INTERNATIONALS 20% of Equities or 20% of Portfolio?

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TNOA
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INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by TNOA » Tue Oct 08, 2019 11:48 pm

Hello dear Boglehead, I have been reading various versions of how much one should hold international equities (in my case, this would equate to VXUS). I understand there is this 20% concept which seems like the sweet spot in the debate of one side versus the other. Jack Bogle and his followers say "- No international needed however if one needs to hold it then one shouldn't exceed 20%). The other side states one should hold to global market cap proportions but definitely no less than 20%. That said, various versions state sometime that percentage (20% in this case) relates to 20% of the equities portion of the portfolio, and on other posts state other times that this percentage (i.e., 20% in this case again) actually applies to the overall portfolio (stocks, bonds, ...). Which is what, can anyone elaborate for me please? I couldn't find a consistent explanation on various posts I read about the topic. Thank you.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Tyler Aspect » Tue Oct 08, 2019 11:54 pm

International stocks representing 20% of stock allocation was one of Jack Bogle's recommendations.
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retired@50
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by retired@50 » Tue Oct 08, 2019 11:56 pm

The Bogle position was 20% of equity. Other non-Bogle sources will claim that your international equity position should be in the range of 30 - 50% of equity. Regards,

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JoMoney
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by JoMoney » Wed Oct 09, 2019 12:22 am

Mr. Bogle's recommendation was no more than 20% of equities
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rascott
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by rascott » Wed Oct 09, 2019 12:25 am

False comments above.

Bogle recommend 0% international...... but was ok with someone going up to 20%.

Watch

https://youtu.be/P54trh0Rre8

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by stocknoob4111 » Wed Oct 09, 2019 2:00 am

I have it at 20% of Portfolio.. Most target date funds hold significantly higher.. FFFFX Fidelity 2040 for instance has it at 35% of Portfolio.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Sconie » Wed Oct 09, 2019 5:07 am

Haha-----you're looking for a "consistent" explanation/recommendation! No such animal OP. That said, I'd guess that 20% comes about as close to "consistent" as anyone is going to get. Good wishes!
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by lostdog » Wed Oct 09, 2019 7:02 am

Vanguard recommends 40% up to world market cap of stock allocation.

https://investor.vanguard.com/investing ... -investing

The 0% to 20% is an out-dated recommendation from an old era of patriotism. This human condition results in home bias, performance chasing(buying high and selling low), biases based on personal and political belief systems that bleed over into investing, which is not allowed to be discussed here. Crystal ball predictions about future international returns are "bad but U.S. returns will always be better", patriotism type of arguments against diversification benefits.

An agnostic approach to investing is a good start.
VTWAX and chill.

Ferdinand2014
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Ferdinand2014 » Wed Oct 09, 2019 7:28 am

stocknoob4111 wrote:
Wed Oct 09, 2019 2:00 am
I have it at 20% of Portfolio.. Most target date funds hold significantly higher.. FFFFX Fidelity 2040 for instance has it at 35% of Portfolio.
You probably know FBIFX(Fido Freedom Index 2040) is the index version at 0.12 ER.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Ferdinand2014 » Wed Oct 09, 2019 7:40 am

TNOA wrote:
Tue Oct 08, 2019 11:48 pm
Hello dear Boglehead, I have been reading various versions of how much one should hold international equities (in my case, this would equate to VXUS). I understand there is this 20% concept which seems like the sweet spot in the debate of one side versus the other. Jack Bogle and his followers say "- No international needed however if one needs to hold it then one shouldn't exceed 20%). The other side states one should hold to global market cap proportions but definitely no less than 20%. That said, various versions state sometime that percentage (20% in this case) relates to 20% of the equities portion of the portfolio, and on other posts state other times that this percentage (i.e., 20% in this case again) actually applies to the overall portfolio (stocks, bonds, ...). Which is what, can anyone elaborate for me please? I couldn't find a consistent explanation on various posts I read about the topic. Thank you.
'Market cap' according to MSCI ACWI index is 55.5% U.S. if developed and emerging markets are included. So 'market cap' equity portfolio in a 60/40 AA would be 27% international equities, 33% U.S. and 40% fixed income for example. Jack Bogles 20% international equities comment would be 12% international equities, 48% U.S. equities and 40% fixed income.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

g2morrow
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by g2morrow » Wed Oct 09, 2019 7:46 am

IMHO it was 20% of your equities - personally i have 10% of equities international

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by vineviz » Wed Oct 09, 2019 8:05 am

TNOA wrote:
Tue Oct 08, 2019 11:48 pm
That said, various versions state sometime that percentage (20% in this case) relates to 20% of the equities portion of the portfolio, and on other posts state other times that this percentage (i.e., 20% in this case again) actually applies to the overall portfolio (stocks, bonds, ...). Which is what, can anyone elaborate for me please? I couldn't find a consistent explanation on various posts I read about the topic. Thank you.
The international allocation is always specified as a percent of equities, not as a percent of the total portfolio.

