Why international?

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ChrisV
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Re: Why international?

Post by ChrisV » Tue May 19, 2020 1:50 pm

Image

Of course, no guarantees going forward. Past performance does not indicate future performance.
[/quote]

Why start in 1996?

What I see from that chart, is US outperformed Intl from 1996 to 1999, Intl outperformed US from 1999 to 2008, and US outperformed from 2008 to today.

If you started at an earlier date, you would see the same thing- sometimes US leads, sometimes Intl.

Maybe the current US outperformance will hold for the next 10, 20, 30 years...

I don't know, but history suggests not.

asif408
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Re: Why international?

Post by asif408 » Tue May 19, 2020 2:00 pm

whereskyle wrote:
Tue May 19, 2020 10:31 am
The issue I'm trying to address is whether the EMH or any other popular theory maintains that price can be used to measure risk. As in, the more expensive, the less risky. The less expensive, the more risky. I think this may be an oversimplification, but from what I've read of Bill Bernstein, and from what experience tells me (airline stocks went down when the airline business became riskier), low price means high risk, and vice versa.

Can anyone chime in on that?
That is generally true, but I think Bill would also add that a more risky investment should have a higher expected returns, otherwise, why would anyone invest in them? He's said the same thing about individual stocks as individual countries, so if you think the US is the safest place to invest, it should have the lowest expected return of any country. Countries like Russia, China, Turkey, etc., or even Europe at this point are generally seen as much more risky, and therefore should have higher expected returns.

The prevailing view in this thread is that the US is the least risky and has a higher expected return than foreign stocks. Or at least, that's how they are investing their money. This seems like a pretty delusional view, IMO.

whereskyle
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Re: Why international?

Post by whereskyle » Tue May 19, 2020 2:34 pm

asif408 wrote:
Tue May 19, 2020 2:00 pm
whereskyle wrote:
Tue May 19, 2020 10:31 am
The issue I'm trying to address is whether the EMH or any other popular theory maintains that price can be used to measure risk. As in, the more expensive, the less risky. The less expensive, the more risky. I think this may be an oversimplification, but from what I've read of Bill Bernstein, and from what experience tells me (airline stocks went down when the airline business became riskier), low price means high risk, and vice versa.

Can anyone chime in on that?
That is generally true, but I think Bill would also add that a more risky investment should have a higher expected returns, otherwise, why would anyone invest in them? He's said the same thing about individual stocks as individual countries, so if you think the US is the safest place to invest, it should have the lowest expected return of any country. Countries like Russia, China, Turkey, etc., or even Europe at this point are generally seen as much more risky, and therefore should have higher expected returns.

The prevailing view in this thread is that the US is the least risky and has a higher expected return than foreign stocks. Or at least, that's how they are investing their money. This seems like a pretty delusional view, IMO.
I completely agree that such a free-lunch view of the U.S. is completely delusional. I do, however, believe that your description of Bernstein's theory (which admittedly is also my reading) must be an oversimplification. If investing were so easy that we could all just buy the cheapest (riskiest) assets and all expect to get rich, then in truth those assets would not have been so risky; they were just bargains hiding in plain sight and everyone should have known to buy them. I'm having trouble seeing how risk can be so simple. Riskier assets by definition entail a higher probability that things are not going to work out and investors will lose money by investing in them. So, if everyone does the riskiest thing, most of them should fail to earn higher returns, even if they all invested in the hopes of higher returns.

If the market's assessment is embodied in the price (and the market's assessment is reliable) and an investor just buys all the risky assets, I don't see how we predict whether that investor is likely to earn higher returns. Isn't it just as likely (or even more likely) that the investor will in fact suffer lower returns due to a higher failure rate among the risky assets?

To me, it seems that if a person can just go around buying whatever is cheaper and riskier and actually "expect" to receive a higher rate of return, then that person is eating a free lunch. I think it makes much more sense to say: the person who just goes around sinking money into cheap, risky businesses is the most likely person to run out of money soon. They might make a lot of money, but they almost certainly won't. Unless of course risk really is so simple that you just buy the risky things and are guaranteed to become rich.

All that said, I think a better defense of a U.S.-only portfolio than the mentioned free lunch would be: by investing in the u.s. alone you are taking on less risk, and therefore you can expect a reasonable return, and you can expect that reasonable return to outpace a riskier return because chances are high that the riskier return will actually be lower because high-risk returns are often quite poor.
"I am better off than he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

Rosencrantz1
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Re: Why international?

Post by Rosencrantz1 » Tue May 19, 2020 3:25 pm

ChrisV wrote:
Tue May 19, 2020 1:50 pm
Image

Of course, no guarantees going forward. Past performance does not indicate future performance.
Why start in 1996?

What I see from that chart, is US outperformed Intl from 1996 to 1999, Intl outperformed US from 1999 to 2008, and US outperformed from 2008 to today.

If you started at an earlier date, you would see the same thing- sometimes US leads, sometimes Intl.

Maybe the current US outperformance will hold for the next 10, 20, 30 years...

I don't know, but history suggests not.
[/quote]



The inception date of Vanguard Total International Stock Index Fund (VTIAX) was 4/29/1996.

I think he chose 1996 because 1996 was the 'latest' date to be able to do a direct comparison between total bond, total US, and total international. It appears total bond and total US were in place at Vanguard prior to VTIAX.

Rosencrantz1
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Re: Why international?

Post by Rosencrantz1 » Tue May 19, 2020 4:06 pm

I completely agree that there is no 'free lunch'. And, I readily admit I have no idea if US stocks are less/more risky than international at their current price levels.

The primary reasons I've invested in US equities for the past 30+ years (and will continue to do so) have, I think, been best articulated by folks like 'Alchemist' and 'Visualguy' on this thread. Many of those reasons have already been listed (multiple times) - so, I see no need to relist them.

