Who's doing 100% international equity?

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lazyday
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Re: Who's doing 100% international equity?

Post by lazyday » Tue Mar 13, 2018 11:37 pm

AlohaJoe wrote:
Tue Mar 13, 2018 8:58 pm
I've never understood how Bogle reconciles his dire predictions for US equity returns with "only invest in the US" when his own methodology tells him that investing outside the US is better right now. I don't think he's ever talked about it has he?
I’ve never noticed him using a dividend discount model outside the US, like RA does.

asif408
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Re: Who's doing 100% international equity?

Post by asif408 » Wed Mar 14, 2018 5:17 am

columbia wrote:
Tue Mar 13, 2018 7:49 pm
Have we seen even a 20 year period since 1970, where international outpaced US?
According to Peter Bernstein in "Against the Gods", from 1970-1993 EAFE returned 14.3% vs the S&P's 11.7%.

To answer the OP's question, I'm 90% international, with the other 10% in US stocks of commodities producers. In late 2016 I went to my current allocation, though admittedly I was gradually increasing my international exposure starting in 2014, so there was definitely some catching of a falling knife going on in 2014 and 2015.

My reasons for the significant overweight are primarily valuations as well as the multi year underperformance of international relative to the US (which pretty much go hand in hand). The fact that I do have a pension through work that invests heavily in US equities and hedge funds is another reason (so I see my overweight to international investing as a hedge). But honestly if valuations weren't so different I would probably just own VT and call it a day. I also prefer to take more risk now while I am younger so I may not have to when I'm older, which is another motivation.

If valuations were much lower in the US I might go 70% US. I'm not comfortable with more than 70% of my portfolio in any single country, including my own. Because international stock index funds include so many countries, I'm more comfortable with a heavier weight, as I would not expect one country such as the US to dramatically outperform every other investable country in the world for any significant length of time. At least that is what history tells me, since Australia and South Africa have had better returns over the last 100+ years, and even the big winners did not outperform a global portfolio by more than a few percentage points. Remember that the US was once an emerging market, with high volatility and relatively low returns over 20 and 30 year periods. I don't know which other emerging countries will be the next US, but I probably own one or two of them.

So I do market time among stock asset classes. But, as a Boglehead, I do it as cheaply as possible with as low a turnover as possible. So if I am wrong I am not paying much more to lose or expending a lot more effort. If I do better I also see it as a way that I can invest less riskily in the future, limiting the time I need to hold a lot of risky assets in my portfolio over time.

Maybe it works and maybe it doesn't, only time will tell.

grok87
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Re: Who's doing 100% international equity?

Post by grok87 » Wed Mar 14, 2018 7:35 am

dkturner wrote:
Tue Mar 13, 2018 1:44 pm
Meine Schwiegermutter die in Deutschland lebt.
Echt? Kein US?
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

bgf
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Re: Who's doing 100% international equity?

Post by bgf » Wed Mar 14, 2018 8:17 am

columbia wrote:
Tue Mar 13, 2018 6:12 pm
bgf wrote:
Tue Mar 13, 2018 11:25 am
i would feel comfortable holding only VXUS if it were currency hedged... in other words, i wouldn't be scared to do it. i think the results would be 'just fine.' still, id prefer my current allocation.

holding both US and International in roughly equal portions, lack of hedge doesn't bother me.
Well, you can...

https://www.ishares.com/us/products/273 ... -ex-us-etf
ah, thanks for the link. that is brand new as far as i know. i wouldn't be surprised if its net assets grows quite well.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

lostdog
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Re: Who's doing 100% international equity?

Post by lostdog » Wed Mar 14, 2018 9:46 am

I am 60/40 U.S./International. This is Vanguard's recommendation.
100% Vanguard Total World Equity Index. Simplicity 100%.

hilink73
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Re: Who's doing 100% international equity?

Post by hilink73 » Wed Mar 14, 2018 10:01 am

grok87 wrote:
Wed Mar 14, 2018 7:35 am
dkturner wrote:
Tue Mar 13, 2018 1:44 pm
Meine Schwiegermutter die in Deutschland lebt.
Echt? Kein US?
Wahrscheinlich 100% DAX.
Muhahaha.

chevca
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Re: Who's doing 100% international equity?

Post by chevca » Wed Mar 14, 2018 10:38 am

lostdog wrote:
Wed Mar 14, 2018 9:46 am
I am 60/40 U.S./International. This is Vanguard's recommendation.
Cool story.... but, the OP didn't want to hear from you in this one. :wink: :happy

lostdog
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Re: Who's doing 100% international equity?

