VTIAX International fund - should I give up on it?

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vineviz
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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

visualguy wrote: Mon Sep 23, 2019 1:08 pm What major new public companies and industries have emerged in the EU or Japan in recent decades? Why would we expect that to change?
Apparently, many pseudo-Bogleheads are waiting to globally diversify their portfolios until they see a press release announcing the upcoming outperformance of ex-US stocks.

Because that's ALWAYS how it works. :oops:
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VTIAX International fund - should I give up on it?

Post by visualguy »

vineviz wrote: Mon Sep 23, 2019 1:57 pm
visualguy wrote: Mon Sep 23, 2019 1:08 pm What major new public companies and industries have emerged in the EU or Japan in recent decades? Why would we expect that to change?
Apparently, many pseudo-Bogleheads are waiting to globally diversify their portfolios until they see a press release announcing the upcoming outperformance of ex-US stocks.

Because that's ALWAYS how it works. :oops:
Too bad Bogle was a pseudo-Boglehead :confused

This is not a religion with some tests of purity of belief in some dogma. If something doesn't work, it doesn't work. The strategy is motivated by its performance, not some doctrine which is detached from that.
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vineviz
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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

visualguy wrote: Mon Sep 23, 2019 2:14 pm
vineviz wrote: Mon Sep 23, 2019 1:57 pm
visualguy wrote: Mon Sep 23, 2019 1:08 pm What major new public companies and industries have emerged in the EU or Japan in recent decades? Why would we expect that to change?
Apparently, many pseudo-Bogleheads are waiting to globally diversify their portfolios until they see a press release announcing the upcoming outperformance of ex-US stocks.

Because that's ALWAYS how it works. :oops:
Too bad Bogle was a pseudo-Boglehead :confused

This is not a religion with some tests of purity of belief in some dogma. If something doesn't work, it doesn't work. The strategy is motivated by its performance, not some doctrine which is detached from that.
It’s not the strategy that’s failing, it’s the ability of investors to keep the forces of fear and greed at bay that is failing. Honestly, it’s a bit sad to watch.

No it’s not a religious argument, but two of the most universally valuable concepts in investing are to avoid making decisions based on emotion and don’t chase recent performance. Threads like this are textbook examples of behavioral biases getting in the way of a solid investment plan.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VTIAX International fund - should I give up on it?

Post by bluquark »

One thing I notice is that investing strategies tend to have a foundation in the investor's sense of identity. US-only investors are proud patriots, and international-market-cap investors are proud cosmopolitans. Factor investors are proudly math/finance-theory-literate, and vanilla-index investors are proudly common-sensical.

In the event that an investor is temporarily convinced to go with a strategy that cuts against their sense of who they are and what matters, it is difficult to stay the course.
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Re: VTIAX International fund - should I give up on it?

Post by asif408 »

siamond wrote: Fri Sep 20, 2019 10:51 pm This topic of international vs. domestic is just so hard to discuss. We're all biased, we all seek confirmation bias about preconceived ideas (even when being keenly self-aware of such pitfall), we're all shaped by our personal background and past experiences, and we discuss until we're blue on the face without changing our minds.
That's the sometimes funny thing about this discussion, is that it shouldn't be that difficult to discuss. It definitely has a religious zealotry apsect to it. I think almost every poster who either has a small amount of international, none, or is thinking about reducing their international position, would admit that if this was 1994, or 2010, the zealotry with which they defend a majority US position or the thoughts they are having about reducing their international positions would not exist to the degree it does. The biggest issue is that we are not in the early 1990s or the end of the 2000s looking back at the last 10-20 years, so those times seems so far away.

The thing I take away most from these discussions is that:

1) People seem to give much, much more weight to recent past performance than any variation of longer term historical data
2) They tend to like creating a narrative to justify their position
3) They have a much harder time imaging that the distant past or some variation can happen as they can the recent past

I'll also point out that even among the most ardent proponents of international investing, none are advocating for a 80-100% position in international stocks. In fact, I think most would consider you a lunatic if you did. About the highest I've seen is 50-60%. The same cannot be said for the US only (or mostly) crowd.
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Re: VTIAX International fund - should I give up on it?

Post by visualguy »

vineviz wrote: Mon Sep 23, 2019 3:37 pm
visualguy wrote: Mon Sep 23, 2019 2:14 pm Too bad Bogle was a pseudo-Boglehead :confused

This is not a religion with some tests of purity of belief in some dogma. If something doesn't work, it doesn't work. The strategy is motivated by its performance, not some doctrine which is detached from that.
It’s not the strategy that’s failing, it’s the ability of investors to keep the forces of fear and greed at bay that is failing. Honestly, it’s a bit sad to watch.

No it’s not a religious argument, but two of the most universally valuable concepts in investing are to avoid making decisions based on emotion and don’t chase recent performance. Threads like this are textbook examples of behavioral biases getting in the way of a solid investment plan.
Your definition of "recent" isn't clear to me. The last 30, 50, or 100 years isn't recency unless you're a geologist. Don't want to include the last decade at all? Ok - ex-US still under-performed in the long run. Yes, there were periods in the past when ex-US out-performed US, but overall in the long run it under-performed significantly more than it out-performed.

Now, if there were some promising changes in the EU and Japan, I would say forget all that, and diversify, but that's not the case, unfortunately. The new stuff just isn't happening there all that much, and hasn't been in a very long time. Even in a traditionally strong area for Germany which is cars... Tesla was created in the US, not Germany. Not to mention other tech - Internet-related, AI, semiconductors, etc.
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Re: VTIAX International fund - should I give up on it?

Post by rascott »

vineviz wrote: Mon Sep 23, 2019 3:37 pm
visualguy wrote: Mon Sep 23, 2019 2:14 pm
vineviz wrote: Mon Sep 23, 2019 1:57 pm
visualguy wrote: Mon Sep 23, 2019 1:08 pm What major new public companies and industries have emerged in the EU or Japan in recent decades? Why would we expect that to change?
Apparently, many pseudo-Bogleheads are waiting to globally diversify their portfolios until they see a press release announcing the upcoming outperformance of ex-US stocks.

Because that's ALWAYS how it works. :oops:
Too bad Bogle was a pseudo-Boglehead :confused

This is not a religion with some tests of purity of belief in some dogma. If something doesn't work, it doesn't work. The strategy is motivated by its performance, not some doctrine which is detached from that.
It’s not the strategy that’s failing, it’s the ability of investors to keep the forces of fear and greed at bay that is failing. Honestly, it’s a bit sad to watch.

No it’s not a religious argument, but two of the most universally valuable concepts in investing are to avoid making decisions based on emotion and don’t chase recent performance. Threads like this are textbook examples of behavioral biases getting in the way of a solid investment plan.

Can you clarify for me what advantage has been obtained in the last 50 years from a US investor holding the EAFE index?
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Re: VTIAX International fund - should I give up on it?