The interesting thing, at least to me, is how vehemently folks (myself included) hold dear their views on this topic.

I've already 'won' the game - and, my investments in US (with long-term tilts toward big tech and aerospace/defense) have contributed mightily to that win.

I honestly look forward to the next 10 - 20 years. Maybe international will 'blow away' US based investing - with some time, I'm sure we'll know.

Best of luck to all investors.

asif408
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Re: Why international?

Post by asif408 » Tue May 19, 2020 4:09 pm

whereskyle wrote:
Tue May 19, 2020 2:34 pm
I completely agree that such a free-lunch view of the U.S. is completely delusional. I do, however, believe that your description of Bernstein's theory (which admittedly is also my reading) must be an oversimplification. If investing were so easy that we could all just buy the cheapest (riskiest) assets and all expect to get rich, then in truth those assets would not have been so risky; they were just bargains hiding in plain sight and everyone should have known to buy them. I'm having trouble seeing how risk can be so simple. Riskier assets by definition entail a higher probability that things are not going to work out and investors will lose money by investing in them. So, if everyone does the riskiest thing, most of them should fail to earn higher returns, even if they all invested in the hopes of higher returns.

If the market's assessment is embodied in the price (and the market's assessment is reliable) and an investor just buys all the risky assets, I don't see how we predict whether that investor is likely to earn higher returns. Isn't it just as likely (or even more likely) that the investor will in fact suffer lower returns due to a higher failure rate among the risky assets?
Right, on an individual company or country level you are correct, the risk is noticeably higher. It becomes less so when you own multiple sectors and multiple countries, but still, the risk is higher, no question. The thing is, in general, most investors are risk averse and don't do the riskiest thing, precisely because it's risky (or at least perceived to be). But these are all based on probabilities, there are no guarantees, that's why they call it "expected" return. When an investment is perceived as risky, almost by definition there will be fewer investors, especially when it has underperformed recently.

For instance, right now Russia and Turkey's stock market have high expected returns, and I think most people would also throw energy stocks in there as well. No one with a sane brain would suggest putting all your money in one or both countries, or all in ExxonMobil or even a general energy sector fund, and I'm pretty sure the AUM for funds with exposure to Russia and Turkey or energy stocks are much lower than say, those with exposure to general US stock funds. That's because they are genuinely more risky, and have a greater dispersion of potential outcomes.
whereskyle wrote:
Tue May 19, 2020 2:34 pm
To me, it seems that if a person can just go around buying whatever is cheaper and riskier and actually "expect" to receive a higher rate of return, then that person is eating a free lunch. I think it makes much more sense to say: the person who just goes around sinking money into cheap, risky businesses is the most likely person to run out of money soon. They might make a lot of money, but they almost certainly won't. Unless of course risk really is so simple that you just buy the risky things and are guaranteed to become rich.

It's not a free lunch because you have to deal with higher volatility and potentially worse short term performance, plus you don't even know if you will outperform, because the future is unknown. For example, emerging markets were undervalued relative to US stocks in March 2000. Here was their performance from March 2000- March 2010:

https://www.portfoliovisualizer.com/bac ... ion2_2=100. You had to sit through about a year and a half where EM fell harder and faster, and it didn't outpace the US until 3 years later. It also crashed harder in the GFC. So no, risky assets are no free lunch. And I'm sure you are aware of the last 10 years of performance has been the opposite : https://www.portfoliovisualizer.com/bac ... ion2_2=100
whereskyle wrote:
Tue May 19, 2020 2:34 pm
All that said, I think a better defense of a U.S.-only portfolio than the mentioned free lunch would be: by investing in the u.s. alone you are taking on less risk, and therefore you can expect a reasonable return, and you can expect that reasonable return to outpace a riskier return because chances are high that the riskier return will actually be lower because high-risk returns are often quite poor.
"Reasonable return" is very subjective. If the US is considered safest now and only gives a 1-2% return over the next decade I imagine a lot of investors will say that is not reasonable in retrospect. The more accurate way to phrase it would be to say something to the effect of "the riskier asset has a higher expected returns but also a greater dispersion of potential outcomes". I definitely would not say the safer asset investors can expect their reasonable return to outpace a riskier return.

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UpsetRaptor
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Re: Why international?

Post by UpsetRaptor » Tue May 19, 2020 4:18 pm

It's not accurate to assume lower price = higher risk = higher expected return.

Using that logic, currently cheap stock sectors like apparel retailers, bookstores, and newspapers would be expected to have a higher return than currently expensive stocks like FAANGM.

whereskyle
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Re: Why international?

Post by whereskyle » Tue May 19, 2020 5:27 pm

UpsetRaptor wrote:
Tue May 19, 2020 4:18 pm
It's not accurate to assume lower price = higher risk = higher expected return.

Using that logic, currently cheap stock sectors like apparel retailers, bookstores, and newspapers would be expected to have a higher return than currently expensive stocks like FAANGM.
Yes, this reasoning is exactly where I'm at right now. I think the better explanation of Bernstein's reasoning is that Investors will not buy risky assets unless they expect a higher return. Whether the investment meets those expectations is still just up to chance, and the chances may be poor.
"I am better off than he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

SteadyOne
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Re: Why international?

Post by SteadyOne » Tue May 19, 2020 6:56 pm

whereskyle wrote:
Tue May 19, 2020 9:04 am
lostdog wrote:
Tue May 19, 2020 8:24 am
abuss368 wrote:
Mon May 18, 2020 9:25 pm
Taylor Larimore wrote:
Mon May 18, 2020 7:57 pm
bgf wrote:
Mon May 18, 2020 7:06 pm
Well thats a pretty dumb quote.
bgf:

This is the first time that I have heard someone say that Mr. Bogle made a "dumb" quote.

