Why should I buy anything outside of the US market?

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maxito
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Why should I buy anything outside of the US market?

Post by maxito » Fri Aug 16, 2019 12:37 pm

Hey everyone,

I've been browsing the forums and it seems very common for non-US investors to hold international portfolios such as VWRL/VWRD/IWDA.

Given that these alternatives are more expensive than let's say VUSD/VUSA/CSPX or anything else tracking S&P 500, and the fact that Bogle himself considered US companies already have sufficient international exposure with a large part of their revenue coming from worldwide businesses, why are you buying these "riskier" and more expensive ETFs (as high as 0.25/0.30 ER) instead of going for the lowest cost possible (0.07 CSPX/VUSA/VUSD) in an index that tracks the S&P 500?

If this is done under the assumption that the rest of the developed world or emerging markets will eventually outpace the US in terms of growth and value, then it looks a bit market timing-ish to me.

I'm a non-US investor myself, so I'm very interested in your feedback.

Thanks in advance!

delamer
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Re: Why should I buy anything outside of the US market?

Post by delamer » Fri Aug 16, 2019 12:42 pm

U.S. GDP is just 25% of the world’s.

I don’t assume that non-US companies will outpace US companies at some point in the future.

But I don’t want to miss out on such a huge chunk of economic output in my investing.

Schlabba
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Re: Why should I buy anything outside of the US market?

Post by Schlabba » Fri Aug 16, 2019 12:55 pm

maxito wrote:
Fri Aug 16, 2019 12:37 pm
Hey everyone,

I've been browsing the forums and it seems very common for non-US investors to hold international portfolios such as VWRL/VWRD/IWDA.

Given that these alternatives are more expensive than let's say VUSD/VUSA/CSPX or anything else tracking S&P 500, and the fact that Bogle himself considered US companies already have sufficient international exposure with a large part of their revenue coming from worldwide businesses, why are you buying these "riskier" and more expensive ETFs (as high as 0.25/0.30 ER) instead of going for the lowest cost possible (0.07 CSPX/VUSA/VUSD) in an index that tracks the S&P 500?

If this is done under the assumption that the rest of the developed world or emerging markets will eventually outpace the US in terms of growth and value, then it looks a bit market timing-ish to me.

I'm a non-US investor myself, so I'm very interested in your feedback.

Thanks in advance!
Increased diversification reduces volatility and risk without lowering your returns.

Do you really want to take single-country risk? Maybe at the end of this 21st century China or India will have had the best stock market returns and the US will have been lagging behind for some reason. There is no way to know.

I think the 0.12% TER on the spdr msci world is worth the reduced risk compared to the 0.07% for a single country.
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

ignition
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Re: Why should I buy anything outside of the US market?

Post by ignition » Fri Aug 16, 2019 12:57 pm

maxito wrote:
Fri Aug 16, 2019 12:37 pm
Hey everyone,

I've been browsing the forums and it seems very common for non-US investors to hold international portfolios such as VWRL/VWRD/IWDA.

Given that these alternatives are more expensive than let's say VUSD/VUSA/CSPX or anything else tracking S&P 500, and the fact that Bogle himself considered US companies already have sufficient international exposure with a large part of their revenue coming from worldwide businesses, why are you buying these "riskier" and more expensive ETFs (as high as 0.25/0.30 ER) instead of going for the lowest cost possible (0.07 CSPX/VUSA/VUSD) in an index that tracks the S&P 500?
Why are they riskier? You now also have a MSCI World tracker for 0.12%: SWRD. Still a little more expensive but pretty close.
maxito wrote:
Fri Aug 16, 2019 12:37 pm
If this is done under the assumption that the rest of the developed world or emerging markets will eventually outpace the US in terms of growth and value, then it looks a bit market timing-ish to me.
Not outpace but if you believe in (more or less) efficient markets you believe that all known information is priced into the stock market and that there is no reason that US stocks would have a higher expected return than non-US stock. In this case it makes sense to diversify your holdings outside of the US: extra diversification but the same expected return.