Post by lostdog » Wed Mar 14, 2018 10:47 am

chevca wrote:
Wed Mar 14, 2018 10:38 am
lostdog wrote:
Wed Mar 14, 2018 9:46 am
I am 60/40 U.S./International. This is Vanguard's recommendation.
Cool story.... but, the OP didn't want to hear from you in this one. :wink: :happy
Yes, cool story but thanks for taking the time in letting me know. :happy :D
100% Vanguard Total World Equity Index. Simplicity 100%.

columbia
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Re: Who's doing 100% international equity?

Post by columbia » Wed Mar 14, 2018 11:08 am

bgf wrote:
Wed Mar 14, 2018 8:17 am
columbia wrote:
Tue Mar 13, 2018 6:12 pm
bgf wrote:
Tue Mar 13, 2018 11:25 am
i would feel comfortable holding only VXUS if it were currency hedged... in other words, i wouldn't be scared to do it. i think the results would be 'just fine.' still, id prefer my current allocation.

holding both US and International in roughly equal portions, lack of hedge doesn't bother me.
Well, you can...

https://www.ishares.com/us/products/273 ... -ex-us-etf
ah, thanks for the link. that is brand new as far as i know. i wouldn't be surprised if its net assets grows quite well.

It’s expensive at the moment, of course.

getrichslowly
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Re: Who's doing 100% international equity?

Post by getrichslowly » Wed Mar 14, 2018 12:29 pm

lazyday wrote:
Tue Mar 13, 2018 10:31 am
Expected returns for US equity is much lower than for ex-US equity. I don't think you have to be crazy to be 100% ex US.

I'm at 83% ex-US.
Do you have a crystal ball? Why do you expect higher returns for ex-US?

getrichslowly
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Re: Who's doing 100% international equity?

Post by getrichslowly » Wed Mar 14, 2018 12:32 pm

lazyday wrote:
Tue Mar 13, 2018 2:07 pm
I’m the 83% poster above.

It’s because of expected returns.

To predict returns, Bogle likes to take dividend yield + expected yearly growth + annualized change due to valuation mean reversion. Research Affiliates does something like this, assuming CAPE reverts halfway to a historical mean. A bit complicated what mean is used, and there’s other complications like some currency PPP reversion, but their methodology papers explain quite well. The 10 year prediction is 0.1% real for US and 4.5% real for EAFE. EM is higher.

The RA methodology makes some sense to me and I give it a lot of weight.

You can be lazy and just use 1/CAPE for a prediction. You could use this for a 7, 10, or 25 year prediction, maybe? If I remember correctly, that made for mediocre predictions in the past, in the US. Your prediction might be something like 3% for US vs 5% or so ex-US. There’s a thread about why 1/CAPE predicts returns, if you can’t find it I probably can. Here’s some CAPE data: viewtopic.php?t=224374 and you can click the StarCapital link to compare P/S and P/B valuations.

AQR makes 5-10 year predictions using two methods. Compared to the others in my post, their US prediction isn’t so much worse than ex-US. I can find a link if anyone asks.

GMO doesn’t share detailed methodology for their predictions, but they seem to have some history of at least getting the order right. At GMO.com look for a 7 year prediction. US is predicted to return much less than International or EM.

I don’t expect any of these predictions to be accurate. But it seems quite unlikely that US equity will return more than ex-US over the next couple decades.
So let's take your strategy to the extreme. Why not go all-in on Russia? Last I checked their CAPE was under 10(?).

I think you'll find that CAPE, or dividend-growth models don't capture the whole picture.

If your model is wrong, you are taking on unnecessary risk.

On the other hand, market cap weight is robust because its the simplest possible model. By Occam's Razor, the simplest explanation is usually correct.

TravelGeek
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Re: Who's doing 100% international equity?

Post by TravelGeek » Wed Mar 14, 2018 12:51 pm

grok87 wrote:
Wed Mar 14, 2018 7:35 am
dkturner wrote:
Tue Mar 13, 2018 1:44 pm
Meine Schwiegermutter die in Deutschland lebt.
Echt? Kein US?
Well, also echt kein "BH living in the US" as stated in the OP :)

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Portfolio7
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Re: Who's doing 100% international equity?

Post by Portfolio7 » Wed Mar 14, 2018 1:50 pm

My base AA Equity split is 58% US 42% Int'l. The AA is not static, based on relative valuation and momentum indicators I will skew AA a bit. Right now I'm at 48% US and 52% Int'l, which is pretty much as far as my approach allows me to skew in this respect.

