equity, to 30% and now the current 40%.

I would not be surprised if at some point the recommendation may be 50% of equity to domestic and 50% of equity to international.
VTWSX/VT Total World Index is very close to 50/50.
Indeed. However I would be surprised if Vanguard ever removes the Total funds from the LifeStrategy and Target funds to replace with Total World.
Agreed. I’m just saying that what the Vanguard experts create for Target Date Retirement funds is so similar that it does make VTWSX more appealing.
Agreed.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why International again?

Post by carofe » Thu May 03, 2018 10:00 pm

Over the long term, the return of the US and International has been sort of the same but international has more volatility because of currency. It means long periods of underperformance and long periods of outperformance.
If the return is similar, why adding the currency risk?
The analogy with the Minnesota fund is not fair. I would invest international without questions if their currency is the dollar as well.
US Total Stock Market + Intermediate Term Bond. That's it.

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Re: Why International again?

Post by chatbotte » Fri May 04, 2018 6:00 am

carofe wrote:
Thu May 03, 2018 10:00 pm
If the return is similar, why adding the currency risk?
carofe,

In mean-variance analysis, idiosyncratic volatility isn't the only thing that matters, because an asset can reduce overall portfolio variance despite the asset's high volatility. Adding international stocks to your portfolio could reduce your overall volatility going forward.

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Re: Why International again?

Post by guyesmith » Fri May 04, 2018 7:11 am

chatbotte wrote:
Fri May 04, 2018 6:00 am
carofe wrote:
Thu May 03, 2018 10:00 pm
If the return is similar, why adding the currency risk?
carofe,

In mean-variance analysis, idiosyncratic volatility isn't the only thing that matters, because an asset can reduce overall portfolio variance despite the asset's high volatility. Adding international stocks to your portfolio could reduce your overall volatility going forward.
If our horizon is long-term, why does volatility (risk) matter for international?

The most important question [in my small mind] is 'Will the non-US market as a whole outperform the US market often enough to increase overall returns?' Vanguards Target Date Retirement Fund managers apparently believe the answer is yes.

If only we knew the next 40 years would look like the last 40 years... :(

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Re: Why International again?

Post by chatbotte » Fri May 04, 2018 7:33 am

guyesmith wrote:
Fri May 04, 2018 7:11 am
chatbotte wrote:
Fri May 04, 2018 6:00 am
carofe wrote:
Thu May 03, 2018 10:00 pm
If the return is similar, why adding the currency risk?
carofe,

In mean-variance analysis, idiosyncratic volatility isn't the only thing that matters, because an asset can reduce overall portfolio variance despite the asset's high volatility. Adding international stocks to your portfolio could reduce your overall volatility going forward.
If our horizon is long-term, why does volatility (risk) matter for international?
guyesmith,

If something is risky, on a particular horizon, then risk matters. You're saying it's risky, on your horizon, so it doesn't matter that you have to wait a very long time for that risk to finally materialize. Stocks don't become riskless securities even if you wait long enough.

As you have pointed out, we don't know the 40-year real return on U.S. stocks, so they're not riskless. Adding international could reduce the SD of your 40-year real return.

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Re: Why International again?

Post by rudeboy » Fri May 04, 2018 2:59 pm

I actually pulled the trigger today on exchanging TSM for Total World. I've been feeling increasingly uncomfortable with all my eggs in the US basket, but wanted to wait for an 'up day' to exchange. My 401k is down 1.3% for the year, which is close enough to a wash that I don't feel I'm chasing returns due to recent volatility. Rather, the volatily has caused me to learn I'm uncomfortable with my current allocation, and this may be the closest to level ground I'm going to get in the near future.

Anyway, now I'm wondering -- where is an easily followable benchmark for Total World? I had been using the ticker at Marketwatch to follow the S&P.

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Re: Why International again?

Post by triceratop » Fri May 04, 2018 3:06 pm

rudeboy wrote:
Fri May 04, 2018 2:59 pm
I actually pulled the trigger today on exchanging TSM for Total World. I've been feeling increasingly uncomfortable with all my eggs in the US basket, but wanted to wait for an 'up day' to exchange. My 401k is down 1.3% for the year, which is close enough to a wash that I don't feel I'm chasing returns due to recent volatility. Rather, the volatily has caused me to learn I'm uncomfortable with my current allocation, and this may be the closest to level ground I'm going to get in the near future.