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galeno
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Re: Why should I buy anything outside of the US market?

Post by galeno » Fri Aug 16, 2019 1:01 pm

American investors (citizens and residents) benefit from lower costs (no hidden dividend taxes) by sticking with the SP500.

Non-American investors (USA-NRAs without tax treaty with USA) have HIGHER costs by holding only USA domicled equities. Our investment costs go down when we hold non-USA domiciled equities.

For our USA domiciled stocks we pay a 15% tax on dividend income. 7.5% for non-USA developed stocks. And 11.2% for EM stocks.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

Topic Author
maxito
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Re: Why should I buy anything outside of the US market?

Post by maxito » Fri Aug 16, 2019 1:05 pm

I understand that you want to diversify and not miss other markets.

But my question is then, why isn't the Boglehead recommendation even for US investors to buy and hold VT or VTI + VXUS? I understand what we agree with Jack Bogle's strategies, and he seems to be "ignoring" the rest of the world on purpose. These actions seem to go in the exact opposite direction.

MotoTrojan
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Re: Why should I buy anything outside of the US market?

Post by MotoTrojan » Fri Aug 16, 2019 1:06 pm

Amazon has no expense ratio and has outperformed the S&P500 by quite a bit, why not just hold that?

Topic Author
maxito
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Re: Why should I buy anything outside of the US market?

Post by maxito » Fri Aug 16, 2019 1:12 pm

MotoTrojan wrote:
Fri Aug 16, 2019 1:06 pm
Amazon has no expense ratio and has outperformed the S&P500 by quite a bit, why not just hold that?
I am not referring to picking stocks. I am asking about Bogle's philosophy in a forum called Bogleheads, so no need to be sarcastic.

Schlabba
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Re: Why should I buy anything outside of the US market?

Post by Schlabba » Fri Aug 16, 2019 1:15 pm

maxito wrote:
Fri Aug 16, 2019 1:05 pm
I understand that you want to diversify and not miss other markets.

But my question is then, why isn't the Boglehead recommendation even for US investors to buy and hold VT or VTI + VXUS? I understand what we agree with Jack Bogle's strategies, and he seems to be "ignoring" the rest of the world on purpose. These actions seem to go in the exact opposite direction.
Don’t get me wrong. You will probably be just fine if you only hold the s&p500. If you are from the US it makes more sense than for us because its all in your own currency.
Warren buffet also often just recommends the s&p500. But think of their target audience, if you are speaking to a potentially large group of people, would you give your advice in the simplest possible way?

When I dumbed down the boglehead-way to my friends who are interested I simply advised a MSCI World and be done with it. I won’t even try to explain currency hedged global bonds with an expected return of less than inflation.

Edit: In other words I think Bogle would agree with the boglehead way. Vanguard certainly does.

Edit2: I just rewatched a short clip of an interview where he says you don’t need international, but if you do want it you can take up to 20%. He also said feel free to disagree with him on this one :sharebeer . https://youtu.be/P54trh0Rre8
Last edited by Schlabba on Fri Aug 16, 2019 1:25 pm, edited 2 times in total.
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

MotoTrojan
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Re: Why should I buy anything outside of the US market?

Post by MotoTrojan » Fri Aug 16, 2019 1:15 pm

maxito wrote:
Fri Aug 16, 2019 1:12 pm
MotoTrojan wrote:
Fri Aug 16, 2019 1:06 pm
Amazon has no expense ratio and has outperformed the S&P500 by quite a bit, why not just hold that?
I am not referring to picking stocks. I am asking about Bogle's philosophy in a forum called Bogleheads, so no need to be sarcastic.
Apologies I was not being sarcastic, simply trying to make a point. You are picking stocks, just a larger basic (the US).

Lou354
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Re: Why should I buy anything outside of the US market?

Post by Lou354 » Fri Aug 16, 2019 1:35 pm

maxito wrote:
Fri Aug 16, 2019 1:05 pm
I understand that you want to diversify and not miss other markets.