You should find it informative to learn that when Jack Bogle published his first book in 1994 he wrote:
"A long-term investor need not allocate any of his or her assets to non-U.S. -U.S. stocks. But if they disagreed, I argued, they should limit their holding to 20% of their stock portion.
In Jack's Forward to The Bogleheads Guide to the Three Fund Portfolio published in 2018 he wrote that during that period the U.S. S&P 500 Index rose 743% compared to the EAFE Index of 237%.

I would call Jack's quote smart -- not "dumb."

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, or have had in the past, governance is pretty solid, in the past at least, and a well-diversified economy. For U.S. corporations, about half of their revenues and half of their earnings come from abroad anyway."
Thanks Taylor for the excellent reminder of Mr. Bogle’s favorite pristine and classic fund Total Stock Market! Investors would be wise to follow Mr. Bogle’s advice.
When I see "Jack is right" quotes, I see right through it for what it really is. Performance chasing.

The two prominent members on here dropped ex-us because of performance but will never admit to performance chasing. They hide behind other excuses of " Jack said so" and "I did it for simplicity" etc..

When one of them sees other members drop ex-us because of bad performance, they tell them it was a wise choice, "to performance chase". :oops:
Couldn't one argue ex-us investors are performance chasing, seeking out higher-risk assets in hopes of a higher overall return? This, I believe, was Jack's view. Why take on the additional risk, he would ask, when U.S. investors are sitting on an "acre of diamonds"?

Why do you invest in ex-us stocks? Are you searching for the perfect portfolio? Better long-term performance? The problem with these threads is that the global-market-cap crowd says that they are not performance chasing but just taking the logical approach. The idea that buying riskier assets in less capitalistic, less stock-market friendly countries always lowers your risk is, at best, unproven, over any given timespan. Can we all not accept that ex-us stocks are cheaper for a reason? The reason is that they are riskier, at least as far as the market can tell, otherwise they would not be so cheap. I'll add that I think it is fine if one decides to take on extra risk by investing in ex-us stocks. I hope personally that my ex-us stocks provide higher returns in exchange for the additional risk I take by holding them. But I don't see, as a matter of simple logic, how a global-market cap portfolio becomes less risky by virtue of its holding riskier assets in addition to its relatively less risky U.S. stocks.

The tough part, we all hopefully see, is that identifying and measuring risk is a very, very difficult thing to do. The reason why these threads devolve, I think, is because none of us, including our most brilliant, published forum members, is very good at accurately defining, describing, and quantifying risk generally and the distinct kinds of risk investors face.
Commodities are riskier and you can make tons of money. May be. Junk bonds as well.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court

SteadyOne
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Re: Why international?

Post by SteadyOne » Tue May 19, 2020 9:57 pm

Rosencrantz1 wrote:
Tue May 19, 2020 11:39 am
whereskyle wrote:
Tue May 19, 2020 8:27 am
bgf wrote:
Tue May 19, 2020 8:22 am
whereskyle wrote:
Tue May 19, 2020 7:55 am

Ex-us stocks are cheaper because they are riskier. Is this controversial?
Apparently so. cheaper and riskier --> higher future returns, except in the tiny little special case of all stocks outside the US. In that tiny little special case, many here argue that cheaper, riskier international stocks will continue to underperform US stocks, which are more expensive and less risky, in the future.

See? Of course you'd only invest in US stocks! They're less risky! Higher returning! AND the market never seems to understand and correct for this, so it'll be this way forever!!!

Some of you guys should publish a paper and collect your Nobel!
No need for the ad hominem attacks. We can just discuss the issue thanks. It of course should be noted that higher risk does not mean higher reward. If "higher risk" meant you always get the higher reward than, no, the asset would not in fact be higher risk. The market obviously expects the U.S. to perform better. This does not magically mean the market is wrong and ex-us will outperform. There is no free lunch. Higher risk means higher risk. It does not mean you automatically get the higher reward, even if you wait a very long time. I hold ex-us stocks but I don't own very much of them. Why? Because they are higher risk. This really is not controversial, at least if price is a measure of risk. Lower risk means better predictability of future returns, lower standard deviation, et cetera. It does not mean outperformance. But many people advocate investing in a lower risk way in order to increase overall returns. See a total-market index fund versus putting all your $ on Tesla. You might make a lot on Tesla, but there's a better chance you will make a good return if you buy the market. This same logic applies to the U.S. vs. ex-us debate, at least if we're trusting the market to measure risk by pricing assets.
+1 I'm especially amused by references to some mysterious "study" where it's implied the US only folks "lack formal education". Would love to see a link to this "study" so that it can be properly evaluated.

For the folks referencing "performance chasing", I freely admit that plays a part in my decision. The difference, though, is that I'm not looking at just the past year or past 5 years or past 10 years. I'm looking at the past 50 - 100 years too. The US has outperformed, in aggregate, for a very long time. Why do you suppose that has happened? Good geography? demographics? university system? corporate tax structure? rule of law? SEC? entrepreneurial spirit? attraction of bright foreign nationals? US system of capitalism? What are the fundamental reasons Mr. Market values US companies (generally) more highly than exUS?

In any case, I asked the question as to whether anyone's mind has been changed - or whether one's position has 'hardened' - - it mostly appears to be the latter to me. I was curious about that - so, thanks for those replies.
Great point.

In the absence of the better model to predict the future, the best predictor is average. This would be a default or naive model based on past performance. And more data points means better model. If we had 10,000 years of market data showing equity in county A outperforming all others on average it would be reasonable to conclude that this country will outperform for the next 50 years. Our data set is much smaller, may be too small for statistical modeling.

People spend a lot of effort here running portfolio visualizer with data going back ten twenty years and making all sort of conclusions. This all based on past performance. However, some ignore the fact that 117 years (or data points) from Credit Suisse study showing US outperformance is stronger than portfolio visualizer backward testing simply because visualizer uses less data points. Less data points means more volatility. 117 is better that 20 IMHO.