As for a "sweet spot" allocation, it's probably closer to 40%, and any expert on the topic will certainly recommend an international allocation of 30% to 40% for the typical investor. The 20% number is one that probably nobody thinks is right: it's proposed as an attempt to "split the difference" between evidence-based recommendations of 40% and the preferred allocation of 0% among the most xenophobic investors.

Imagine you have a loved one (friend of relative) with a persistent cough, chest pains, and shortness of breath so you encourage you to visit the doctor. At then end of the visit, you ask them how it went. "Well", they say, "I told the doctor that I've been smoking 2 packs of cigarettes a day and they suggested that I should totally quit smoking. I like smoking though, so I figure the sweet spot is to split the difference and smoke just 1 pack a day."
"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: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by asif408 » Wed Oct 09, 2019 8:21 am

vineviz wrote:
Wed Oct 09, 2019 8:05 am
Imagine you have a loved one (friend of relative) with a persistent cough, chest pains, and shortness of breath so you encourage you to visit the doctor. At then end of the visit, you ask them how it went. "Well", they say, "I told the doctor that I've been smoking 2 packs of cigarettes a day and they suggested that I should totally quit smoking. I like smoking though, so I figure the sweet spot is to split the difference and smoke just 1 pack a day."
Be careful, your analogy may be misused by the US xenophobic investors here to compare international investing to smoking.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by petulant » Wed Oct 09, 2019 8:23 am

vineviz wrote:
Wed Oct 09, 2019 8:05 am
TNOA wrote:
Tue Oct 08, 2019 11:48 pm
That said, various versions state sometime that percentage (20% in this case) relates to 20% of the equities portion of the portfolio, and on other posts state other times that this percentage (i.e., 20% in this case again) actually applies to the overall portfolio (stocks, bonds, ...). Which is what, can anyone elaborate for me please? I couldn't find a consistent explanation on various posts I read about the topic. Thank you.
The international allocation is always specified as a percent of equities, not as a percent of the total portfolio.

As for a "sweet spot" allocation, it's probably closer to 40%, and any expert on the topic will certainly recommend an international allocation of 30% to 40% for the typical investor. The 20% number is one that probably nobody thinks is right: it's proposed as an attempt to "split the difference" between evidence-based recommendations of 40% and the preferred allocation of 0% among the most xenophobic investors.

Imagine you have a loved one (friend of relative) with a persistent cough, chest pains, and shortness of breath so you encourage you to visit the doctor. At then end of the visit, you ask them how it went. "Well", they say, "I told the doctor that I've been smoking 2 packs of cigarettes a day and they suggested that I should totally quit smoking. I like smoking though, so I figure the sweet spot is to split the difference and smoke just 1 pack a day."
This is a very incorrect analogy, and you know it. Adding international equities diversifies the equity portfolio, and diversification is not an all-or-nothing proposition. And actually, according to Vanguard, increasing the international allocation has diminishing returns before you ever get to global market cap.

Here's the most up-to-date paper from Vanguard:

https://www.vanguard.com/pdf/ISGGEB.pdf

Figure 3 on page 5, for example, shows that while the greatest expected reduction in volatility for U.S. investors occurs around a 40% allocation to international, most of that reduction occurs with just a 20% allocation. Interestingly, even though for non-U.S. investors their domestic stock market is a much smaller part of the global market cap, Vanguard still shows the greatest expected reduction to volatility at 40%, implying a domestic allocation of 60%, much higher than global market weight!

Vanguard's approach in Figure 3 is a bit questionable since it's a forward-looking analysis based on assumptions about future returns and volatility. Figure A-1 on page 11 shows the historical best allocation for reducing volatility. (Note the historical data used covers different time periods for U.S. and non-U.S. investors.) For U.S. investors, again, the peak volatility reduction was around 40%, but most of the volatility reduction was captured by the first 20%.