But my question is then, why isn't the Boglehead recommendation even for US investors to buy and hold VT or VTI + VXUS? I understand what we agree with Jack Bogle's strategies, and he seems to be "ignoring" the rest of the world on purpose. These actions seem to go in the exact opposite direction.
You don't have to follow every one of Jack Bogle's views slavishly to be a Boglehead. Most of us in the US do invest in ex-US equities, for example by owning a fund like VXUS. And most who own ex-US equities underweight them to some degree. This is one of the most frequently debated topics on the forum, with no resolution in sight. Here's one thread on the topic.
viewtopic.php?t=196956

ignition
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Re: Why should I buy anything outside of the US market?

Post by ignition » Fri Aug 16, 2019 1:38 pm

maxito wrote:
Fri Aug 16, 2019 1:05 pm
I understand that you want to diversify and not miss other markets.

But my question is then, why isn't the Boglehead recommendation even for US investors to buy and hold VT or VTI + VXUS? I understand what we agree with Jack Bogle's strategies, and he seems to be "ignoring" the rest of the world on purpose. These actions seem to go in the exact opposite direction.
There are a lot of Bogleheads who swear by a US only portfolio. Others prefer some more diversification and include international markets. Being a Boglehead doesn't mean following Jack Bogle's advice dogmatically. It is investing advice inspired by Jack Bogle. Still important to think for yourself and invest in a way that makes sense to you.

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maxito
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Re: Why should I buy anything outside of the US market?

Post by maxito » Fri Aug 16, 2019 2:34 pm

Thanks for all the feedback guys! Highly appreciated.

thibaulthib
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Re: Why should I buy anything outside of the US market?

Post by thibaulthib » Fri Aug 16, 2019 9:50 pm

I hold IWDA+EIMI+WSML but I also hold VUSD for now because indeed it performs better than IWDA.

So right now instead of having 80/10/10 with IWDA/EIMI/WSML, I own 40% IWDA and 40% VUSD.

means I really overweight US, so from now onwards I will only add into IWDA, and see how VUSD goes.

Not sure it makes much sense but that is what I feel happy with.

heyyou
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Re: Why should I buy anything outside of the US market?

Post by heyyou » Fri Aug 16, 2019 10:20 pm

Japanese investors who only owned Japan stocks with significant foreign sales, did not do well in their country's stock crash.

A domestic fund that only invested in our stocks which had significant foreign revenues did not do any better than other domestic stocks, since both categories are still priced on our domestic stock exchanges.

Mr. Bogle came of age in a period when foreign stocks were expensive to acquire and their accounting standards were slack in some countries. That is no longer the case for large foreign stocks.

randomguy
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Re: Why should I buy anything outside of the US market?

Post by randomguy » Fri Aug 16, 2019 10:28 pm

maxito wrote:
Fri Aug 16, 2019 12:37 pm


If this is done under the assumption that the rest of the developed world or emerging markets will eventually outpace the US in terms of growth and value, then it looks a bit market timing-ish to me.

I'm a non-US investor myself, so I'm very interested in your feedback.

Thanks in advance!
It is done under the assumption that the performance will be roughly the same as the US over a large number of rolling 10 or 20 year periods and that the noncorrelation will provide a benefit. The theory worked great in the 70s and 00s. Not so much in the 2010s:). Market timing doesn't play a role. Now if I choose to up my AA to 75% emerging markets cause the expected returns over the next decade are going to be higher, that is market timing.

If you invest US only, do you consider your self to be making sector bets? After isn't that what you are doing when you buy the US stocks? Your are overweighting tech and financials while underweighting materials and industrials? It should be pointed out that if you bet correctly you will outperform the average. If you bet wrong, you will underperform. Or you can choose not to bet.

Personally I am willing to bet some money on the US. I am not willing to go all in on it. Far too risky for a risk adverse person like me.

michoco911
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Re: Why should I buy anything outside of the US market?