If one takes a position that past performance does not matter then it logically follows that it does not matter for anything: asset classes, geographies, correlations, etc. Then why invest more in one asset or another? Based on what premise? Cash can possibly outperform equities for the next 30 years. If one says that it never happened before, the counter argument will be that the past performance does not matter and anything may happen in the future.

The logical approach then is to decide which assets are investable and invest equally among them and rebalance every year. I do not support this, as I believe that past performance is the useful information that is applicable for the investment models we choose. And probably the only information that is out there.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court

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Stef
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Re: Why international?

Post by Stef » Tue May 19, 2020 11:49 pm

SteadyOne wrote:
Tue May 19, 2020 9:57 pm
If one takes a position that past performance does not matter then it logically follows that it does not matter for anything: asset classes, geographies, correlations, etc. Then why invest more in one asset or another? Based on what premise?
Because stocks have higher expected returns? It doesn't matter how they performed in the past. They are way riskier than bonds or cash and thus have higher expected returns.

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grayfox
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Re: Why international?

Post by grayfox » Wed May 20, 2020 6:53 am

grayfox wrote:
Mon May 18, 2020 5:07 pm

Five Eyes. Never heard that before.
Here are the Five Eye CAPE Ratio:

Australia 17.74
Canada 19.64
New Zealand ??
United Kingdom 14.03
US 27.30 :shock:
OK, so I am looking at UK because it is much cheaper than US. CAPE 14 vs 27. And it's modern, developed country similar to U.S., etc.
The ETF is iShares MSCI United Kingdom ETF (EWU)

UK Valuations since 1982 vs US
Yahoo shows current dividend yield 5.55%. Compare to US SPY 1.99%. Not too shabby.

CAPE chart going back to 1982 shows min 8.77 back in 1982 when US was 8.72. They were about the same
Max CAPE was 28.6 back in 1999 when US was 44.77. UK did not see quite the bubble as US.
Average CAPE was 17.59 vs 23.7 for US. Today at 14 UK is below its average, while US at 27.3 is above its average 23.7
:arrow: UK looks very reasonable today w.r.t valuation.

EWU Return since Jan-1997 vs SPY portfoliovisualizer
1997-2007: Chart shows UK lagged the US during the tech bubble and bear market and finally caught up to US in 2007.
2007-2009: In the great recession, UK fell a little further than US.
2009-2020: The UK languished while the US took off.

Capital Gain
Looking at the EWU price chart on Yahoo:
01-March-1996 24.63
01-Jan-2020 32.64 (before the bear market)
High prices were 44 in 1999, 53.66 back in 2007, 44 in 2014, 37.88 in 2018
:arrow: The price had only increased 1.33x in 25 years. 1.28% p.a. capital gain. Not impressive.
Of course, with bear market, the price is actually back to about 1996 price, 24.84. so zero capital gain in 25 years at this point.

EWU Dividends since 1997
Maybe the dividends save it. I got the EWU dividends from Yahoo Finance.

Code: Select all

Year     Div     G.Div
1996     0.660  
1997     1.178      78.48%
1998     1.178       0.00%
1999     2.744     132.94%
2000     1.888     -31.20%
2001     0.954     -49.47%
2002     0.566     -40.67%
2003     1.510     166.78%
2004     0.690     -54.30%
2005     1.158      67.83%
2006     1.626      40.41%
2007     1.688       3.81%
2008     1.620      -4.03%
2009     0.838     -48.27%
2010     0.846       0.95%
2011     1.068      26.24%
2012     1.282      20.04%
2013     0.998     -22.15%
2014     2.738     174.35%
2015     1.326     -51.57%
2016     1.218      -8.14%
2017     1.401      15.02%
2018     1.463       4.43%
2019     1.409      -3.69%
The dividend amount has about doubled since 1996. That works out to 3.35% p.a. dividend growth.
But the growth is erratic. Huge swings in the dividend paid. One year its way up and the next year a big cut.
Most people like to see steady growth in dividend.
Yahoo shows 5.5% dividend yield based on 2019 dividend. But dividend will probably be way down in 2020, so don't count that.

Expected Return
Does the lower valuation (UK 14 vs US 27) forecast higher expected return?
Back in Feb-2009, CAPE was UK 10.7 vs US 12.4, but 2009-2019 CAGRs were 7.11% UK vs 14.56% US, with UK having worse everything else (StDev, Worst Year, Max DD, Sharpe) for UK.

:?: EWU has not really done that well since 1996. What held the UK stock market back? Are they going to do better going forward. What is going to change? Or just expect more of the same?
Last edited by grayfox on Wed May 20, 2020 7:06 am, edited 1 time in total.
Sic transit gloria mundi. [STGM]

Anon9001
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Re: Why international?

Post by Anon9001 » Wed May 20, 2020 7:05 am

oldzey wrote:
Tue May 19, 2020 12:16 pm
Here is a performance chart of three total market index funds since the earliest possible inception date for comparison.

M* Chart Link

The inception date of Vanguard Total Bond Market Index Fund (VBTLX) was 12/11/1986.

The inception date of Vanguard Total Stock U.S. Stock Market Index Fund (VTSAX) was 4/27/1992.

The inception date of Vanguard Total International Stock Index Fund (VTIAX) was 4/29/1996.

Per Morningstar, as of 5/18/2020, if you had invested $10,000 in each of the three funds on 4/29/1996, you would currently have $70,619 in your Total Stock U.S. Stock Market Index Fund, $33,966 in your Total Bond Market Index Fund, and $25,495 in your Total International Stock Index Fund.