That means it's entirely appropriate to allocate 20% of equities to international. You capture most of the volatility reduction. It's by no means an all-or-nothing analysis.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Ferdinand2014 » Wed Oct 09, 2019 8:26 am

asif408 wrote:
Wed Oct 09, 2019 8:21 am
vineviz wrote:
Wed Oct 09, 2019 8:05 am
Imagine you have a loved one (friend of relative) with a persistent cough, chest pains, and shortness of breath so you encourage you to visit the doctor. At then end of the visit, you ask them how it went. "Well", they say, "I told the doctor that I've been smoking 2 packs of cigarettes a day and they suggested that I should totally quit smoking. I like smoking though, so I figure the sweet spot is to split the difference and smoke just 1 pack a day."
Be careful, your analogy may be misused by the US xenophobic investors here to compare international investing to smoking.
Ahhh yes and if you quit, your risk of developing lung cancer significantly decreases after 5 years, albeit not to the same rate as a never smoker. The risk of lung cancer is also related to the 'pack-year' history. :sharebeer
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by 1789 » Wed Oct 09, 2019 8:32 am

Mr Bogle doesnt recommend any international. I am not saying he is right or wrong but he was not suggesting it. What he said was “ We Americans gain/spend/save money in us dollars and i dont see a need to take a currency risk for us”, and past decades proved me right. I can post here exact lines from his “Little book on Investing”
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by vineviz » Wed Oct 09, 2019 8:36 am

petulant wrote:
Wed Oct 09, 2019 8:23 am
This is a very incorrect analogy, and you know it. Adding international equities diversifies the equity portfolio, and diversification is not an all-or-nothing proposition.
Smoking is also not an "all-or-nothing proposition": cutting back from two packs/day to one pack/day will inarguably affect the expected health outcome, even if medical professionals would (rightly) remind you that both are dangerous.

Likewise, a 20% international allocation certainly offers better diversification than a 0% allocation even if finance professionals would (rightly) remind you that both allocations are sub-optimal.
"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: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Taylor Larimore » Wed Oct 09, 2019 9:26 am

Bogleheads:

You can read my thoughts about international investing here:

How Much International stock? A suggestion.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "I'm just a great believer in a U.S. portfolio because we're the most entrepreneurial nation, we've got the soundest institutions, financial and otherwise."
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by petulant » Wed Oct 09, 2019 9:31 am

vineviz wrote:
Wed Oct 09, 2019 8:36 am
petulant wrote:
Wed Oct 09, 2019 8:23 am
This is a very incorrect analogy, and you know it. Adding international equities diversifies the equity portfolio, and diversification is not an all-or-nothing proposition.
Smoking is also not an "all-or-nothing proposition": cutting back from two packs/day to one pack/day will inarguably affect the expected health outcome, even if medical professionals would (rightly) remind you that both are dangerous.

Likewise, a 20% international allocation certainly offers better diversification than a 0% allocation even if finance professionals would (rightly) remind you that both allocations are sub-optimal.
Actually, I would tend to think even smoking one pack than two probably still carries most of the risk, meaning the only optimal choice is not smoking. In this case, most of the benefit can be obtained with a smaller allocation, meaning a smaller allocation is perfectly reasonable. That means an investor concerned about foreign dividend withholding (often not modeled) or uncompensated currency risk could still get most of the benefit with a smaller allocation. The analogy is simply not apt.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by MotoTrojan » Wed Oct 09, 2019 9:35 am

I’m 25% equity.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by UpperNwGuy » Wed Oct 09, 2019 9:39 am

MotoTrojan wrote:
Wed Oct 09, 2019 9:35 am
I’m 25% equity.
I am 20% of stocks. That works out to 12% of my overall 60/40 portfolio. I find the international to be a drag on my portfolio, so I don't want to increase it.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Ferdinand2014 » Wed Oct 09, 2019 9:42 am

vineviz wrote:
Wed Oct 09, 2019 8:36 am
petulant wrote:
Wed Oct 09, 2019 8:23 am
This is a very incorrect analogy, and you know it. Adding international equities diversifies the equity portfolio, and diversification is not an all-or-nothing proposition.
Smoking is also not an "all-or-nothing proposition": cutting back from two packs/day to one pack/day will inarguably affect the expected health outcome, even if medical professionals would (rightly) remind you that both are dangerous.

Likewise, a 20% international allocation certainly offers better diversification than a 0% allocation even if finance professionals would (rightly) remind you that both allocations are sub-optimal.
For what it is worth, I have been 0% international for many, many years (S&P 500), but have recently after much debate and ironically - reading Charlie Munger and Warren Buffett's views about ones ability to destroy ones own negative ideas as an important construct for learning - have decided to direct all of my future contributions in an equity ratio equal to the MSCI ACWI.