Post by esteen »

Retiredat57 wrote: Thu Sep 19, 2019 3:02 pm
esteen wrote: Mon Aug 26, 2019 5:44 pm
Munir wrote: Mon Aug 26, 2019 5:32 pm
tomjonesrocks wrote: Mon Aug 26, 2019 3:41 pm Like many, I have an international fund in my portfolio for diversification. Unfortunately, it seems like this play does nothing but consistently bring the rest of my portfolio down.

What are your thoughts on VTIAX? After recent event it's pretty much given back all gains for the year and it seems like it's going to be continually hit in this climate. I just don't see how it's got any chance at sustained momentum.

Opinions appreciated - very frustrated owner of this fund...
I sold it today- for the same reasons you stated. I know all the rational reasons for international diversification but I am tired of seeing it going down and my timeline is not long. Should not have purchased it in the first place but was following the advice of the Vanguard advisers which is probably correct for those with longer timelines. Very un-Boglehead action on my part- Mea Culpa.
If your timeline is not long for that pot of money (@ both Munir and tomjonesrocks), you should not have it in stocks, or at least mostly not in stocks. If your timeline is long, you should not even look at short-term performance - don't even log in and check the balance.
Self-imposed willful ignorance of market movements and their relationship to one's personal fortunes is much easier said that done my friend.
So very, very true!

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Re: VTIAX International fund - should I give up on it?

Post by UpsetRaptor »

There's still this wide misconception, even from Jason Zweig, that US outperformance is only a recent thing. The US has outperformed for centuries.
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Re: VTIAX International fund - should I give up on it?

Post by bluquark »

As for the underperformance in the long run of Europe and Japan... take one look at this chart. Does it look like Japan's long-run underperformance primarily derives from stagnancy, zombie companies, poor corporate governance, lack of innovation, etc... or a rather more obvious and concrete reason?

Image
Last edited by bluquark on Mon Sep 23, 2019 4:44 pm, edited 1 time in total.
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Re: VTIAX International fund - should I give up on it?

Post by jibantik »

visualguy wrote: Mon Sep 23, 2019 4:22 pm
vineviz wrote: Mon Sep 23, 2019 3:37 pm
visualguy wrote: Mon Sep 23, 2019 2:14 pm Too bad Bogle was a pseudo-Boglehead :confused

This is not a religion with some tests of purity of belief in some dogma. If something doesn't work, it doesn't work. The strategy is motivated by its performance, not some doctrine which is detached from that.
It’s not the strategy that’s failing, it’s the ability of investors to keep the forces of fear and greed at bay that is failing. Honestly, it’s a bit sad to watch.

No it’s not a religious argument, but two of the most universally valuable concepts in investing are to avoid making decisions based on emotion and don’t chase recent performance. Threads like this are textbook examples of behavioral biases getting in the way of a solid investment plan.
Your definition of "recent" isn't clear to me. The last 30, 50, or 100 years isn't recency unless you're a geologist. Don't want to include the last decade at all? Ok - ex-US still under-performed in the long run. Yes, there were periods in the past when ex-US out-performed US, but overall in the long run it under-performed significantly more than it out-performed.

Now, if there were some promising changes in the EU and Japan, I would say forget all that, and diversify, but that's not the case, unfortunately. The new stuff just isn't happening there all that much, and hasn't been in a very long time. Even in a traditionally strong area for Germany which is cars... Tesla was created in the US, not Germany. Not to mention other tech - Internet-related, AI, semiconductors, etc.
Thank you for sharing this insider information. It's great you came to us before the market was aware of it so that we can use this knowledge to outperform the market.

It's amazing that some bogleheads users are able to predict the market when so many teams of countless PhDs working full time are unable to do so. If only all these PhDs knew that you could just do a simple portfoliovisualizer backtest to know who is going to outperform who in the future. Shhhh, keep that secret here so we can all be rich

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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

UpsetRaptor wrote: Mon Sep 23, 2019 4:43 pm There's still this wide misconception, even from Jason Zweig, that US outperformance is only a recent thing. The US has outperformed for centuries.
Zweig isn’t the one with misconceptions, unfortunately.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

rascott wrote: Mon Sep 23, 2019 4:35 pm Can you clarify for me what advantage has been obtained in the last 50 years from a US investor holding the EAFE index?
For a US investor, a globally diversified portfolio outperformed a xenophobic portfolio in 80% of the worst 30 year periods for US stocks and had higher retirement income during the most adverse retirement cohorts.

In fact, as I mentioned up thread, the globally diversified portfolio outperformed the US-only portfolio in a full 50% of rolling 30-year periods since 1961.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VTIAX International fund - should I give up on it?

Post by catalina355 »

vineviz wrote: Mon Sep 23, 2019 5:05 pm
rascott wrote: Mon Sep 23, 2019 4:35 pm Can you clarify for me what advantage has been obtained in the last 50 years from a US investor holding the EAFE index?
For a US investor, a globally diversified portfolio outperformed a xenophobic portfolio in 80% of the worst 30 year periods for US stocks and had higher retirement income during the most adverse retirement cohorts.

In fact, as I mentioned up thread, the globally diversified portfolio outperformed the US-only portfolio in a full 50% of rolling 30-year periods since 1961.
Do you have the numbers for the higher retirement income during the most adverse retirement cohorts? Thank you.
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Re: VTIAX International fund - should I give up on it?

Post by siamond »

bluquark wrote: Mon Sep 23, 2019 3:49 pm One thing I notice is that investing strategies tend to have a foundation in the investor's sense of identity. US-only investors are proud patriots, and international-market-cap investors are proud cosmopolitans. Factor investors are proudly math/finance-theory-literate, and vanilla-index investors are proudly common-sensical.

In the event that an investor is temporarily convinced to go with a strategy that cuts against their sense of who they are and what matters, it is difficult to stay the course.
Best post of the entire thread (and similar threads). I agree 100%.
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Re: VTIAX International fund - should I give up on it?

Post by UpsetRaptor »

vineviz wrote: Mon Sep 23, 2019 4:48 pm
UpsetRaptor wrote: Mon Sep 23, 2019 4:43 pm There's still this wide misconception, even from Jason Zweig, that US outperformance is only a recent thing. The US has outperformed for centuries.
Zweig isn’t the one with misconceptions, unfortunately.
If that's a swipe at myself for my comment, well good sir one does not go from small, fledgling country not even in the top 10 economically to > 50% global market cap without huge outperformance.
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Re: VTIAX International fund - should I give up on it?

Post by rascott »

vineviz wrote: Mon Sep 23, 2019 5:05 pm
rascott wrote: Mon Sep 23, 2019 4:35 pm Can you clarify for me what advantage has been obtained in the last 50 years from a US investor holding the EAFE index?
For a US investor, a globally diversified portfolio outperformed a xenophobic portfolio in 80% of the worst 30 year periods for US stocks and had higher retirement income during the most adverse retirement cohorts.

In fact, as I mentioned up thread, the globally diversified portfolio outperformed the US-only portfolio in a full 50% of rolling 30-year periods since 1961.