Image

Of course, no guarantees going forward. Past performance does not indicate future performance.
Impressive. It seems the Ex-US markets is not effecient combined with currency depreciation. I assume that if you use low cost active funds which are currency hedged the gap would be smaller. Here local country the active funds easily beat the indexes due to how badly they are designed having 40% of the index in 10 companies and 35% in one sector. The US index from my view of it is not so concentrated with only 25% of the index in 10 companies and 25% in one sector.

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Stef
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Re: Why international?

Post by Stef » Wed May 20, 2020 7:11 am

Image

bgf
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Re: Why international?

Post by bgf » Wed May 20, 2020 7:51 am

grayfox wrote:
Wed May 20, 2020 6:53 am

:?: EWU has not really done that well since 1996. What held the UK stock market back? Are they going to do better going forward. What is going to change? Or just expect more of the same?
EWU may not have done well, but the UK stock market may have done better. EWU is not currency hedged. If you want to know how the UK stock market has done, you need to check its return in local currency.
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asif408
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Re: Why international?

Post by asif408 » Wed May 20, 2020 8:49 am

whereskyle wrote:
Tue May 19, 2020 5:27 pm
UpsetRaptor wrote:
Tue May 19, 2020 4:18 pm
It's not accurate to assume lower price = higher risk = higher expected return.

Using that logic, currently cheap stock sectors like apparel retailers, bookstores, and newspapers would be expected to have a higher return than currently expensive stocks like FAANGM.
Yes, this reasoning is exactly where I'm at right now. I think the better explanation of Bernstein's reasoning is that Investors will not buy risky assets unless they expect a higher return. Whether the investment meets those expectations is still just up to chance, and the chances may be poor.
I still go back to the point: the expected return for the riskier asset is higher, on average, than the less risky asset, but the outcomes are more uncertain as well, and the higher expected return may not show up. That's why it's riskier in the first place and should demand a premium for ownership. You don't necessarily know, for example, if energy stocks will go the way of railroad stocks in the 1900s, or if some emerging markets, like Russia and Turkey, will be taken over by dictators and their stock markets disappear.

whereskyle
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Re: Why international?

Post by whereskyle » Wed May 20, 2020 9:08 am

asif408 wrote:
Wed May 20, 2020 8:49 am
whereskyle wrote:
Tue May 19, 2020 5:27 pm
UpsetRaptor wrote:
Tue May 19, 2020 4:18 pm
It's not accurate to assume lower price = higher risk = higher expected return.

Using that logic, currently cheap stock sectors like apparel retailers, bookstores, and newspapers would be expected to have a higher return than currently expensive stocks like FAANGM.
Yes, this reasoning is exactly where I'm at right now. I think the better explanation of Bernstein's reasoning is that Investors will not buy risky assets unless they expect a higher return. Whether the investment meets those expectations is still just up to chance, and the chances may be poor.
I still go back to the point: the expected return for the riskier asset is higher, on average, than the less risky asset, but the outcomes are more uncertain as well, and the higher expected return may not show up. That's why it's riskier in the first place and should demand a premium for ownership. You don't necessarily know, for example, if energy stocks will go the way of railroad stocks in the 1900s, or if some emerging markets, like Russia and Turkey, will be taken over by dictators and their stock markets disappear.
It's a good point. I'm just wondering if people think, as a result, that it makes sense to question the risk-reduction benefits of adding currently cheaper ex-us equities. Does adding them decrease or increase risk? How are we supposed to measure this? If low price indicates high risk, then how are we reducing risk by adding riskier assets? Of course, having risky assets conducting business in different places and in different industries/sectors/styles/factors spreads out the risk. But can we logically expect adding more risky holdings to reduce risk or increase it? Jack seemed to think 500 was enough, then 3000+ (for U.S. total market). I think he thought anything more than that added no benefit and just increased risk. I think this problem is why I'm so comfortable focusing my portfolio in VTI and VT. I perceive VTI as safe, and I perceive VT as fairly safe, but slightly more risky. I see upside in ex-us stocks, not necessarily safety. I'm willing to take additional risk by investing in ex-US. I don't see investing in ex-US as plain-and-simple, non-debatable risk reduction. I wonder if most U.S.-only investors think that the U.S. is safer or riskier. The market seems to think as much.
"I am better off than he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

SteadyOne
Posts: 174
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Re: Why international?

Post by SteadyOne » Wed May 20, 2020 9:24 am

Stef wrote:
Tue May 19, 2020 11:49 pm
SteadyOne wrote:
Tue May 19, 2020 9:57 pm
If one takes a position that past performance does not matter then it logically follows that it does not matter for anything: asset classes, geographies, correlations, etc. Then why invest more in one asset or another? Based on what premise?
Because stocks have higher expected returns? It doesn't matter how they performed in the past. They are way riskier than bonds or cash and thus have higher expected returns.
How do you know that? What is your basis for this statement?
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court

as9
Posts: 132
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Re: Why international?

Post by as9 » Wed May 20, 2020 10:20 am

Above all else, this is why I invest in international: https://www.cnn.com/2020/05/20/tech/rel ... index.html

There are some fair arguments against this, namely you may not get the same upside as you would a US mega-tech or that some tech companies founded abroad may go public in the US.

But maybe 10-15 years from now we're talking about JABST (Jio, Alibaba, Bytedance, Samsung, and Tencent) as a rival to FAANG and how it's rise propelled international returns. Or maybe not, but I sleep better knowing our money is exposed to it all.

asif408
Posts: 1942
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Location: Florida

Re: Why international?