However, I still believe that a home bias (as a U.S. investor) is still appropriate given the size, sector diversity and number of stocks vs virtually every other country one could have a home bias with. It is also my opinion that there are idiosyncratic risks that can never be accounted for with an efficient market theory especially with emerging market economies. A way more important consideration is ones savings rate and starting early, often a concept that gets drowned out by the frequent allocation debates.
Last edited by Ferdinand2014 on Sat Oct 12, 2019 2:24 pm, edited 1 time in total.
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by retiredjg » Wed Oct 09, 2019 9:55 am

TNOA wrote:
Tue Oct 08, 2019 11:48 pm
Which is what, can anyone elaborate for me please?
It is supposed to be 20% of your stock allocation. Nothing else makes sense.

If it were 20% of portfolio then that would cause wide variations in allocations and risk - 20% of a portfolio that is 100% stocks would be 1 risk level and 20% of a portfolio that contains 40% stock would be something entirely different (one fifth vs one half of your stocks in international). That is not how people talk about allocations to any asset class, not just international.

It is absolutely true that some people are saying it means "20% of portfolio" but that is due to a misunderstanding and misunderstandings like this get passed on as truth.

This is why, when I do a portfolio recommendation, I generally write it out...."this portfolio is 80% stock and 20% bonds with 20% of the stocks (16% of the portfolio) in international. That covers both bases and is not easy to misunderstand.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by MotoTrojan » Wed Oct 09, 2019 10:51 am

UpperNwGuy wrote:
Wed Oct 09, 2019 9:39 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:35 am
I’m 25% equity.
I am 20% of stocks. That works out to 12% of my overall 60/40 portfolio. I find the international to be a drag on my portfolio, so I don't want to increase it.
If International has another (not a 1st) decade of strong outperformance compared to the US, will you change your plan?

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Carlos Danger » Wed Oct 09, 2019 11:44 am

There's no rationale for a total world market-cap allocation to international other than wanting to match the total world market.

Aside from the positives of holding international equities, mainly the (limited) diversification benefit, there are negatives like currency risk, rule of law risk, etc.

Info has been posted on this board before, and I'm sure someone saved it and can repost it here, showing that the sweet spot for international equities for US investors is indeed closer to 20% than the total world market cap of around 44%.

About 20% of our equity allocation is international. I believe, based on concrete reasons, that 100% U.S. will outperform over the next couple of decades, but (1) I value diversification and (2) I could end up being dead wrong about U.S. outperformance.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by asif408 » Wed Oct 09, 2019 12:16 pm

Carlos Danger wrote:
Wed Oct 09, 2019 11:44 am
Info has been posted on this board before, and I'm sure someone saved it and can repost it here, showing that the sweet spot for international equities for US investors is indeed closer to 20% than the total world market cap of around 44%.
Depends on the time frame used. The one on this site stopped in 2008: https://www.bogleheads.org/w/images/1/1 ... tional.png. If you stopped your historical analysis then anywhere from 10-80% international would have outperformed an all-US portfolio, with 40-50% generating the highest returns: Basically as long as you owned more than 0% and less than 80% in international stocks you saw a benefit, albeit a small one.

Now the efficient frontier likely says international provides almost no benefit because of the last decade of US outperformance. So you should take any "sweet spot" recommendations with a large grain of salt. The sweet spot is a moving target, and is not likely to be the same over time, particularly over a decade or two.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by petulant » Wed Oct 09, 2019 12:59 pm

asif408 wrote:
Wed Oct 09, 2019 12:16 pm
Carlos Danger wrote:
Wed Oct 09, 2019 11:44 am
Info has been posted on this board before, and I'm sure someone saved it and can repost it here, showing that the sweet spot for international equities for US investors is indeed closer to 20% than the total world market cap of around 44%.
Depends on the time frame used. The one on this site stopped in 2008: https://www.bogleheads.org/w/images/1/1 ... tional.png. If you stopped your historical analysis then anywhere from 10-80% international would have outperformed an all-US portfolio, with 40-50% generating the highest returns: Basically as long as you owned more than 0% and less than 80% in international stocks you saw a benefit, albeit a small one.