I reviewed that post.... and it certainly showed a benefit from intl investing in the early periods, however that benefit has seemed to continually diminish, almost in a constant trend- line. Perhaps this is because the correlations of US/Intl equities is so much stronger than it was decades ago?

I still don't see from data I've reviewed (which is only from 1970) that holding intl equities has improved outcomes for investors... not on a risk-adjusted basis. At best it's a very minuscule improvement.

Obviously this is a muddy topic, and even I'm halfway wet, as someone holding onto some intl equity. I'll stick with EM and fade away from EAFE
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Re: VTIAX International fund - should I give up on it?

Post by Elysium »

vineviz wrote: Mon Sep 23, 2019 5:05 pm
rascott wrote: Mon Sep 23, 2019 4:35 pm Can you clarify for me what advantage has been obtained in the last 50 years from a US investor holding the EAFE index?
For a US investor, a globally diversified portfolio outperformed a xenophobic portfolio in 80% of the worst 30 year periods for US stocks and had higher retirement income during the most adverse retirement cohorts.

In fact, as I mentioned up thread, the globally diversified portfolio outperformed the US-only portfolio in a full 50% of rolling 30-year periods since 1961.
Higher returns are not the reasons sited by any decent academic or practitioner for inclusion of EAFE stocks to a US portfolio. Rather, it is the diversification benefits. Most academics and practitioners would say EAFE and US have almost same expected returns given global cost of capital, free market economies, similar corporate governance systems, and few other factors in common. No one would claim there is a higher expected return for EAFE over US, however there can be case made for superior returns for US over EAFE which is mainly a basket of countries and one can argue not all of them have same/similar expected returns as US.

There is no reason to invest in EAFE other than potential diversification benefits, mostly from a behavioral standpoint to make one hold a portfolio better (or the sleep well aspect). If expected returns are same then the behavioral reasons alone are not sufficient to invest a high allocation to EAFE which comes at higher costs, both from trading, transaction fees, and currency hedging (if done).

This should be pretty clear to someone who would find good reasons to stick with Small Value for long term even when you know there are long periods of underperformance compared to TSM, because you are overlooking the behavioral aspects, and willing to hold on since you know (not me personally) it will provide the premium. Similarly, if you know expected returns are similar from EAFE vs US, there is no reason to have additional diversification if you know eventually US will catch up.
Last edited by Elysium on Mon Sep 23, 2019 5:27 pm, edited 3 times in total.
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Re: VTIAX International fund - should I give up on it?

Post by Elysium »

rascott wrote: Mon Sep 23, 2019 5:14 pm
vineviz wrote: Mon Sep 23, 2019 5:05 pm
rascott wrote: Mon Sep 23, 2019 4:35 pm Can you clarify for me what advantage has been obtained in the last 50 years from a US investor holding the EAFE index?
For a US investor, a globally diversified portfolio outperformed a xenophobic portfolio in 80% of the worst 30 year periods for US stocks and had higher retirement income during the most adverse retirement cohorts.

In fact, as I mentioned up thread, the globally diversified portfolio outperformed the US-only portfolio in a full 50% of rolling 30-year periods since 1961.

I reviewed that post.... and it certainly showed a benefit from intl investing in the early periods, however that benefit has seemed to continually diminish, almost in a constant trend- line. Perhaps this is because the correlations of US/Intl equities is so much stronger than it was decades ago?

I still don't see from data I've reviewed (which is only from 1970) that holding intl equities has improved outcomes for investors... not on a risk-adjusted basis. At best it's a very minuscule improvement.

Obviously this is a muddy topic, and even I'm halfway wet, as someone holding onto some intl equity. I'll stick with EM and fade away from EAFE
There is even less reason to hold on to EM as there is evidence that EM returns can be driven by speculation mostly. That said, I won't sell any EAFE or EM that someone had originally bought for a reason, would look for selling into strength.
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Re: VTIAX International fund - should I give up on it?

Post by H-Town »

Jags4186 wrote: Sat Sep 07, 2019 4:44 pm
UpsetRaptor wrote: Sat Sep 07, 2019 4:16 pm Lot of posts in this thread parroting the "recency bias" fallacy. 200 years ago the US was not even a top 10 economy, and even in the late 19th century was still behind Britain. It has absolutely outperformed in the past 1-2 centuries.
Yes. The US also has significant cultural, demographic, and geographic advantages over most every other country that have greatly contributed to those returns. We all hope those advantages continue into the future.
All great nations rise and fall. No exception. You may hope that the U.S. doesn't fall during your lifetime. Doesn't guarantee a thing though.
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Re: VTIAX International fund - should I give up on it?

Post by willthrill81 »

siamond wrote: Mon Sep 23, 2019 5:10 pm
bluquark wrote: Mon Sep 23, 2019 3:49 pm One thing I notice is that investing strategies tend to have a foundation in the investor's sense of identity. US-only investors are proud patriots, and international-market-cap investors are proud cosmopolitans. Factor investors are proudly math/finance-theory-literate, and vanilla-index investors are proudly common-sensical.

In the event that an investor is temporarily convinced to go with a strategy that cuts against their sense of who they are and what matters, it is difficult to stay the course.
Best post of the entire thread (and similar threads). I agree 100%.
As do I.

The strategy that is best for a specific investor is likely the one that they can stick with no matter what. This often requires fairly strong convictions of the strategy's value.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: VTIAX International fund - should I give up on it?

Post by bluquark »

Elysium wrote: Mon Sep 23, 2019 5:21 pm There is no reason to invest in EAFE other than potential diversification benefits, mostly from a behavioral standpoint to make one hold a portfolio better (or the sleep well aspect).
Diversification is the only free lunch, and so I fully expect to see a higher real return from my world market cap strategy when I look back on my portfolio 30 years from now. I'd guesstimate a 0.5%-1% annual return edge over the US-only strategy -- I think it's that large because I'm holding almost twice the amount of market cap.

Of course, this is only a well-founded expectation, not a guarantee -- it could be thrown off (in either direction) by a "deep risk" such as another major war, revolution or hyperinflation (one of these, of course, is the reason for the US's 20th-century outperformance).

But in a "business-as-usual" future, I'm not particularly worried about either side underperforming for long -- they'll just trade places for 5-10 year periods of outperformance as major indices usually do, and the volatility on each side canceling each other out will make me better off than holding either on its own. As for why I'm so sure long-term outperformance will not happen, that goes back to my argument about valuation and exponential growth from my post last page of this thread.
If expected returns are same then the behavioral reasons alone are not sufficient to invest a high allocation to EAFE which comes at higher costs, both from trading, transaction fees
What costs, concretely? There's a 0.04% difference in ER, and index funds, in any region, buy the stocks once and then let the market cap float.
Last edited by bluquark on Mon Sep 23, 2019 5:59 pm, edited 4 times in total.
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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

Elysium wrote: Mon Sep 23, 2019 5:21 pm There is no reason other than potential diversification benefits, mostly from a behavioral standpoint to make one hold a portfolio better (or the sleep well aspect). If expected returns are same then the behavioral reasons alone are not sufficient to invest a high allocation to EAFE which comes at higher costs, both from trading, transaction fees, and currency hedging (if done).
I specifically addressed diversification in my reply.