Post by asif408 » Wed May 20, 2020 10:33 am

whereskyle wrote:
Wed May 20, 2020 9:08 am
I'm just wondering if people think, as a result, that it makes sense to question the risk-reduction benefits of adding currently cheaper ex-us equities. Does adding them decrease or increase risk? How are we supposed to measure this? If low price indicates high risk, then how are we reducing risk by adding riskier assets? Of course, having risky assets conducting business in different places and in different industries/sectors/styles/factors spreads out the risk. But can we logically expect adding more risky holdings to reduce risk or increase it? Jack seemed to think 500 was enough, then 3000+ (for U.S. total market). I think he thought anything more than that added no benefit and just increased risk. I think this problem is why I'm so comfortable focusing my portfolio in VTI and VT. I perceive VTI as safe, and I perceive VT as fairly safe, but slightly more risky. I see upside in ex-us stocks, not necessarily safety. I'm willing to take additional risk by investing in ex-US. I don't see investing in ex-US as plain-and-simple, non-debatable risk reduction. I wonder if most U.S.-only investors think that the U.S. is safer or riskier. The market seems to think as much.
I'll let the US only investors weigh in for themselves, but for me, as a global investor, the risk reduction comes in the form of not having all your investments in one country and having to deal with a poor decade or two of returns. I think the possibility of negative returns is almost all but eliminated with a method of dollar cost averaging into global equities. It's not with one country, and particularly lump sum investing into one country. I don't expect it to help in the short term; if US stocks are down 30%, like they were recently, I don't expect international developed or EM stocks to be up, and they likely will fall farther. But I do expect, if there is a benefit it will come in the form of better performance over time. Look back at the 1999-2009 time frame: https://www.portfoliovisualizer.com/bac ... ion3_2=100

International and EM stocks fell just as much and faster during the dot com bubble and fell farther during the GFC, providing no zig when US equities zagged. Yet EM equities returned 12% more CAGR from 1999-2009, and foreign stocks (which included about 20% in EM) outperformed by a less impressive but still significant 3% CAGR. That's the type of risk reduction I expect with global diversification, the risk of a decade of poor returns in one country.

I don't expect the US to turn into Russia, Turkey, or China overnight, but it's certainly possible other assets become perceived as less risky, and/or the US become perceived as more risky or less safe, or some combination, which would mean global valuations would increase and/or US valuation decrease or increase less than foreign. That would generally be a setup for international outperformance, not even considering currencies fluctuations, which could be an additional tailwind if this happens during the time of a falling dollar.

Rosencrantz1
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Re: Why international?

Post by Rosencrantz1 » Wed May 20, 2020 1:59 pm

whereskyle wrote:
Wed May 20, 2020 9:08 am
I wonder if most U.S.-only investors think that the U.S. is safer or riskier. The market seems to think as much.
At the risk of having my post deleted as 'too political', I'll offer my view...

I definitely think the US is safer than, say, Russia, China, India (with their caste system of society still being practiced today) - just to name a few. And this short list does not include countries that have exceptionally onerous taxation laws in place (like France). Or, countries that struggle with rampant corruption (looking south of US border).

I'm sure there are many, many countries that are as 'safe' or, perhaps, safer than the US - but, there are many variables to consider.

I think the pie charts posted by 'Stef' are very telling (indicating market capitalization) over the past 100+ years. One can expect to pay a premium for growth.

Full disclosure: My degree is NOT in international finance/relations. \0.02cents

Anon9001
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Re: Why international?

Post by Anon9001 » Wed May 20, 2020 2:14 pm

Rosencrantz1 wrote:
Wed May 20, 2020 1:59 pm
whereskyle wrote:
Wed May 20, 2020 9:08 am
I wonder if most U.S.-only investors think that the U.S. is safer or riskier. The market seems to think as much.
At the risk of having my post deleted as 'too political', I'll offer my view...

I definitely think the US is safer than, say, Russia, China, India (with their caste system of society still being practiced today) - just to name a few. And this short list does not include countries that have exceptionally onerous taxation laws in place (like France). Or, countries that struggle with rampant corruption (looking south of US border).

I'm sure there are many, many countries that are as 'safe' or, perhaps, safer than the US - but, there are many variables to consider.

I think the pie charts posted by 'Stef' are very telling (indicating market capitalization) over the past 100+ years. One can expect to pay a premium for growth.

Full disclosure: My degree is NOT in international finance/relations. \0.02cents
Just for clarification considering I am from India the caste system is a relic. The youth even BJP supporters don't care about caste. For God's sake we have a Dalit as President and OBC as PM. Why would we allow OBC as PM if cared about caste?

Thanks,
Anon.

Rosencrantz1
Posts: 504
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Re: Why international?

Post by Rosencrantz1 » Wed May 20, 2020 2:28 pm

Anon9001 wrote:
Wed May 20, 2020 2:14 pm
Rosencrantz1 wrote:
Wed May 20, 2020 1:59 pm
whereskyle wrote:
Wed May 20, 2020 9:08 am
I wonder if most U.S.-only investors think that the U.S. is safer or riskier. The market seems to think as much.
At the risk of having my post deleted as 'too political', I'll offer my view...

I definitely think the US is safer than, say, Russia, China, India (with their caste system of society still being practiced today) - just to name a few. And this short list does not include countries that have exceptionally onerous taxation laws in place (like France). Or, countries that struggle with rampant corruption (looking south of US border).

I'm sure there are many, many countries that are as 'safe' or, perhaps, safer than the US - but, there are many variables to consider.

I think the pie charts posted by 'Stef' are very telling (indicating market capitalization) over the past 100+ years. One can expect to pay a premium for growth.

Full disclosure: My degree is NOT in international finance/relations. \0.02cents
Just for clarification considering I am from India the caste system is a relic. The youth even BJP supporters don't care about caste. For God's sake we have a Dalit as President and OBC as PM. Why would we allow OBC as PM if cared about caste?

Thanks,
Anon.
Apologies. I simply googled it and saw links describing the system - such as this one from the BBC https://www.bbc.com/news/world-asia-india-35650616.

Certainly no offence intended. I guess that's the risk of relying on google too much. Again, apologies.

dropdx
Posts: 89
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Re: Why international?