The S&P500 continues to be a strong source of returns despite relative valuations. I think it's a mistake to put all your eggs in one basket, regardless of what valuations tell you, unless you are willing to take very big risks (which I'm not). That's why, despite a system that allows some skew, my AA is centered using a long term and diversified approach. That way, even if I am wrong, my system is wrong, whatever, my mistake won't be hugely costly vs what a 3-fund approach would yield. I always have a healthy fixed income allocation, and my equity classes are diversified by size, value and geography in reasonable proportions, though varying from the market (tilts to size and value, but modestly: I still have reasonable large and growth representation).

If I were very young I might consider a higher international skew, but... I'm not sure how much it's warranted. After a strong last year, EM and Int'l valuations relative to their own history, and relative to the S&P500 vs historical relationship, are where? I think they are still on the low-side, but not extremely low, I think? Not sure of that, was my impression from some data I saw, but I haven't re-run the whole compare recently. FWIW
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lazyday
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Re: Who's doing 100% international equity?

Post by lazyday » Wed Mar 14, 2018 2:02 pm

getrichslowly wrote:
Wed Mar 14, 2018 12:32 pm
So let's take your strategy to the extreme. Why not go all-in on Russia? Last I checked their CAPE was under 10(?).

I think you'll find that CAPE, or dividend-growth models don't capture the whole picture.
Let’s keep it simple for a moment and compare US vs developed ex US.

GMO explains that since risks are similar between US and developed ex US, returns ought to be similar, and therefore valuations should be similar. But today valuations are not similar, and expected returns are not similar.

If we compare US to Russia, of course CAPE and RA's simple dividend model won’t tell the whole story. But EAFE and US are similar enough that maybe it’s reasonably safe to use the same model to predict returns for both.

dkturner
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Re: Who's doing 100% international equity?

Post by dkturner » Wed Mar 14, 2018 2:57 pm

TravelGeek wrote:
Wed Mar 14, 2018 12:51 pm
grok87 wrote:
Wed Mar 14, 2018 7:35 am
dkturner wrote:
Tue Mar 13, 2018 1:44 pm
Meine Schwiegermutter die in Deutschland lebt.
Echt? Kein US?
Well, also echt kein "BH living in the US" as stated in the OP :)
Sie sind richtig, sie lebt night in den U.S.

bgf
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Re: Who's doing 100% international equity?

Post by bgf » Wed Mar 14, 2018 3:37 pm

columbia wrote:
Wed Mar 14, 2018 11:08 am
bgf wrote:
Wed Mar 14, 2018 8:17 am
columbia wrote:
Tue Mar 13, 2018 6:12 pm
bgf wrote:
Tue Mar 13, 2018 11:25 am
i would feel comfortable holding only VXUS if it were currency hedged... in other words, i wouldn't be scared to do it. i think the results would be 'just fine.' still, id prefer my current allocation.

holding both US and International in roughly equal portions, lack of hedge doesn't bother me.
Well, you can...

https://www.ishares.com/us/products/273 ... -ex-us-etf
ah, thanks for the link. that is brand new as far as i know. i wouldn't be surprised if its net assets grows quite well.

It’s expensive at the moment, of course.
agreed, but you are guaranteed to get what you are paying for, so the expense, i would argue, is not comparable to the expense paid for active management. you are paying for currency hedging and that is exactly what you're gonna get.

not saying you disagree with that; just thought id mention it.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

TheNightsToCome
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Re: Who's doing 100% international equity?

Post by TheNightsToCome » Wed Mar 14, 2018 8:07 pm

Within my equities allocation: 100% ex-US

Valuation/expected returns more attractive

GibsonL6s
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Re: Who's doing 100% international equity?

Post by GibsonL6s » Thu Mar 15, 2018 11:47 am

TheNightsToCome wrote:
Wed Mar 14, 2018 8:07 pm
Within my equities allocation: 100% ex-US

Valuation/expected returns more attractive
Are you not concerned that many of the global innovators are located here in the US. I am pretty sure there will be some great things happening in the future related to many of these companies and I would want to participate. Curious

lazyday
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Re: Who's doing 100% international equity?

Post by lazyday » Thu Mar 15, 2018 12:32 pm

AlohaJoe wrote:
Tue Mar 13, 2018 8:58 pm
I've never understood how Bogle reconciles his dire predictions for US equity returns with "only invest in the US" when his own methodology tells him that investing outside the US is better right now.
We could ask...