And it’s simply not true that diversification is primarily a “behavioral” phenomenon: robust diversification has real quantifiable financial impacts on portfolio sustainability especially under conditions of decumulation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

rascott wrote: Mon Sep 23, 2019 5:14 pm
I reviewed that post.... and it certainly showed a benefit from intl investing in the early periods, however that benefit has seemed to continually diminish, almost in a constant trend- line. Perhaps this is because the correlations of US/Intl equities is so much stronger than it was decades ago?
This is recent bias at work: putting more weight on recent periods and discounting evidence from earlier periods.

If you flip a fair coin 50 times, it’s not at all unusual that you’ll observe some streaks of heads and/or tails 3, 4, or even 5 in a row.

If you’ve got data back to 1970 for EAFE, tally up the number of months in which EAFE beat the U.S. I guarantee it’s within a hairs breadth of 50%. The coin is still fair, in other words, and the last 10 years has simply been a streak entirely consistent with blind chance.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VTIAX International fund - should I give up on it?

Post by visualguy »

bluquark wrote: Mon Sep 23, 2019 5:40 pm But in a "business-as-usual" future, I'm not particularly worried about either side underperforming for long -- they'll just trade places for 5-10 year periods of outperformance as major indices usually do, and the volatility on each side canceling each other out will make me better off than holding either on its own. As for why I'm so sure long-term outperformance will not happen, that goes back to my argument about valuation and exponential growth from my post last page of this thread.
But this already happened - US out-performed ex-US over the last 50 years, which I'm sure you'll agree is long-term. If your argument is correct, then why didn't it apply over the last 50 years? I'm not asking about 100 years because then you'll say world wars, so let's start a couple of decades after WW2. Don't want to count the last decade for whatever reason? That would leave 40 years during which the US out-performed overall as well.
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Re: VTIAX International fund - should I give up on it?

Post by bluquark »

visualguy wrote: Mon Sep 23, 2019 6:00 pm
bluquark wrote: Mon Sep 23, 2019 5:40 pm But in a "business-as-usual" future, I'm not particularly worried about either side underperforming for long -- they'll just trade places for 5-10 year periods of outperformance as major indices usually do, and the volatility on each side canceling each other out will make me better off than holding either on its own. As for why I'm so sure long-term outperformance will not happen, that goes back to my argument about valuation and exponential growth from my post last page of this thread.
But this already happened - US out-performed ex-US over the last 50 years, which I'm sure you'll agree is long-term. If your argument is correct, then why didn't it apply over the last 50 years? I'm not asking about 100 years because then you'll say world wars, so let's start a couple of decades after WW2. Don't want to count the last decade for whatever reason? That would leave 40 years during which the US out-performed overall as well.
Although I just myself committed the same sort of sloppiness when I said "30 years from now", I think the problem here is the framing of a horse race in a few particular time ranges (any time range, even a long one). If you consider lump-sums that enters or exits the market all at once, then it's extremely sensitive to the timing of both the beginning and end of the period -- you thought of this and sliced off the end, but there still remains the beginning. Also, your comparison doesn't take into account the diversification "free lunch", which is a mathematical fundamental that requires very significant underperformance on one side to wipe out.

In reality, I'm DCAing in (not on purpose but because I'm saving portions of my salary) and going to DCA out as I live off my holdings in retirement. Also the 0/100 US-intl portfolio is not under consideration, and that's implicitly your point of comparison. vineviz's post earlier showed that under such assumptions, the 50/50 US-intl portfolio has matched or outperformed the 100/0 portfolio since WWII (if only by reducing volatility, which reduces my sequence of return risk, so yes I can "eat" my Sharpe ratio).
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Re: VTIAX International fund - should I give up on it?

Post by Elysium »

bluquark wrote: Mon Sep 23, 2019 5:40 pm
Elysium wrote: Mon Sep 23, 2019 5:21 pm There is no reason to invest in EAFE other than potential diversification benefits, mostly from a behavioral standpoint to make one hold a portfolio better (or the sleep well aspect).
Diversification is the only free lunch, and so I fully expect to see a higher real return from my world market cap strategy when I look back on my portfolio 30 years from now. I'd guesstimate a 0.5%-1% annual return edge over the US-only strategy -- I think it's that large because I'm holding almost twice the amount of market cap.

Of course, this is only a well-founded expectation, not a guarantee -- it could be thrown off (in either direction) by a "deep risk" such as another major war, revolution or hyperinflation (one of these, of course, is the reason for the US's 20th-century outperformance).
That is some free lunch, sounds more like free 7 course dinner. If the financial markets are efficient, which I believe they are, then there is no basis for a 1% diversification benefit. Even the most optimistic estimate would limit it at around 0.5%, and the studies I have read quotes about 0.3% benefit from diversifying into EAFE for a US portfolio. That requires a lot of discipline to stay the course over many years and re-balance systematically. Here we have a thread asking "should I give up" on Intl after just a few years of underperformance.
bluquark wrote: Mon Sep 23, 2019 5:40 pm
If expected returns are same then the behavioral reasons alone are not sufficient to invest a high allocation to EAFE which comes at higher costs, both from trading, transaction fees
What costs, concretely? There's a 0.04% difference in ER, and index funds, in any region, buy the stocks once and then let the market cap float.
Apart from ER, I also mentioned trading costs, foreign taxes, and hedging (in some cases). Perhaps enough to dilute the 0.3% diversification benefit? Anyhow, the disagreement is about how much one should hold. Do we need 20% or 40%? it comes down to personal preference.
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Re: VTIAX International fund - should I give up on it?

Post by bluquark »

Elysium wrote: Mon Sep 23, 2019 6:23 pm That is some free lunch, sounds more like free 7 course dinner. If the financial markets are efficient, which I believe they are, then there is no basis for a 1% diversification benefit. Even the most optimistic estimate would limit it at around 0.5%, and the studies I have read quotes about 0.3% benefit from diversifying into EAFE for a US portfolio.
Good to know that estimate, I actually haven't seen such studies and just guessed the magnitude. I'd be interested in seeing the link if you remember it.
That requires a lot of discipline to stay the course over many years and re-balance systematically. Here we have a thread asking "should I give up" on Intl after just a few years of underperformance.
I, personally, would find it extremely difficult to muster the discipline to concentrate 80%+ of my wealth in one country, if for some reason the technical arguments we are having right now seemed stronger on the US-only side. As it stands, it doesn't feel right to me that I have over half of my equities in the US, as market-cap-weighting dictates -- the country doesn't seem big and important enough to justify that, to my intuition. (4% of world population, 55% of stocks??) I find myself resisting the temptation to overweight ex-US. That mostly goes back to my post above about personal identity and values.