Post by dropdx » Wed May 20, 2020 3:23 pm

So, I just read this whole thread, but I'm confused.

Do I buy international?

Rosencrantz1
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Re: Why international?

Post by Rosencrantz1 » Wed May 20, 2020 3:31 pm

dropdx wrote:
Wed May 20, 2020 3:23 pm
So, I just read this whole thread, but I'm confused.

Do I buy international?
IMO, only YOU can answer that question. I think there are sound 'arguments' to be made for either choice.

Best of luck to you.

jhawktx
Posts: 194
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Re: Why international?

Post by jhawktx » Wed May 20, 2020 3:32 pm

dropdx wrote:
Wed May 20, 2020 3:23 pm
So, I just read this whole thread, but I'm confused.

Do I buy international?
Read it again.

whereskyle
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Re: Why international?

Post by whereskyle » Wed May 20, 2020 3:34 pm

dropdx wrote:
Wed May 20, 2020 3:23 pm
So, I just read this whole thread, but I'm confused.

Do I buy international?
Hahaha. I buy some on most days. Not that much though. I subscribe to Jack Bogle's view. You can buy some, but you don't need to. And if you do buy some, make it no more than 20% of your equities.
"I am better off than he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

Beensabu
Posts: 303
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Re: Why international?

Post by Beensabu » Wed May 20, 2020 7:51 pm

Rosencrantz1 wrote:
Wed May 20, 2020 1:59 pm
I think the pie charts posted by 'Stef' are very telling (indicating market capitalization) over the past 100+ years. One can expect to pay a premium for growth.
That chart is Figure 10 from the Credit Suisse Global Investment Returns Yearbook 2019 (Summary Edition), under a section titled "Investing for the long term".

Your takeaway is interesting. Many people look at that chart and see that the UK went from the largest share of global market cap in 1900 (25%) to 5.5% in 2019. That the share of market capitalization held by a single country fluctuates over time, not necessarily only in the direction of growth. Figure 2 (The evolution of equity markets over time from end-1899 to end-2017) on page 8 of the 2018 publication is a great visual to get this point across.

BTW, you can also find of a comparison of emerging market to developed market performance in the 2019 Summary Edition, and a discussion of the evolution of emerging markets. Here's some interesting info:
While EMs and FMs together account for 55% of world PPP GDP, some 40% of world GDP at market exchange rates and 68% of the world’s population, their combined weighting in global equity indexes is still remarkably small, at around 12%...
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."

Rosencrantz1
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Re: Why international?

Post by Rosencrantz1 » Wed May 20, 2020 9:54 pm

Beensabu wrote:
Wed May 20, 2020 7:51 pm
Rosencrantz1 wrote:
Wed May 20, 2020 1:59 pm
I think the pie charts posted by 'Stef' are very telling (indicating market capitalization) over the past 100+ years. One can expect to pay a premium for growth.
That chart is Figure 10 from the Credit Suisse Global Investment Returns Yearbook 2019 (Summary Edition), under a section titled "Investing for the long term".

Your takeaway is interesting. Many people look at that chart and see that the UK went from the largest share of global market cap in 1900 (25%) to 5.5% in 2019. That the share of market capitalization held by a single country fluctuates over time, not necessarily only in the direction of growth. Figure 2 (The evolution of equity markets over time from end-1899 to end-2017) on page 8 of the 2018 publication is a great visual to get this point across.

BTW, you can also find of a comparison of emerging market to developed market performance in the 2019 Summary Edition, and a discussion of the evolution of emerging markets. Here's some interesting info:
While EMs and FMs together account for 55% of world PPP GDP, some 40% of world GDP at market exchange rates and 68% of the world’s population, their combined weighting in global equity indexes is still remarkably small, at around 12%...
Thanks, that's interesting to see. It appears to me that the US had a lengthy period of global market cap growth (generally) from about 1900 - 1970. Then, Japan had a spurt of cap growth - peaking in about 1990. The US appears to be on an upward slope (generally) from about 1990 - present again.

With the exception of Japan and Canada and another country, it appears the remaining countries listed had larger global market cap in 1900 than they do currently.

Am I interpreting that correctly? I'm just eyeing it - obviously not doing a least squares regression line fit on those time frames.

Beensabu
Posts: 303
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Re: Why international?

Post by Beensabu » Wed May 20, 2020 10:36 pm

Rosencrantz1 wrote:
Wed May 20, 2020 9:54 pm
Beensabu wrote:
Wed May 20, 2020 7:51 pm
Rosencrantz1 wrote:
Wed May 20, 2020 1:59 pm
I think the pie charts posted by 'Stef' are very telling (indicating market capitalization) over the past 100+ years. One can expect to pay a premium for growth.
That chart is Figure 10 from the Credit Suisse Global Investment Returns Yearbook 2019 (Summary Edition), under a section titled "Investing for the long term".

Your takeaway is interesting. Many people look at that chart and see that the UK went from the largest share of global market cap in 1900 (25%) to 5.5% in 2019. That the share of market capitalization held by a single country fluctuates over time, not necessarily only in the direction of growth. Figure 2 (The evolution of equity markets over time from end-1899 to end-2017) on page 8 of the 2018 publication is a great visual to get this point across.

BTW, you can also find of a comparison of emerging market to developed market performance in the 2019 Summary Edition, and a discussion of the evolution of emerging markets. Here's some interesting info:
While EMs and FMs together account for 55% of world PPP GDP, some 40% of world GDP at market exchange rates and 68% of the world’s population, their combined weighting in global equity indexes is still remarkably small, at around 12%...
Thanks, that's interesting to see. It appears to me that the US had a lengthy period of global market cap growth (generally) from about 1900 - 1970. Then, Japan had a spurt of cap growth - peaking in about 1990. The US appears to be on an upward slope (generally) from about 1990 - present again.