Now the efficient frontier likely says international provides almost no benefit because of the last decade of US outperformance. So you should take any "sweet spot" recommendations with a large grain of salt. The sweet spot is a moving target, and is not likely to be the same over time, particularly over a decade or two.
Which is why Ferdinand2014 made such a great point. A percent here or there on whether U.S. or International outperforms is something you can't predict perfectly, so picking a position and then focusing on your savings rate and personal happiness is far more important.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by aristotle'sfootprint » Wed Oct 09, 2019 1:46 pm

vineviz wrote:
Wed Oct 09, 2019 8:05 am

As for a "sweet spot" allocation, it's probably closer to 40%, and any expert on the topic will certainly recommend an international allocation of 30% to 40% for the typical investor. The 20% number is one that probably nobody thinks is right: it's proposed as an attempt to "split the difference" between evidence-based recommendations of 40% and the preferred allocation of 0% among the most xenophobic investors.
I've got an international equity allocation of 40% precisely because that's what the experts at Vanguard, Fidelity, etc. recommend, and I'm in no position to second guess them. But I wonder: Is there any evidence that suggests a smaller allocation to international is optimal for the typical investor? I get that some folks are more comfortable with 20% or none at all, and that makes sense, but I'm wondering whether there's any evidence that's contrary to what Vanguard, Fidelity, etc. recommend.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by petulant » Wed Oct 09, 2019 1:58 pm

aristotle'sfootprint wrote:
Wed Oct 09, 2019 1:46 pm
vineviz wrote:
Wed Oct 09, 2019 8:05 am

As for a "sweet spot" allocation, it's probably closer to 40%, and any expert on the topic will certainly recommend an international allocation of 30% to 40% for the typical investor. The 20% number is one that probably nobody thinks is right: it's proposed as an attempt to "split the difference" between evidence-based recommendations of 40% and the preferred allocation of 0% among the most xenophobic investors.
I've got an international equity allocation of 40% precisely because that's what the experts at Vanguard, Fidelity, etc. recommend, and I'm in no position to second guess them. But I wonder: Is there any evidence that suggests a smaller allocation to international is optimal for the typical investor? I get that some folks are more comfortable with 20% or none at all, and that makes sense, but I'm wondering whether there's any evidence that's contrary to what Vanguard, Fidelity, etc. recommend.
Vanguard itself recognizes legitimate reasons for home bias:

https://personal.vanguard.com/pdf/ISGGAA.pdf

In 2008, using similar analysis and at a time when international had just outperformed, Vanguard recommended 20% as a reasonable starting point since that amount provided most of the benefits of diversification while avoiding over-allocating during periods when international did not diversify well. The analysis is cogent and still applicable today, I think.

https://www.vanguard.com/pdf/flgiecr.pdf

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Trader Joe » Wed Oct 09, 2019 2:10 pm

rascott wrote:
Wed Oct 09, 2019 12:25 am
False comments above.

Bogle recommend 0% international...... but was ok with someone going up to 20%.

Watch

https://youtu.be/P54trh0Rre8
This is the correct answer. For myself, my international allocation of equities is also 0% - in full alignment with both John Bogle and Warren Buffett.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by asif408 » Wed Oct 09, 2019 2:22 pm

aristotle'sfootprint wrote:
Wed Oct 09, 2019 1:46 pm
I've got an international equity allocation of 40% precisely because that's what the experts at Vanguard, Fidelity, etc. recommend, and I'm in no position to second guess them. But I wonder: Is there any evidence that suggests a smaller allocation to international is optimal for the typical investor? I get that some folks are more comfortable with 20% or none at all, and that makes sense, but I'm wondering whether there's any evidence that's contrary to what Vanguard, Fidelity, etc. recommend.
If there is any competing evidence it would be that a higher allocation to international equities is optimal for a typical investor (closer to 50%). The primary reason for this is that it reduces the risk that you have most of your investments in one country (US) and that country has low stock returns for a long period of time. It doesn't guarantee an above average return. In fact, it ensures you won't have a significantly above average return, but it does ensure that you won't get well below average returns compared to the rest of the world, which should be a more important consideration for a typical investor.

For the most part the US has avoided 20-30 year periods of very low returns, but all you have to do is look at the historical returns of the rest of the countries around the world to see that it's happened to many other countries throughout the world and the US has been more of the exception than the rule. And don't forget that from 1970-1989 the US had some of the lowest stock market returns in the world of any country.

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by vineviz » Wed Oct 09, 2019 2:36 pm

asif408 wrote:
Wed Oct 09, 2019 12:16 pm
Now the efficient frontier likely says international provides almost no benefit because of the last decade of US outperformance.
Not if the frontier is competently constructed. Naively extrapolating the most recent 10 years into the future would be the kind of rookie mistake that is easily avoided.
"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: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by vineviz » Wed Oct 09, 2019 2:41 pm

aristotle'sfootprint wrote:
Wed Oct 09, 2019 1:46 pm
Is there any evidence that suggests a smaller allocation to international is optimal for the typical investor? I get that some folks are more comfortable with 20% or none at all, and that makes sense, but I'm wondering whether there's any evidence that's contrary to what Vanguard, Fidelity, etc. recommend.
Typical investor? No.