Also, a diversified portfolio can be expected to have lower volatility as well as slightly higher returns. So the market lows that are coming someday, are likely to test me less severely.
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Re: VTIAX International fund - should I give up on it?

Post by catalina355 »

bluquark wrote: Mon Sep 23, 2019 6:31 pm Also, a diversified portfolio can be expected to have lower volatility as well as slightly higher returns. So the market lows that are coming someday, are likely to test me less severely.
That was not the experience in 2008/2009.
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Re: VTIAX International fund - should I give up on it?

Post by rascott »

bluquark wrote: Mon Sep 23, 2019 6:31 pm
Elysium wrote: Mon Sep 23, 2019 6:23 pm That is some free lunch, sounds more like free 7 course dinner. If the financial markets are efficient, which I believe they are, then there is no basis for a 1% diversification benefit. Even the most optimistic estimate would limit it at around 0.5%, and the studies I have read quotes about 0.3% benefit from diversifying into EAFE for a US portfolio.
Good to know that estimate, I actually haven't seen such studies and just guessed the magnitude. I'd be interested in seeing the link if you remember it.
That requires a lot of discipline to stay the course over many years and re-balance systematically. Here we have a thread asking "should I give up" on Intl after just a few years of underperformance.
I, personally, would find it extremely difficult to muster the discipline to concentrate 80%+ of my wealth in one country, if for some reason the technical arguments we are having right now seemed stronger on the US-only side. As it stands, it doesn't feel right to me that I have over half of my equities in the US, as market-cap-weighting dictates -- the country doesn't seem big and important enough to justify that, to my intuition. (4% of world population, 55% of stocks??) I find myself resisting the temptation to overweight ex-US. That mostly goes back to my post above about personal identity and values.

Also, a diversified portfolio can be expected to have lower volatility as well as slightly higher returns. So the market lows that are coming someday, are likely to test me less severely.

The last 50 years has provided more volatility for a 50/50 portfolio, not less. And lower returns. Not any Sharpe to eat.
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Re: VTIAX International fund - should I give up on it?

Post by rascott »

vineviz wrote: Mon Sep 23, 2019 5:50 pm
rascott wrote: Mon Sep 23, 2019 5:14 pm
I reviewed that post.... and it certainly showed a benefit from intl investing in the early periods, however that benefit has seemed to continually diminish, almost in a constant trend- line. Perhaps this is because the correlations of US/Intl equities is so much stronger than it was decades ago?
This is recent bias at work: putting more weight on recent periods and discounting evidence from earlier periods.

If you flip a fair coin 50 times, it’s not at all unusual that you’ll observe some streaks of heads and/or tails 3, 4, or even 5 in a row.

If you’ve got data back to 1970 for EAFE, tally up the number of months in which EAFE beat the U.S. I guarantee it’s within a hairs breadth of 50%. The coin is still fair, in other words, and the last 10 years has simply been a streak entirely consistent with blind chance.

That certainly could be true..... but I'm not sure what use it is looking at how many months one beat out the other.... all we are interested in is actual real returns over rolling periods.

Just like SCV can lag for years, but then make it all up and more in a few short periods. We don't get extra points for winning a quarter in a football game. It's the total score that we care about.

And even if I take out the last 10 years and just look at 1970-2009..... the Sharpe ratios are identical for a 100% US vs a 50/50 allocation. The 50/50 edged out a 0.2% CAGR advantage, but was slightly more volatile.

Alas, at the end of the day, I agree with the other poster.... if markets are efficient than all we are gaining is some rebalancing bonus.... and IMO, EAFE is too highly correlated to US Large Cap to give much of that.

Now some Intl Small cap/ EMs.... starting to get somewhere more appealing.
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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

rascott wrote: Mon Sep 23, 2019 7:17 pm
vineviz wrote: Mon Sep 23, 2019 5:50 pm If you’ve got data back to 1970 for EAFE, tally up the number of months in which EAFE beat the U.S. I guarantee it’s within a hairs breadth of 50%. The coin is still fair, in other words, and the last 10 years has simply been a streak entirely consistent with blind chance.
That certainly could be true..... but I'm not sure what use it is looking at how many months one beat out the other.... all we are interested in is actual real returns over rolling periods.
I hope that it’d help reinforce the way that streaks can materialize purely by chance: this kind of probabilistic awareness might lead to self-awareness about the trap of investing based on nothing more than recency-driven frustration.
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Re: VTIAX International fund - should I give up on it?

Post by tadamsmar »

Lots of bashing of international economics on this thread. Does anyone look at the price of buying a dollar of earnings in those supposedly bad economies?

Looks like a dollar cost about 50% more in the USA. If I have my numbers right.

Seems like this is a market sentiment story.
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Re: VTIAX International fund - should I give up on it?

Post by asif408 »

visualguy wrote: Mon Sep 23, 2019 6:00 pm
bluquark wrote: Mon Sep 23, 2019 5:40 pm But in a "business-as-usual" future, I'm not particularly worried about either side underperforming for long -- they'll just trade places for 5-10 year periods of outperformance as major indices usually do, and the volatility on each side canceling each other out will make me better off than holding either on its own. As for why I'm so sure long-term outperformance will not happen, that goes back to my argument about valuation and exponential growth from my post last page of this thread.
But this already happened - US out-performed ex-US over the last 50 years, which I'm sure you'll agree is long-term. If your argument is correct, then why didn't it apply over the last 50 years? I'm not asking about 100 years because then you'll say world wars, so let's start a couple of decades after WW2. Don't want to count the last decade for whatever reason? That would leave 40 years during which the US out-performed overall as well.
EAFE beat the US the first 40 years (10.2% vs. 9.9%): https://awealthofcommonsense.com/2018/0 ... -globally/. Now what do you have to say?
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Re: VTIAX International fund - should I give up on it?

Post by bogledogle87 »

ruralavalon wrote: Sun Sep 22, 2019 10:50 am Ipse dixit.
jibantik wrote: Sat Sep 21, 2019 7:55 pm The default, null position is to hold market weight. To speculate against that places the burden of proof on YOU.

The issue here is that you have a lot of people who speculate into heavily or fully weighting US for two reasons: (1) performance chasing (2) American exceptionalism bias.

You have people on this board who somehow know how thousands of companies across the globe will perform decades into the future because they noticed US outperforming international in the past few years and because they spent a week in France and didn't like the long lunch breaks. It's a pretty incredible feat when you consider you have teams of PhDs specifically working full time at this who can't even beat the market.
Why is it that "The default, null position is to hold market weight"?

It's not true just because you say it is so. What is your reason for that opinion?
This is a great question that I would like to counter with another question - What else is a reasonable default - if not market cap weighted indexing?

If your goal is to capture the market in the most unbiased way possible, what alternatives exist beyond market weighting? I'm not saying there isn't one, I just can't come up with one myself that doesn't involve carrying more 'burden of proof' than exceeds my comfort level.
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Re: VTIAX International fund - should I give up on it?