Post by michoco911 » Sat Aug 17, 2019 2:04 am

In my case i was convinced with the US only approach before getting into this forum. However, i do understand better now the diversification aspect based on multiple feedback but still consider the US as a major contributor so i will most probably settle for something in between:

50% of my equities in CSPX (iShares S&P500 ETF, Accumulating) with ER = 0.07%
50% of my equities in VWRA (Vanguard All World FTSE, Accumulating) with ER = 0.25%

This will provide my equities 77% US exposure and 23% non-US exposure with an average ER = 0.16% while avoiding dividend tax.
30% VWRD 30% VUSD 40% AGGG until further notice

thibaulthib
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Re: Why should I buy anything outside of the US market?

Post by thibaulthib » Sat Aug 17, 2019 2:46 am

michoco911 wrote:
Sat Aug 17, 2019 2:04 am
In my case i was convinced with the US only approach before getting into this forum. However, i do understand better now the diversification aspect based on multiple feedback but still consider the US as a major contributor so i will most probably settle for something in between:

50% of my equities in CSPX (iShares S&P500 ETF, Accumulating) with ER = 0.07%
50% of my equities in VWRA (Vanguard All World FTSE, Accumulating) with ER = 0.25%

This will provide my equities 77% US exposure and 23% non-US exposure with an average ER = 0.16% while avoiding dividend tax.
That's exactly what I did, in order to have 75-80% on US exposure as often advised by books recommendation on this forum.

Call_Me_Op
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Re: Why should I buy anything outside of the US market?

Post by Call_Me_Op » Sat Aug 17, 2019 9:28 am

Look at the 30,000 foot view. There are some 47 or so countries in which you can invest. Does it really sound prudent to invest all of your risk assets in just one of these? There is a concept called diversification that needs to be considered.

I think it is incorrect to begin the argument with why should I invest across all available baskets. The starting question should be why not. If you say that there are greater risks in other countries, you need to explain to me why I would not be rewarded for assuming those risks. After all, aren't you assuming the greater risk of stocks (over bonds) because you expect to be rewarded for the additional risk?
Last edited by Call_Me_Op on Sat Aug 17, 2019 9:34 am, edited 2 times in total.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Valuethinker
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Re: Why should I buy anything outside of the US market?

Post by Valuethinker » Sat Aug 17, 2019 9:33 am

thibaulthib wrote:
Sat Aug 17, 2019 2:46 am
michoco911 wrote:
Sat Aug 17, 2019 2:04 am
In my case i was convinced with the US only approach before getting into this forum. However, i do understand better now the diversification aspect based on multiple feedback but still consider the US as a major contributor so i will most probably settle for something in between:

50% of my equities in CSPX (iShares S&P500 ETF, Accumulating) with ER = 0.07%
50% of my equities in VWRA (Vanguard All World FTSE, Accumulating) with ER = 0.25%

This will provide my equities 77% US exposure and 23% non-US exposure with an average ER = 0.16% while avoiding dividend tax.
That's exactly what I did, in order to have 75-80% on US exposure as often advised by books recommendation on this forum.
Those recommendations are generally written for an American audience. This part of the Forum is mostly frequented by non US-based investors (Americans abroad, or foreign investors generally).

The recommendations (barely) suit a Canadian. They certainly don't serve a British investor.

You want your equities to be globally diversified. The only exceptions are:

- for whatever reason you cannot access low cost global index ETFs

- there are particular tax advantages to high US weightings or conversely to investing in your home market (Australia?)

We should not try to bet against the market. 40-45% of world stock market capitalisation, ex Emerging Markets, is not USA. We should also be 40-45% non USA. Throw in EM and that's another 10-15% which is non USA.

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JoMoney
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Re: Why should I buy anything outside of the US market?