Anyway, now I'm wondering -- where is an easily followable benchmark for Total World? I had been using the ticker at Marketwatch to follow the S&P.
Why don't you just use Vanguard Total World Stock Market ETF, ticker "VT"? It tracks its index exceptionally well, lagging its index since inception by only 3bp, 0.03%. In fact I think it is the only product following this index.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Why International again?

Post by guyesmith » Fri May 04, 2018 3:06 pm

rudeboy wrote:
Fri May 04, 2018 2:59 pm
I actually pulled the trigger today on exchanging TSM for Total World. I've been feeling increasingly uncomfortable with all my eggs in the US basket, but wanted to wait for an 'up day' to exchange. My 401k is down 1.3% for the year, which is close enough to a wash that I don't feel I'm chasing returns due to recent volatility. Rather, the volatily has caused me to learn I'm uncomfortable with my current allocation, and this may be the closest to level ground I'm going to get in the near future.

Anyway, now I'm wondering -- where is an easily followable benchmark for Total World? I had been using the ticker at Marketwatch to follow the S&P.
I don't think you'll find a ticker to follow FTSE Global All Cap Index. If there is one I'd like to see it too.

If you're uncomfortable with volatility in TSM why do you expect less volatility from Total World? It's still 100% equity.

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Re: Why International again?

Post by guyesmith » Fri May 04, 2018 3:07 pm

triceratop wrote:
Fri May 04, 2018 3:06 pm

Why don't you just use Vanguard Total World Stock Market ETF, ticker "VT"? It tracks its index exceptionally well, lagging its index since inception by only 3bp, 0.03%.
I think that's what he did today.

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Re: Why International again?

Post by triceratop » Fri May 04, 2018 3:08 pm

guyesmith wrote:
Fri May 04, 2018 3:07 pm
triceratop wrote:
Fri May 04, 2018 3:06 pm

Why don't you just use Vanguard Total World Stock Market ETF, ticker "VT"? It tracks its index exceptionally well, lagging its index since inception by only 3bp, 0.03%.
I think that's what he did today.
No, he said that he used the S&P500 ticker as a benchmark for US equities. That is, $SPX. To my knowledge there is not an equivalent one for the Total World Index.

Investing in a product is different from using it as a benchmark to understand how an asset class or market segment is performing.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Why International again?

Post by guyesmith » Fri May 04, 2018 3:11 pm

triceratop wrote:
Fri May 04, 2018 3:08 pm
guyesmith wrote:
Fri May 04, 2018 3:07 pm
triceratop wrote:
Fri May 04, 2018 3:06 pm

Why don't you just use Vanguard Total World Stock Market ETF, ticker "VT"? It tracks its index exceptionally well, lagging its index since inception by only 3bp, 0.03%.
I think that's what he did today.
No, he said that he used the S&P500 ticker as a benchmark for US equities. That is, $SPX. To my knowledge there is not an equivalent one for the Total World Index.
Well, yes the ticker. My misunderstanding. It seems to me he purchased Total World and wants to track it against an index just like he was probably tracking TSM with the S&P 500.

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Re: Why International again?

Post by rudeboy » Fri May 04, 2018 3:13 pm

guyesmith wrote:
Fri May 04, 2018 3:11 pm
triceratop wrote:
Fri May 04, 2018 3:08 pm
guyesmith wrote:
Fri May 04, 2018 3:07 pm
triceratop wrote:
Fri May 04, 2018 3:06 pm

Why don't you just use Vanguard Total World Stock Market ETF, ticker "VT"? It tracks its index exceptionally well, lagging its index since inception by only 3bp, 0.03%.
I think that's what he did today.
No, he said that he used the S&P500 ticker as a benchmark for US equities. That is, $SPX. To my knowledge there is not an equivalent one for the Total World Index.
Well, yes the ticker. My misunderstanding. It seems to me he purchased Total World and wants to track it against an index just like he was probably tracking TSM with the S&P 500.
Right, that's what I meant. May not have used the right terminology.

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Re: Why International again?