Post by Steve Reading »

vineviz wrote: Mon Sep 23, 2019 7:39 pm
I hope that it’d help reinforce the way that streaks can materialize purely by chance: this kind of probabilistic awareness might lead to self-awareness about the trap of investing based on nothing more than recency-driven frustration.
To some, it evidently does not.
Elysium wrote: Mon Sep 23, 2019 5:21 pm No one would claim there is a higher expected return for EAFE over US
Only if you consider "Vanguard" to be "no one".
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Re: VTIAX International fund - should I give up on it?

Post by Elysium »

305pelusa wrote: Tue Sep 24, 2019 3:57 pm Only if you consider "Vanguard" to be "no one".
Absurd claim. If they did it is a dumb thing to do. What they have likely done is valuation based forecasts, I would have expected someone on this forum to know the difference between expected returns from two assets vs. valuation based forecasts. First one, doesn't of course look at current valuations or try to forecast future prices based on it, instead look at expected returns using standard accepted formulas. There is absolutely no reason for EAFE to have higher expected returns than US. Valuation based future forecasts is anyone's guess, and not worth very much in the context of portfolio planning.
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Re: VTIAX International fund - should I give up on it?

Post by Steve Reading »

Elysium wrote: Wed Sep 25, 2019 6:42 am
305pelusa wrote: Tue Sep 24, 2019 3:57 pm Only if you consider "Vanguard" to be "no one".
Absurd claim. If they did it is a dumb thing to do. What they have likely done is valuation based forecasts, I would have expected someone on this forum to know the difference between expected returns from two assets vs. valuation based forecasts. First one, doesn't of course look at current valuations or try to forecast future prices based on it, instead look at expected returns using standard accepted formulas. There is absolutely no reason for EAFE to have higher expected returns than US. Valuation based future forecasts is anyone's guess, and not worth very much in the context of portfolio planning.
Name one "standard accepted formula" for determining future expected returns that is not valuations or fundamentals-based please.

Valuations-based forecasts have been consistently by Rick Ferri, William Bernstein, Larry Swedroe, David Swensen and even Jack Bogle himself. And they tend to be predict reasonably well over the long term. It's certainly not "anyone's guess"; if anything, it's about one of the best guesses one can make for long term returns
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Re: VTIAX International fund - should I give up on it?

Post by vineviz »

Elysium wrote: Wed Sep 25, 2019 6:42 am
305pelusa wrote: Tue Sep 24, 2019 3:57 pm Only if you consider "Vanguard" to be "no one".
Absurd claim. If they did it is a dumb thing to do. What they have likely done is valuation based forecasts, I would have expected someone on this forum to know the difference between expected returns from two assets vs. valuation based forecasts. First one, doesn't of course look at current valuations or try to forecast future prices based on it, instead look at expected returns using standard accepted formulas. There is absolutely no reason for EAFE to have higher expected returns than US. Valuation based future forecasts is anyone's guess, and not worth very much in the context of portfolio planning.
Current valuations are ABSOLUTELY one of the inputs required to create a rational estimate for expected return.

If you truly don't believe that, I've got 1,000 shares of Coca-Cola (KO) that I'd be happy to sell you at $160/share. Your expected return is the same at $160 as it would be at $55, right?
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Re: VTIAX International fund - should I give up on it?

Post by abuss368 »

bluquark wrote: Mon Sep 23, 2019 3:49 pm In the event that an investor is temporarily convinced to go with a strategy that cuts against their sense of who they are and what matters, it is difficult to stay the course.
I would agree. This is why it is so important to tune out the noise and stay the course. Investor behavior is often the biggest risk.
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Re: VTIAX International fund - should I give up on it?

Post by selters »

Jags4186 wrote: Sun Sep 08, 2019 11:59 am
tibbitts wrote: Sun Sep 08, 2019 11:48 am
Jags4186 wrote: Sat Sep 07, 2019 4:44 pm
UpsetRaptor wrote: Sat Sep 07, 2019 4:16 pm Lot of posts in this thread parroting the "recency bias" fallacy. 200 years ago the US was not even a top 10 economy, and even in the late 19th century was still behind Britain. It has absolutely outperformed in the past 1-2 centuries.
Yes. The US also has significant cultural, demographic, and geographic advantages over most every other country that have greatly contributed to those returns. We all hope those advantages continue into the future.
All those things were known a few decades ago when the consensus was that Japan was going to take over the world. What's deemed an advantage today has a way of becoming a disadvantage tomorrow.
Despite whatever the latest news cycle says, and despite how corny it sounds, America has proven to be “exceptional”
Why haven't markets priced in that exceptionalism, then?
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Re: VTIAX International fund - should I give up on it?

Post by ruralavalon »

bogledogle87 wrote: Tue Sep 24, 2019 10:53 am
ruralavalon wrote: Sun Sep 22, 2019 10:50 am Ipse dixit.
jibantik wrote: Sat Sep 21, 2019 7:55 pm The default, null position is to hold market weight. To speculate against that places the burden of proof on YOU.

The issue here is that you have a lot of people who speculate into heavily or fully weighting US for two reasons: (1) performance chasing (2) American exceptionalism bias.

You have people on this board who somehow know how thousands of companies across the globe will perform decades into the future because they noticed US outperforming international in the past few years and because they spent a week in France and didn't like the long lunch breaks. It's a pretty incredible feat when you consider you have teams of PhDs specifically working full time at this who can't even beat the market.
Why is it that "The default, null position is to hold market weight"?

It's not true just because you say it is so. What is your reason for that opinion?
This is a great question that I would like to counter with another question - What else is a reasonable default - if not market cap weighted indexing?

If your goal is to capture the market in the most unbiased way possible, what alternatives exist beyond market weighting? I'm not saying there isn't one, I just can't come up with one myself that doesn't involve carrying more 'burden of proof' than exceeds my comfort level.
The reason to have an international stock allocation is for diversification. I look at the magnitude of the diversification benefit, and what it takes to capture the bulk of that benefit.



A 2008 Vanguard paper very concisely stated in its Executive Summary "Empirical and practical issues suggest a starting allocation to international stocks of 20%, with an upper limit based on the proportion of the global market they represent". "International Equity: Considerations and Recommendations" (p. 1).




A March 2012 Vanguard paper, "Considerations for investing in non-U.S. equities", stated that historically allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). Their graph depicting volatility versus international stock allocation has a very flat shallow curve between 20-50%, indicating to me that historically it made little difference where the investor was in that range (Fig. 3, p. 5).

A June 2012 Vanguard paper, "The role of home bias in global asset allocation decisions", has a graph describing "Risk and returns for various equity portfolios: 1988–2011" showing the better risk/return combination for a U.S. Investor between 20% and 30% of stocks in international stocks (Fig 1, p. 3). (On a risk/return graph, the optimum location to be in is the upper left corner.)

The paper does say that historical performance is not the sole factor to consider (pp. 8-12).

The two 2012 Vanguard papers use data through December 31, 2011.