Q&A WITH JACK BOGLE - ASK YOUR QUESTIONS HERE
viewtopic.php?f=10&t=244283

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triceratop
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Re: Who's doing 100% international equity?

Post by triceratop » Thu Mar 15, 2018 1:33 pm

lazyday wrote:
Thu Mar 15, 2018 12:32 pm
AlohaJoe wrote:
Tue Mar 13, 2018 8:58 pm
I've never understood how Bogle reconciles his dire predictions for US equity returns with "only invest in the US" when his own methodology tells him that investing outside the US is better right now.
We could ask...

Q&A WITH JACK BOGLE - ASK YOUR QUESTIONS HERE
viewtopic.php?f=10&t=244283
I posted the question.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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LikeYouImagine
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Re: Who's doing 100% international equity?

Post by LikeYouImagine » Thu Mar 15, 2018 5:04 pm

At the moment, I'm 100% international for public equities. Over the past year, I had to sell my portfolio and pull a large amount out to invest in a business I'm starting with others. This made me re-evaluate my portfolio once I re-entered the market. First, I simplified my portfolio as an unexpected event (needing cash to start a business) made me change my views on how I was investing. After much thought, I then decided to make my equity in the business be considered part of the US side of the portfolio. Using that view, I'm about 50/50 US/International.

TheNightsToCome
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Re: Who's doing 100% international equity?

Post by TheNightsToCome » Sat Mar 17, 2018 12:25 pm

GibsonL6s wrote:
Thu Mar 15, 2018 11:47 am
TheNightsToCome wrote:
Wed Mar 14, 2018 8:07 pm
Within my equities allocation: 100% ex-US

Valuation/expected returns more attractive
Are you not concerned that many of the global innovators are located here in the US. I am pretty sure there will be some great things happening in the future related to many of these companies and I would want to participate. Curious
Great companies can be terrible investments and mediocre companies can be great investments. Outcomes depend on the valuation at purchase.

bgf
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Re: Who's doing 100% international equity?

Post by bgf » Sun Mar 18, 2018 6:55 am

TheNightsToCome wrote:
Sat Mar 17, 2018 12:25 pm
GibsonL6s wrote:
Thu Mar 15, 2018 11:47 am
TheNightsToCome wrote:
Wed Mar 14, 2018 8:07 pm
Within my equities allocation: 100% ex-US

Valuation/expected returns more attractive
Are you not concerned that many of the global innovators are located here in the US. I am pretty sure there will be some great things happening in the future related to many of these companies and I would want to participate. Curious
Great companies can be terrible investments and mediocre companies can be great investments. Outcomes depend on the valuation at purchase.
This really depends on holding period and growth. In other words, what presently looks like a very high valuation will end up looking very cheap given high enough growth and long enough holding period.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Marketman
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Re: Who's doing 100% international equity?

Post by Marketman » Sun Mar 18, 2018 8:57 am

To me, 100% international might make sense if you had a very large percentage of your wealth tied up in the US in a business, real-estate, etc.

getrichslowly
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Re: Who's doing 100% international equity?

Post by getrichslowly » Sun Mar 18, 2018 2:01 pm

lazyday wrote:
Wed Mar 14, 2018 2:02 pm
getrichslowly wrote:
Wed Mar 14, 2018 12:32 pm
So let's take your strategy to the extreme. Why not go all-in on Russia? Last I checked their CAPE was under 10(?).

I think you'll find that CAPE, or dividend-growth models don't capture the whole picture.
Let’s keep it simple for a moment and compare US vs developed ex US.

GMO explains that since risks are similar between US and developed ex US, returns ought to be similar, and therefore valuations should be similar. But today valuations are not similar, and expected returns are not similar.

If we compare US to Russia, of course CAPE and RA's simple dividend model won’t tell the whole story. But EAFE and US are similar enough that maybe it’s reasonably safe to use the same model to predict returns for both.
CAPE doesnt tell the whole story because it doesn't count risk, expected earnings growth, or biases caused by different buyback:dividend ratios.