Post by JoMoney » Sat Aug 17, 2019 9:44 am

FWIW, I am a U.S. investor and I pretty much do what you're suggesting, but using U.S. based funds.
If I was outside the U.S. I would want more assets that are denominated/traded in my home currency and "owned" under the same legal protection/authority I'm under.
There are also potential tax considerations.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Ben Mathew
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Re: Why should I buy anything outside of the US market?

Post by Ben Mathew » Sat Aug 17, 2019 9:53 am

maxito wrote:
Fri Aug 16, 2019 12:37 pm
US companies already have sufficient international exposure with a large part of their revenue coming from worldwide businesses
A US company operating in China is not a substitute in terms of risk and return for a Chinese company operating in China. There are many factors that will affect one but not the other (in both directions).

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Re: Why should I buy anything outside of the US market?

Post by xxd091 » Sun Aug 18, 2019 4:32 am

Am a long term retired investor in the U.K.
Approached this conundrum some time ago -I decided on a world Index Fund for shares and bonds
This works out as approximately 50% US investments in the Equities and Bonds Portfolios
This suits me as a compromise and seems to have worked
The Bond Fund is Hedged to the Pound
Down to 3 Vanguard funds only-cheap,simple and easy to keep track
xxd091

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BeBH65
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Re: Why should I buy anything outside of the US market?

Post by BeBH65 » Sun Aug 18, 2019 7:25 am

maxito wrote:
Fri Aug 16, 2019 12:37 pm
Hey everyone,

I've been browsing the forums and it seems very common for non-US investors to hold international portfolios such as VWRL/VWRD/IWDA.

Given that these alternatives are more expensive than let's say VUSD/VUSA/CSPX or anything else tracking S&P 500, and the fact that Bogle himself considered US companies already have sufficient international exposure with a large part of their revenue coming from worldwide businesses, why are you buying these "riskier" and more expensive ETFs (as high as 0.25/0.30 ER) instead of going for the lowest cost possible (0.07 CSPX/VUSA/VUSD) in an index that tracks the S&P 500?

If this is done under the assumption that the rest of the developed world or emerging markets will eventually outpace the US in terms of growth and value, then it looks a bit market timing-ish to me.

I'm a non-US investor myself, so I'm very interested in your feedback.

Thanks in advance!
"Invest only in the US" is not one of the Bogleheads principles "Diversify" is.
The descriptiond start with:
Rather than trying to pick the specific securities or sectors of the market (US stocks, international stocks, and US bonds) that will outperform in the future, Bogleheads buy funds that are widely diversified, or even approximate the whole market.[10] This guarantees they will receive the average return of all investors. Being average sounds bad, but it is actually a great thing.
More then 40% of the money invested in the equity market is invested outside of the US. I see no reason to do differently. I see no reason why all these investors would be wrong.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

bck63
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Re: Why should I buy anything outside of the US market?

Post by bck63 » Sun Dec 01, 2019 12:46 pm

Schlabba wrote:
Fri Aug 16, 2019 12:55 pm
Do you really want to take single-country risk? Maybe at the end of this 21st century China or India will have had the best stock market returns and the US will have been lagging behind for some reason. There is no way to know.
The overwhelming number of people on this forum will be dead by the end of the century. I really don't want to wait that long.

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Re: Why should I buy anything outside of the US market?

Post by bgreat » Sun Dec 01, 2019 1:06 pm

Schlabba wrote:
Fri Aug 16, 2019 12:55 pm
Increased diversification reduces volatility and risk without lowering your returns.

Do you really want to take single-country risk? Maybe at the end of this 21st century China or India will have had the best stock market returns and the US will have been lagging behind for some reason. There is no way to know.

I think the 0.12% TER on the spdr msci world is worth the reduced risk compared to the 0.07% for a single country.
1 is probably the strongest "rational" argument that would apply even to the most ardent american exceptionalist.

2 is probably the strongest "rational" argument that should apply to everyone else.