A February 2014 Vanguard paper, "Global equities: Balancing home bias and diversification" (link no longer connects to the 02/2014 paper, instead connects to 02/2019 paper) noted that U.S. equities were 49% of the global market, with a recent high of 55% of the global but remained significantly above the all-time low of 29% (p. 2, and Fig. 1, p.3). Again a graph of "Average annualized change in portfolio volatility" has a flat shallow curve between 20-50%, indicating to me that historically it made little difference where the investor was in that range (Fig. 3, p. 5).

From the February 2014 Vanguard paper -- "What’s striking about Figure 3 is that U.S. investors would have obtained substantial (relative) diversification benefits from allocations to non-U.S. stocks far short of the current market-proportional portfolio (now about 51% and historically approximately 50%, on average). . . . . . Looking at the blue line in Figure 3, which represents a portfolio composed entirely of equities, the maximum historical diversification benefit would have been achieved by allocating approximately 30% of an equity portfolio to non-U.S. equities (although the difference between 30% non-U.S. and 40% non-U.S. is within 0.02%), with a net reduction in volatility of 71 basis points. Allocating 20% of an equity portfolio to non-U.S. stocks would have captured 60 of those 71 basis points, or about 85% of the maximum possible benefit. " (p.6).

"On average, dedicating 30% of equities to non-U.S. stocks has provided most of the maximum possible diversification benefit" (Fig. 4, p 7). "Rising correlations mean less impact from global diversification" (Fig. 5, p.9). "High relative volatility means less impact from global diversification" (Fig.6, p.9).

The 2014 Vanguard paper uses data through December 31, 2013.



Vanguard paper (February, 2019), "Global equity investing: The benefits of diversification and sizing your allocation". As of September 30, 2018, U.S. equities accounted for 55.1% of the global equity market and non-U.S. equities accounted for the remainder (p.2).

At a high level, the benefit of global diversification can be shown by comparing the volatility of a global index with that of indexes focused on individual countries. In Figure 2, the benefit of diversification is clear. While the United States had the lowest volatility of any individual country examined, its volatility was slightly higher than that of the global market index (p.3).

The authors state that standard financial-theory assumes that markets are reasonably efficient and that stock prices reflect all the available information, investment positions, and expectations of the investing community, and leads to a market-cap-weighted approach (p. 4).

Another factor to consider in determining how much to allocate outside domestic equity markets is diversification (p. 4). Figure 3 describes the diversification benefit. For U.S. investors volatility begins to rise with international allocations over 40%, the curve is relatively shallow and flat in the range 20-50% (Fig. 3, p.5). (Unlike earlier Vanguard papers, March 2012 and February 2014, they do not explicitly state how much of the diversification benefit is captured at various allocations like 20%, 30% and 40%. The graphs appear very similar.)

Correlations between returns of stocks in the United States and those outside the United States have increased significantly, currently about 0.80 (p.6). They project a future correlation of 0.76 (p. 7). They project that future returns of ex-U.S. stocks will be higher than U.S. stocks (p. 8).

In determining how much to allocate between domestic and international equities, a helpful starting point for investors is global market-capitalization weight. In practice, many investors will consider an allocation below this starting point based on their sensitivity to a number of considerations, including volatility reduction, implementation costs, taxes, regulation, and their own preferences. (p. 10)



I am not aware of any other or more recent Vanguard papers on the issue of the desirable amount of international stock allocation. In my opinion the 2008 viewpoint is still good -- "Empirical and practical issues suggest a starting allocation to international stocks of 20%, with an upper limit based on the proportion of the global market they represent". I personally prefer the lower end of that range, thinking there is no reason to take extra international-related risks (like currency risk, political risk) for little or no readily apparent benefit.
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Re: VTIAX International fund - should I give up on it?

Post by Jozxyqk »

ruralavalon wrote: Wed Sep 25, 2019 11:07 am
bogledogle87 wrote: Tue Sep 24, 2019 10:53 am
ruralavalon wrote: Sun Sep 22, 2019 10:50 am Ipse dixit.
jibantik wrote: Sat Sep 21, 2019 7:55 pm The default, null position is to hold market weight. To speculate against that places the burden of proof on YOU.

. . .
Why is it that "The default, null position is to hold market weight"?

It's not true just because you say it is so. What is your reason for that opinion?
This is a great question that I would like to counter with another question - What else is a reasonable default - if not market cap weighted indexing?

If your goal is to capture the market in the most unbiased way possible, what alternatives exist beyond market weighting? I'm not saying there isn't one, I just can't come up with one myself that doesn't involve carrying more 'burden of proof' than exceeds my comfort level.
The reason to have an international stock allocation is for diversification. I look at the magnitude of the diversification benefit, and what it takes to capture the bulk of that benefit.
I don't think you've responded to the question. Your analysis assumes that the default position is investing in the companies of a single nation, and that holding any companies located in any other country requires additional justification.

Why is that? You might as well be saying "My core position is AAPL. The reason to [invest in other equities] is for diversification. I look at the magnitude of the diversification benefit, and what it takes to capture the bulk of that benefit."
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Re: VTIAX International fund - should I give up on it?

Post by TomCat96 »

selters wrote: Wed Sep 25, 2019 10:58 am
Jags4186 wrote: Sun Sep 08, 2019 11:59 am
tibbitts wrote: Sun Sep 08, 2019 11:48 am
Jags4186 wrote: Sat Sep 07, 2019 4:44 pm
UpsetRaptor wrote: Sat Sep 07, 2019 4:16 pm Lot of posts in this thread parroting the "recency bias" fallacy. 200 years ago the US was not even a top 10 economy, and even in the late 19th century was still behind Britain. It has absolutely outperformed in the past 1-2 centuries.
Yes. The US also has significant cultural, demographic, and geographic advantages over most every other country that have greatly contributed to those returns. We all hope those advantages continue into the future.
All those things were known a few decades ago when the consensus was that Japan was going to take over the world. What's deemed an advantage today has a way of becoming a disadvantage tomorrow.
Despite whatever the latest news cycle says, and despite how corny it sounds, America has proven to be “exceptional”
Why haven't markets priced in that exceptionalism, then?
Why haven't markets priced in the expected outperformance of International Stocks for the next decade?
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Re: VTIAX International fund - should I give up on it?

Post by stocknoob4111 »

good paper from Schwab about International valuations and expected returns:

Valuations hold a surprising message for stock market investors:

https://www.schwab.com/resource-center/ ... -investors
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Re: VTIAX International fund - should I give up on it?