EAFE could be cheaper because its riskier, relative to the US.
EAFE could be cheaper because they expect less earnings growth, i.e. EAFE is more on the 'value' end of the spectrum. There is nothing inherently good or bad about value vs. growth in expected returns models. This makes sense because historically, the US has been the leader in innovation, which tend to be growth stocks, and then Europe simply copies our innovations after they've been released. So I would expect Europe to have more value stocks than growth stocks. More on this: just look at some of the stocks with the highest valuations: Amazon, Apple, Google, etc. these are all US companies. The US tends to be overweight in growth stocks relative to the rest of the world because it is a leader in innovation and innovation attracts growth stocks. I think I'm repeating myself now, so I will stop.
EAFE could have a lower buyback rate than US, probably distorted by different tax codes. I know in the US, companies have an incentive to prefer buybacks over dividends because dividends are taxed immediately whereas buybacks let you defer gains until a convenient time. That's why Berkshire Hathaway pays no dividends. The reason buybacks inflate CAPE is because CAPE takes a 10-year average of earnings, but if earnings per share are trending up faster due solely to converting dividends into buybacks, then two identical companies with the same fundamentals will have different reported CAPE (but same PE).

So either you know something the broad market doesn't know, and you can arbitrage on this information that only you have figured out, or maybe your model of min(CAPE) is oversimplified and you are missing the big picture. By Occam's Razor, I think your model is not a wise one to follow. The evidence is fairly weak when you consider the big picture, but you have overreacted to your own model by going so overweight in ex-US stocks. A balanced approach might be to stick 90% of your wealth in a standard 3-fund portfolio, and then speculate with the remaining 10% in whatever you want. The caps the downside risk of making stupid bets to no more than 10% of your wealth, while still giving you a little skin in the game and the thrill of gambling.

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fortyofforty
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Re: Who's doing 100% international equity?

Post by fortyofforty » Sun Mar 18, 2018 4:07 pm

Good discussion. Many varied and interesting perspectives. There truly is only a handful of countries with a relatively free market and strong property rights, though.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

Dominic
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Re: Who's doing 100% international equity?

Post by Dominic » Sun Mar 18, 2018 4:10 pm

Diversification matters. Ignoring 48% of global market cap by leaving international markets out of a portfolio is dangerous. Ignoring 52% of global market cap (the part denominated in your home currency) is far more dangerous.
fortyofforty wrote:
Sun Mar 18, 2018 4:07 pm
Good discussion. Many varied and interesting perspectives. There truly is only a handful of countries with a relatively free market and strong property rights, though.
But those few countries account for the majority of global market cap -- the US, Japan, Canada, the UK, Australia, the EU, etc.

asif408
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Re: Who's doing 100% international equity?

Post by asif408 » Sun Mar 18, 2018 9:27 pm

Dominic wrote:
Sun Mar 18, 2018 4:10 pm
Diversification matters. Ignoring 48% of global market cap by leaving international markets out of a portfolio is dangerous. Ignoring 52% of global market cap (the part denominated in your home currency) is far more dangerous.
Just curious, but do you know what countries have had the greatest portion of global market cap historically, say early and middle 20th century, and how their returns fared going forward? I remember Japan got up into the 45% range in the early 1990s, and it has had pretty poor returns since then, but of course they are only one example. Seems to me that if one country has over half the world's market cap and continues to outperform all other countries going forward that it would eventually account for almost all of the market cap.

Dominic
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Re: Who's doing 100% international equity?

Post by Dominic » Sun Mar 18, 2018 9:51 pm

asif408 wrote:
Sun Mar 18, 2018 9:27 pm
Dominic wrote:
Sun Mar 18, 2018 4:10 pm
Diversification matters. Ignoring 48% of global market cap by leaving international markets out of a portfolio is dangerous. Ignoring 52% of global market cap (the part denominated in your home currency) is far more dangerous.
Just curious, but do you know what countries have had the greatest portion of global market cap historically, say early and middle 20th century, and how their returns fared going forward? I remember Japan got up into the 45% range in the early 1990s, and it has had pretty poor returns since then, but of course they are only one example. Seems to me that if one country has over half the world's market cap and continues to outperform all other countries going forward that it would eventually account for almost all of the market cap.
I know that the top market cap country has changed hands quite a few times in history, and some day, maybe it'll change hands again. That said, I think giving 0% weight to the US, as a US investor, is a mistake. Overweight international if you must, but sacrificing a major asset class (especially one denominated in USD) is likely to make your portfolio much more volatile and probably won't provide much more return in exchange.

FRANK2009
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Re: Who's doing 100% international equity?

Post by FRANK2009 » Mon Mar 19, 2018 4:57 pm

If John Bogle and Warren Buffet recommended you jump off a building would you?
Since I'm not an economist/portfolio manager/financial expert of any kind, I tend to listen to respected experts in their chosen field of endeavor.


Your comment was rather immature.

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