The only case I can imagine would an individual whose human capital is highly correlated with EAFE economic performance/demographics (maybe an American nuclear engineer who works for a European electric utility, for example) but who intends to retire in the US?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

3Fund4Life
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by 3Fund4Life » Wed Oct 09, 2019 2:53 pm

Taylor,

Excellent summary/post on international percentage from 2016. I like the comparison of international versus US equities since 1996 where you note:

“According to Morningstar, if you had invested $10,000 in each fund on April 29, 1996, you would now have $26,655 in your Total International Fund and $55,249 in your Total U.S. Stock Market fund -- over twice as much. So far, Mr. Bogle has been right.”

Thank you for the link.
Nobody knows nothing

asif408
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Location: Florida

Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by asif408 » Wed Oct 09, 2019 2:54 pm

vineviz wrote:
Wed Oct 09, 2019 2:36 pm
asif408 wrote:
Wed Oct 09, 2019 12:16 pm
Now the efficient frontier likely says international provides almost no benefit because of the last decade of US outperformance.
Not if the frontier is competently constructed. Naively extrapolating the most recent 10 years into the future would be the kind of rookie mistake that is easily avoided.
Might be a rookie mistake, but I'd be willing to bet that type of mistake is made more often than not. Even 20 or 30 year periods can look really good for one or the other depending on the starting date.

UpperNwGuy
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by UpperNwGuy » Wed Oct 09, 2019 3:30 pm

MotoTrojan wrote:
Wed Oct 09, 2019 10:51 am
UpperNwGuy wrote:
Wed Oct 09, 2019 9:39 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:35 am
I’m 25% equity.
I am 20% of stocks. That works out to 12% of my overall 60/40 portfolio. I find the international to be a drag on my portfolio, so I don't want to increase it.
If International has another (not a 1st) decade of strong outperformance compared to the US, will you change your plan?
Not a chance of that happening in the next ten years!

MotoTrojan
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by MotoTrojan » Wed Oct 09, 2019 4:15 pm

UpperNwGuy wrote:
Wed Oct 09, 2019 3:30 pm
MotoTrojan wrote:
Wed Oct 09, 2019 10:51 am
UpperNwGuy wrote:
Wed Oct 09, 2019 9:39 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:35 am
I’m 25% equity.
I am 20% of stocks. That works out to 12% of my overall 60/40 portfolio. I find the international to be a drag on my portfolio, so I don't want to increase it.
If International has another (not a 1st) decade of strong outperformance compared to the US, will you change your plan?
Not a chance of that happening in the next ten years!
Sarcasm?

lostdog
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by lostdog » Wed Oct 09, 2019 4:29 pm

MotoTrojan wrote:
Wed Oct 09, 2019 4:15 pm
UpperNwGuy wrote:
Wed Oct 09, 2019 3:30 pm
MotoTrojan wrote:
Wed Oct 09, 2019 10:51 am
UpperNwGuy wrote:
Wed Oct 09, 2019 9:39 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:35 am
I’m 25% equity.
I am 20% of stocks. That works out to 12% of my overall 60/40 portfolio. I find the international to be a drag on my portfolio, so I don't want to increase it.
If International has another (not a 1st) decade of strong outperformance compared to the US, will you change your plan?
Not a chance of that happening in the next ten years!
Sarcasm?
Most likely no. This is a great example of the crystal ball syndrome that this group suffers from. Home and recency bias is a powerful emotion.
Last edited by lostdog on Wed Oct 09, 2019 4:32 pm, edited 1 time in total.
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Socal77
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by Socal77 » Wed Oct 09, 2019 4:31 pm

Aside from my Vanguard Target 2035 fund which holds international at their discretion, my HSA and Taxable accounts are set to international 20% of the equity portion.

visualguy
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by visualguy » Wed Oct 09, 2019 4:48 pm

Trader Joe wrote:
Wed Oct 09, 2019 2:10 pm
rascott wrote:
Wed Oct 09, 2019 12:25 am
False comments above.

Bogle recommend 0% international...... but was ok with someone going up to 20%.

Watch

https://youtu.be/P54trh0Rre8
This is the correct answer. For myself, my international allocation of equities is also 0% - in full alignment with both John Bogle and Warren Buffett.
0% for me too - both of equities and the total portfolio :happy
The only person in my family (or even extended family) who has ex-US is my dad who has 15% (of equities), which is the currently recommended allocation by his private bank that is managing his portfolio. Not all pros agree with Vanguard, evidently.