Post by TomCat96 »

TomCat96 wrote: Wed Sep 25, 2019 1:02 pm
selters wrote: Wed Sep 25, 2019 10:58 am
Jags4186 wrote: Sun Sep 08, 2019 11:59 am
tibbitts wrote: Sun Sep 08, 2019 11:48 am
Jags4186 wrote: Sat Sep 07, 2019 4:44 pm

Yes. The US also has significant cultural, demographic, and geographic advantages over most every other country that have greatly contributed to those returns. We all hope those advantages continue into the future.
All those things were known a few decades ago when the consensus was that Japan was going to take over the world. What's deemed an advantage today has a way of becoming a disadvantage tomorrow.
Despite whatever the latest news cycle says, and despite how corny it sounds, America has proven to be “exceptional”
Why haven't markets priced in that exceptionalism, then?
Why haven't markets priced in the expected outperformance of International Stocks for the next decade?
I'm to express again what I did before. There are some legitimate arguments for international. But what I want to avoid is religion, tribalism, and poor reasoning.

The argument that International is slated to outperform is poor reasoning. At least given the other arguments propounded for international, it's a bad rationale. First, if this argument had any real teeth, the logical conclusion would be to go all in on International. Why invest in America at all?

Secondly, one of the primary arguments for International is the wisdom of the market, "nobody knows nothing", and the market has set a 50/50 approximate split between International and US. Alright. How then can one turn around and argue that International is slated to outperform based on hearsay from Vanguard PhDs. If the markets were truly efficient, this is what would happen:

The PhDs pushing the idea International is going to outperform the US would continue investing in International until the expected outperformance reaches "parity" with the US.

If you are a market advocate what stops the market from doing this? What stops those fancy smart PhDs from taking their own advice and dumping their money in to make bigger bucks and avoid the expected underperformance of US stocks?

If the PhDs don't have the audacity to do that, I don't think one should come around here chirping that legions of Vanguard PhDs know better.

No they don't---because either they're unwilling to put their money where their mouth is, or "nobody knows nothing"

Or yes they do, and the powers that be, hedge fund managers that hire said PhDs, have already fairly priced in the expected International outperformance for the next decade.

Here's how you can argue if you want to say International will outperform:
International Markets are Superior. Market efficiency is limited.

There you go. That will allow you to argue without the cognitive dissonance.

Now if that's the argument to be propounded, then so be it. Recognize it and defend it. Lord knows the US side has done that on their end. Myself included.
Last edited by TomCat96 on Wed Sep 25, 2019 1:39 pm, edited 2 times in total.
asif408
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Re: VTIAX International fund - should I give up on it?

Post by asif408 »

catalina355 wrote: Mon Sep 23, 2019 6:35 pm
bluquark wrote: Mon Sep 23, 2019 6:31 pm Also, a diversified portfolio can be expected to have lower volatility as well as slightly higher returns. So the market lows that are coming someday, are likely to test me less severely.
That was not the experience in 2008/2009.
Very true. That's why I only own long-term Treasuries. Better returns for long-term Treasuries since 2008 than the US stock market and lower maximum drawdown to boot: https://www.portfoliovisualizer.com/bac ... 0&total3=0.

It's not like the next crisis will be any different and long-term Treasuries will suffer, and I care primarily about what worked in the most recent crisis.
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Re: VTIAX International fund - should I give up on it?

Post by Day9 »

bluquark wrote: Mon Sep 23, 2019 3:49 pm One thing I notice is that investing strategies tend to have a foundation in the investor's sense of identity. US-only investors are proud patriots, and international-market-cap investors are proud cosmopolitans. Factor investors are proudly math/finance-theory-literate, and vanilla-index investors are proudly common-sensical.

In the event that an investor is temporarily convinced to go with a strategy that cuts against their sense of who they are and what matters, it is difficult to stay the course.
Great insight in this post. I would love to see this explored further, perhaps a poll of people's int'l allocation and a question of whether they are more of a "patriot" or "cosmopolitan", etc.

This Swedroe article concludes "..When their [political] party is in favor, [investors] tend to increase exposure to systematic risk and thus earn higher returns. And they tend to use more passive strategies, reducing costs.". This is not exactly what you were pointing out but I wanted to share this because I would like to see a similar study as the one in this article, except it looks for the relationships you identified in your post.
https://www.etf.com/sections/index-inve ... -investing
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Steve Reading
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Re: VTIAX International fund - should I give up on it?

Post by Steve Reading »

TomCat96 wrote: Wed Sep 25, 2019 1:02 pm
selters wrote: Wed Sep 25, 2019 10:58 am
Jags4186 wrote: Sun Sep 08, 2019 11:59 am
tibbitts wrote: Sun Sep 08, 2019 11:48 am
Jags4186 wrote: Sat Sep 07, 2019 4:44 pm

Yes. The US also has significant cultural, demographic, and geographic advantages over most every other country that have greatly contributed to those returns. We all hope those advantages continue into the future.
All those things were known a few decades ago when the consensus was that Japan was going to take over the world. What's deemed an advantage today has a way of becoming a disadvantage tomorrow.
Despite whatever the latest news cycle says, and despite how corny it sounds, America has proven to be “exceptional”
Why haven't markets priced in that exceptionalism, then?
Why haven't markets priced in the expected outperformance of International Stocks for the next decade?
It has priced in both just fine, like an efficient market would:
- America has exceptional growth and excellent future prospects -> Everyone prefers American over Int stocks everything else being equL -> More money goes to the less-risky, more certain American stocks -> Evaluations become worse/more expensive.
- International stocks have an uncertain future and slow growth prospects -> People dislike them (as you see from this thread) -> People sell them -> Money flows out of them -> Evaluations become better/less expensive.

So you end up with American stocks that have a lower expected return but more certainty/less risky and International stocks that have higher expected returns but with more volatility and uncertainty.

You cannot make more "free lunch" money from American exceptionalism because everyone knows about it. You CAN make more money by taking on more risk (International). The market has priced everything in correctly.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Steve Reading
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Re: VTIAX International fund - should I give up on it?

Post by Steve Reading »

TomCat96 wrote: Wed Sep 25, 2019 1:31 pm Here's how you can argue if you want to say International will outperform:
International Markets are Superior. Market efficiency is limited.

By that logic, one could only argue that stocks have higher expected returns than bonds because *Stocks are Superior*.

But stocks aren't superior. They're just riskier and you get a premium for the risk. International right now IS riskier; it has a much bleaker future, the nations don't have the certainty of American stocks and more. So you should be rewarded for that. The market currently IS rewarding that via more attractive valuation.
TomCat96 wrote: Wed Sep 25, 2019 1:31 pm First, if this argument had any real teeth, the logical conclusion would be to go all in on International. Why invest in America at all?
If all you care about is higher returns without regards for risk, then yes go all in on International small cap value. But most of us want a mix of diversification and high returns: So we invest in assets with lower returns (bonds, US stocks) to bring down the risk and increase our risk-adjusted returns.
TomCat96 wrote: Wed Sep 25, 2019 1:31 pm The PhDs pushing the idea International is going to outperform the US would continue investing in International until the expected outperformance reaches "parity" with the US.
Nonsense. We all know stocks have higher expected returns than bonds. How come people don't "continue to invest in stocks until the expected outperformance reaches parity with bonds?"

Because you're completely ignoring the concept of RISK. Seriously, you're entire reply only looks at things from "returns" but ignores risk.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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