With the exception of Japan and Canada and another country, it appears the remaining countries listed had larger global market cap in 1900 than they do currently.

Am I interpreting that correctly? I'm just eyeing it - obviously not doing a least squares regression line fit on those time frames.
Yeah, I think your eyes are working fine :)

Many of those countries had a larger share of global market cap in 1900 than they do currently. It is possible for a particular country to have a smaller share of global market cap in the future, just as it is possible for a particular country to have a larger share of global market cap in the future.

There are many factors that could affect this. I'm not a historian or an economist or a political scientist, so I'm not going to try to get into it other than this example:

There was a great US vs. Intl type thread a year or so ago where this chart was presented and it was brought up that WWII devastated the economies of countries that were geographically located where much of the violence took place. These economies took longer to bounce back in the post-war years. There's a chart in that other link (2019 Summary) to the emerging vs. developing markets comparison that shows how the first few years post WWII actually hit EM pretty hard in comparison to DM as well.

You can find explanations in history for why things have worked out how they have until this point in time. It doesn't bestow predictive powers. It actually teaches you that you can't predict what might happen. You can have a general idea, and it can be well-informed, but in the end we all just don't know. That's life.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."

Anon9001
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Re: Why international?

Post by Anon9001 » Thu May 21, 2020 2:12 am

The history of World GDP does need to be looked at. The USA and Europe dominance are a abbreviation in World history and it does seem like we are seeing mean reversion happening with China's GDP now over-taking Eurozone's GDP and close to USA's GDP. India is going to take more time but I expect by 2050 we will definetely see India's GDP over-take Eurozone's GDP and be close to USA's GDP. The past 30-50 year returns of US equities should not be expected of the future to be honest. I would not under-estimate 2 billion people regardless of what your opinions of them might be. The cap-weighted Int indexes are too heavy on the Europe and Japan so you need to exclude DM markets to take benefit of this mean reversion. Also low cost active funds might be better idea due to share dilution problems in emerging markets.

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l1am
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Re: Why international?

Post by l1am » Sat May 23, 2020 2:22 am

dropdx wrote:
Wed May 20, 2020 3:23 pm
So, I just read this whole thread, but I'm confused.

Do I buy international?
I’d recommend 20-30% as per the efficient frontier in VG studies. Diversification is another benefit if you don’t want to bet on a single country.

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Stef
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Re: Why international?

Post by Stef » Sat May 23, 2020 3:02 am

Anon9001 wrote:
Thu May 21, 2020 2:12 am
The history of World GDP does need to be looked at. The USA and Europe dominance are a abbreviation in World history and it does seem like we are seeing mean reversion happening with China's GDP now over-taking Eurozone's GDP and close to USA's GDP. India is going to take more time but I expect by 2050 we will definetely see India's GDP over-take Eurozone's GDP and be close to USA's GDP. The past 30-50 year returns of US equities should not be expected of the future to be honest. I would not under-estimate 2 billion people regardless of what your opinions of them might be. The cap-weighted Int indexes are too heavy on the Europe and Japan so you need to exclude DM markets to take benefit of this mean reversion. Also low cost active funds might be better idea due to share dilution problems in emerging markets.
Fast GDP growth = low or negative stock returns.

https://www.youtube.com/watch?v=0ECqDaPjjV0

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Noobvestor
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Re: Why international?

Post by Noobvestor » Sat May 23, 2020 3:36 am

SteadyOne wrote:
Mon May 18, 2020 3:59 pm
The best option for someone very resistant going international would be to select nations most similar to US in terms of legal system, low corruption, transparency rule of law, open economy, etc. It looks like Five Eyes countries fit that definition. Actually their combined historical performance is very strong for the last 117 years. It’s great geographical diversification. One needs to use country ETF to get there though.
I'm kind of glad to see someone taking this to the logical next step. First, US, because: reasons. Then, apply reasons to other countries. Then, apply reasons to sectors. Then apply them to stocks. No reason to stop at US - if you've got an angle on the next century, go all-in! :?
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

nanameg
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Re: Why international?

Post by nanameg » Sat May 23, 2020 6:35 am

whereskyle wrote:
Wed May 20, 2020 3:34 pm
dropdx wrote:
Wed May 20, 2020 3:23 pm
So, I just read this whole thread, but I'm confused.

Do I buy international?
Hahaha. I buy some on most days. Not that much though. I subscribe to Jack Bogle's view. You can buy some, but you don't need to. And if you do buy some, make it no more than 20% of your equities.
I don’t understand the idea of buying something at under market weight if you are an indexer. It seems to me you’re either in or out. Why would buying something at 20% if the market weight is at least 2x that confer any real benefit to your portfolio? Not challenging just trying to understand. How is a such a small commitment to something going to help?

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Stef
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Re: Why international?

Post by Stef » Sat May 23, 2020 6:46 am

nanameg wrote:
Sat May 23, 2020 6:35 am
I don’t understand the idea of buying something at under market weight if you are an indexer. It seems to me you’re either in or out. Why would buying something at 20% if the market weight is at least 2x that confer any real benefit to your portfolio? Not challenging just trying to understand. How is a such a small commitment to something going to help?
Well there is already a huge diversification benefit if you have 20% in exUS. Market cap weight might be the default position, but you can always make some adjustments and still be an indexer.

My personal target allocation: 65% US, 15% Switzerland, 15% Developed, 5% Emerging Markets.

bluegill
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Re: Why international?

Post by bluegill » Sat May 23, 2020 7:14 am

Historically, International has a relatively low PE now (underpriced).
Historically, Domestic has a relatively high PE now (overpiced).
Counting of "return to the mean", buying 100% domestic is more of a gamble than a mix of domestic & international.
Buy low (international), sell high (USA).
I am over-weight international.

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