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305pelusa
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by 305pelusa » Wed Oct 09, 2019 5:34 pm

visualguy wrote:
Wed Oct 09, 2019 4:48 pm
Trader Joe wrote:
Wed Oct 09, 2019 2:10 pm
rascott wrote:
Wed Oct 09, 2019 12:25 am
False comments above.

Bogle recommend 0% international...... but was ok with someone going up to 20%.

Watch

https://youtu.be/P54trh0Rre8
This is the correct answer. For myself, my international allocation of equities is also 0% - in full alignment with both John Bogle and Warren Buffett.
0% for me too - both of equities and the total portfolio :happy
The only person in my family (or even extended family) who has ex-US is my dad who has 15% (of equities), which is the currently recommended allocation by his private bank that is managing his portfolio. Not all pros agree with Vanguard, evidently.
A Merrill Edge adviser I met a year ago (with 30+ years of experience and high up) was explaining her portfolio recommendations in case I hired her for management. This Pro recommended no more than 10% Int equities. She also recommended no long term bonds and equity exposure with individual stocks (no index funds).

No thanks, I'll stick to Vanguard pros.

columbia
Posts: 1948
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by columbia » Wed Oct 09, 2019 5:50 pm

Swap out the stocks for index funds and she sounds like Mr. Bogle.

Of course, run screaming from any advisor pushing stock picking.

visualguy
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by visualguy » Wed Oct 09, 2019 6:02 pm

305pelusa wrote:
Wed Oct 09, 2019 5:34 pm
visualguy wrote:
Wed Oct 09, 2019 4:48 pm
Trader Joe wrote:
Wed Oct 09, 2019 2:10 pm
rascott wrote:
Wed Oct 09, 2019 12:25 am
False comments above.

Bogle recommend 0% international...... but was ok with someone going up to 20%.

Watch

https://youtu.be/P54trh0Rre8
This is the correct answer. For myself, my international allocation of equities is also 0% - in full alignment with both John Bogle and Warren Buffett.
0% for me too - both of equities and the total portfolio :happy
The only person in my family (or even extended family) who has ex-US is my dad who has 15% (of equities), which is the currently recommended allocation by his private bank that is managing his portfolio. Not all pros agree with Vanguard, evidently.
A Merrill Edge adviser I met a year ago (with 30+ years of experience and high up) was explaining her portfolio recommendations in case I hired her for management. This Pro recommended no more than 10% Int equities. She also recommended no long term bonds and equity exposure with individual stocks (no index funds).

No thanks, I'll stick to Vanguard pros.
It's not coming from an advisor. The allocations and tactical adjustments are coming from their research group which has some top-notch folks. Vanguard's optimistic view on ex-US is not universal:

https://ustrustaem.fs.ml.com/content/da ... ly2019.pdf

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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by z3r0c00l » Wed Oct 09, 2019 6:05 pm

UpperNwGuy wrote:
Wed Oct 09, 2019 9:39 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:35 am
I’m 25% equity.
I am 20% of stocks. That works out to 12% of my overall 60/40 portfolio. I find the international to be a drag on my portfolio, so I don't want to increase it.
That's how you know it is working. If everything performs the same, or if everything is up at once, that is when you don't need any international. Under-performance is confirmation that the two don't move in lockstep and is an argument in favor of market cap for international.

visualguy
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by visualguy » Wed Oct 09, 2019 6:08 pm

z3r0c00l wrote:
Wed Oct 09, 2019 6:05 pm
UpperNwGuy wrote:
Wed Oct 09, 2019 9:39 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:35 am
I’m 25% equity.
I am 20% of stocks. That works out to 12% of my overall 60/40 portfolio. I find the international to be a drag on my portfolio, so I don't want to increase it.
That's how you know it is working. If everything performs the same, or if everything is up at once, that is when you don't need any international. Under-performance is confirmation that the two don't move in lockstep and is an argument in favor of market cap for international.
Not if it under-performs a lot more than it out-performs.

columbia
Posts: 1948
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by columbia » Wed Oct 09, 2019 6:09 pm

visualguy wrote:
Wed Oct 09, 2019 6:02 pm
305pelusa wrote:
Wed Oct 09, 2019 5:34 pm
visualguy wrote:
Wed Oct 09, 2019 4:48 pm
Trader Joe wrote:
Wed Oct 09, 2019 2:10 pm
rascott wrote:
Wed Oct 09, 2019 12:25 am
False comments above.