For sake of illustration (but not speculation): there are some presidential candidates in the USA that are proposing interesting tax policies. I cannot say whether they are likely to get voted in, never mind whether or not they would realistically be able to implement such policies in any near-term elections. Rather, that these candidates exist and speak what they do is is a good illustration that such policies are publicly acceptable for discussion, and even have strong support in major segments of society in many countries. Such a policy change in e.g. the Netherlands is unlikely to rock the worldwide market - it will rock the Dutch market, but mostly be ignored by the rest of us. Such a change in e.g. the USA is also highly likely to rock the US market in similar fashion. It may never happen, but it could happen. The question is: if it happens, do you want those storms to affect all your holdings, or e.g. half your holdings? The choice is yours. You can take the increased risk to save a few millipercent in fees, the data isn't there to suggest that performance will be better in the long run if you only invest in the USA, but the increased risk certainly is there.

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BeBH65
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Re: Why should I buy anything outside of the US market?

Post by BeBH65 » Sun Dec 01, 2019 1:59 pm

The wiki page on Stock_asset_allocation_for_non-US_investors has references to studies related to the "global" allocation for non-US investors.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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tre3sori
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Re: Why should I buy anything outside of the US market?

Post by tre3sori » Sun Dec 01, 2019 2:05 pm

There is no law stating that US stocks will outperform other stocks over any given period.
Outperformance of European stocks looked kind of the same like recent outperformance of US stocks in the period of 2000 to 2007.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Who knows how it will look like in 10 years? So better be diversified beyond single country markets.
That said, I too believe that the US market is the most efficient capital market and deserves a market cap weighted allocation of 50-60%
Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve. Talmud.

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asset_chaos
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Re: Why should I buy anything outside of the US market?

Post by asset_chaos » Mon Dec 02, 2019 1:54 am

maxito wrote:
Fri Aug 16, 2019 1:05 pm
But my question is then, why isn't the Boglehead recommendation even for US investors to buy and hold VT or VTI + VXUS? I understand what we agree with Jack Bogle's strategies, and he seems to be "ignoring" the rest of the world on purpose. These actions seem to go in the exact opposite direction.
When asked this question, Mr Bogle has said that his advice is aimed at the US investor. During Mr Bogle's creation of Vanguard and his time running Vanguard, the US investor was the sole focus because Vanguard didn't at that time offer investments outside the US. Mr Bogle has given his reasons for recommending that US only stocks and bonds are all that needed as a US investor has their bills in US dollars so their investments should be in US dollars too. The equivalent advice for a non-US investor would translate into advice to invest in only your domestic home country markets.

I think Bogle's advice to invest in a low-cost and well-diversified manner generalizes to any investor in the world; however, the advice to invest only in your domestic market does not generalize. The advice of domestic only turns out to be ok for a US investor because the US stock market is such a large fraction of global markets anyway. But the smaller your domestic market, the more you need to diversify into the global stock market to avoid sector and country idiosyncratic risk. If you're Jamaican, does it really feel like the lowest risk is total investment in Jamaica only stocks?

As to why a global stock index fund, like VT, is not the common recommendation for one's core stock investment found on the Bogleheads website, I'll suggest that most Bogleheads are US investors. They could be following Mr Bogle's advice uncritically or they could be exhibiting the very common familiarity bias. It's been well established that investors in all countries have a preference for their domestic stocks because almost all investors perceive their domestic companies as more familiar, and humans tend to equate familiarity with lower risk. While there are real potential tax and cost reasons to have some investment bias towards one's home country, the revealed investment bias observed in all countries is much larger than can be explained by rational considerations. If you search for them, there are many threads on this subject on the board.

Another reason that a non-US investor might look at the stock market and ask, why not all in the US?, is possibly recency bias. The US has outperformed non-US for the last ten years. Humans tend to give more weight to what has occurred more recently, even if that's irrational. Non-US has outperformed US before and will do so again. I want the lower risk diversification and smoother investment ride of having both.

As I choose to stick with Mr Bogle's universally true advice to invest in a low-cost and well-diversified manner, for what it's worth my core stock investment is the total world fund.
Regards, | | Guy

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