Post by JoMoney » Fri May 04, 2018 3:23 pm

guyesmith wrote:
Fri May 04, 2018 3:06 pm
rudeboy wrote:
Fri May 04, 2018 2:59 pm
I actually pulled the trigger today on exchanging TSM for Total World. I've been feeling increasingly uncomfortable with all my eggs in the US basket, but wanted to wait for an 'up day' to exchange. My 401k is down 1.3% for the year, which is close enough to a wash that I don't feel I'm chasing returns due to recent volatility. Rather, the volatily has caused me to learn I'm uncomfortable with my current allocation, and this may be the closest to level ground I'm going to get in the near future.

Anyway, now I'm wondering -- where is an easily followable benchmark for Total World? I had been using the ticker at Marketwatch to follow the S&P.
I don't think you'll find a ticker to follow FTSE Global All Cap Index. If there is one I'd like to see it too.

If you're uncomfortable with volatility in TSM why do you expect less volatility from Total World? It's still 100% equity.
Not really a ticker, but if you use Morningstar you can use
F00000TNVA for FTSE Global All Cap ex US (USA) NR USD
and
F00000OVO8 for FTSE Global All Cap ex US TR USD

The "NR" is the "Net Return" index which tracks after the foreign tax withholding a mutual fund would be exposed to.
http://quotes.morningstar.com/chart/fun ... F00000TNVA
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Why International again?

Post by guyesmith » Fri May 04, 2018 3:23 pm

Shikoku wrote:
Mon Mar 12, 2018 6:03 am
This is why...
Image
Source: https://nationwidefinancial.com/media/p ... 2224AO.pdf
Thank you for sharing this. Great doc.

It seems odd to me the weighted cap by country in this study is MUCH MUCH different than what is weighted in FTSE Global All Cap Index (which is tracked by VT/VTWSX). It gives 52% to the US and your link gives 38%. Any idea why?

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Re: Why International again?

Post by guyesmith » Fri May 04, 2018 3:26 pm

JoMoney wrote:
Fri May 04, 2018 3:23 pm
guyesmith wrote:
Fri May 04, 2018 3:06 pm
rudeboy wrote:
Fri May 04, 2018 2:59 pm
I actually pulled the trigger today on exchanging TSM for Total World. I've been feeling increasingly uncomfortable with all my eggs in the US basket, but wanted to wait for an 'up day' to exchange. My 401k is down 1.3% for the year, which is close enough to a wash that I don't feel I'm chasing returns due to recent volatility. Rather, the volatily has caused me to learn I'm uncomfortable with my current allocation, and this may be the closest to level ground I'm going to get in the near future.

Anyway, now I'm wondering -- where is an easily followable benchmark for Total World? I had been using the ticker at Marketwatch to follow the S&P.
I don't think you'll find a ticker to follow FTSE Global All Cap Index. If there is one I'd like to see it too.

If you're uncomfortable with volatility in TSM why do you expect less volatility from Total World? It's still 100% equity.
Not really a ticker, but if you use Morningstar you can use
F00000TNVA for FTSE Global All Cap ex US (USA) NR USD
and
F00000OVO8 for FTSE Global All Cap ex US TR USD

The "NR" is the "Net Return" index which tracks after the foreign tax withholding a mutual fund would be exposed to.
http://quotes.morningstar.com/chart/fun ... F00000TNVA
NICE!

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Re: Why International again?

Post by SimpleGift » Fri May 04, 2018 3:43 pm

guyesmith wrote:
Fri May 04, 2018 3:23 pm
It seems odd to me the weighted cap by country in this study is MUCH MUCH different than what is weighted in FTSE Global All Cap Index (which is tracked by VT/VTWSX). It gives 52% to the US and your link gives 38%. Any idea why?
The FTSE Global All Cap Index includes only free-float shares from a country's stock market (i.e., it excludes those shares not freely investable, which are held by private family groups, government agencies, other corporations, etc.) — while the World Federation of Exchanges data includes all shares on a country's domestic stock market.

Because the U.S. has a much higher percentage of free-float shares generally than other stock markets around the world, its market-cap weighting is therefore higher in the FTSE Index — at least that's how I understand it.
Cordially, Todd

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