Bogle recommend 0% international...... but was ok with someone going up to 20%.

Watch

https://youtu.be/P54trh0Rre8
This is the correct answer. For myself, my international allocation of equities is also 0% - in full alignment with both John Bogle and Warren Buffett.
0% for me too - both of equities and the total portfolio :happy
The only person in my family (or even extended family) who has ex-US is my dad who has 15% (of equities), which is the currently recommended allocation by his private bank that is managing his portfolio. Not all pros agree with Vanguard, evidently.
A Merrill Edge adviser I met a year ago (with 30+ years of experience and high up) was explaining her portfolio recommendations in case I hired her for management. This Pro recommended no more than 10% Int equities. She also recommended no long term bonds and equity exposure with individual stocks (no index funds).

No thanks, I'll stick to Vanguard pros.
It's not coming from an advisor. The allocations and tactical adjustments are coming from their research group which has some top-notch folks. Vanguard's optimistic view on ex-US is not universal:

https://ustrustaem.fs.ml.com/content/da ... ly2019.pdf
As far as outlooks from any financial services company, it seems best to never take advice from someone trying to sell you something.

visualguy
Posts: 1600
Joined: Thu Jan 30, 2014 1:32 am

Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by visualguy » Wed Oct 09, 2019 6:22 pm

columbia wrote:
Wed Oct 09, 2019 6:09 pm
visualguy wrote:
Wed Oct 09, 2019 6:02 pm
305pelusa wrote:
Wed Oct 09, 2019 5:34 pm
visualguy wrote:
Wed Oct 09, 2019 4:48 pm
Trader Joe wrote:
Wed Oct 09, 2019 2:10 pm


This is the correct answer. For myself, my international allocation of equities is also 0% - in full alignment with both John Bogle and Warren Buffett.
0% for me too - both of equities and the total portfolio :happy
The only person in my family (or even extended family) who has ex-US is my dad who has 15% (of equities), which is the currently recommended allocation by his private bank that is managing his portfolio. Not all pros agree with Vanguard, evidently.
A Merrill Edge adviser I met a year ago (with 30+ years of experience and high up) was explaining her portfolio recommendations in case I hired her for management. This Pro recommended no more than 10% Int equities. She also recommended no long term bonds and equity exposure with individual stocks (no index funds).

No thanks, I'll stick to Vanguard pros.
It's not coming from an advisor. The allocations and tactical adjustments are coming from their research group which has some top-notch folks. Vanguard's optimistic view on ex-US is not universal:

https://ustrustaem.fs.ml.com/content/da ... ly2019.pdf
As far as outlooks from any financial services company, it seems best to never take advice from someone trying to sell you something.
I generally agree, although I am curious what their incentive might be to push a higher allocation to ex-US (Vanguard) or vice versa (BofA) if they don't really believe that it's the right thing for the clients.

MrBobcat
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by MrBobcat » Wed Oct 09, 2019 6:27 pm

If we all had hindsight regarding the market we'd know what to have our equities in. But we don't. So we do the best we can. Personally I have 30% of my equities in IXUS/VXUS. My AA is 70/30 so in my 3 fund portfolio I have 21% overall.

It's hard to fight both home bias and recent past results, but IMO interationals are not a terrible value and hopefully it will balance things out in the long term. I can live with it even if they underperform US equities. You need to find something you can live with so as to fight the urge to continually tweak your portfolio and stay the course.

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hisdudeness
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by hisdudeness » Wed Oct 09, 2019 6:45 pm

JoMoney wrote:
Wed Oct 09, 2019 12:22 am
Mr. Bogle's recommendation was no more than 20% of equities
John Bogle wrote:Image
There it is. Jack Bogle recommended zero to twenty percent of equities in international.
I will never understand the thinking of the New Age Progressive Market Weight Zealots.
Maybe ex US will outperform the US for the next ten years, but doubt it. I have been real glad not to have suffered (much) international drag for the last decade, and currently own zero.
Recency Bias? Maybe. Xenophobia? Nope.

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vineviz
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Re: INTERNATIONALS 20% of Equities or 20% of Portfolio?

Post by vineviz » Wed Oct 09, 2019 6:46 pm

visualguy wrote:
Wed Oct 09, 2019 6:02 pm

It's not coming from an advisor. The allocations and tactical adjustments are coming from their research group which has some top-notch folks.
Merrill's research team is good: too good to recommend 10% international. The Merrill Edge model portfolios are 30-40% international.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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