SP500 versus EAFE

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matthewmatt
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SP500 versus EAFE

Post by matthewmatt » Sun Jun 23, 2019 1:42 pm

Financial authors often claim that US and developed world have about the same gains on the long turn. They use Fig I-16 to illustrate this claim:
https://www.google.com/url?sa=i&source= ... 1466387004
My question:
Are returns of US and developed world still about similar?
What is current symbol that most accurately matches the EAFE ?

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JoMoney
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Re: SP500 versus EAFE

Post by JoMoney » Sun Jun 23, 2019 2:00 pm

If you look at the total return of the MSCI EAFE "Gross Return" (not including foreign tax withholding), and priced in US dollars, the returns from 1970 until 2011 compared to that of the S&P 500 Total Return were just about the same
Morningstar Chart

If you make the same comparison using the MSCI EAFE "Net Return" index, which is the benchmark a U.S. fund investor would use because it incorporates the foreign tax withholding, in this comparison the S&P 500 came out ahead by the difference compounded over time
Morningstar Link

I'm not sure what you mean by
"What is current symbol that most accurately matches the EAFE ?"
But iShares offers a fund/ETF with the ticker EFA that matches the total return of the MSCI EAFE (NR) index
You might also notice that since 2011 the US market / S&P 500 has had higher returns... whether or not that will persist, or for how long it might persist, is an argument anyone could argue either side of.

You might also note, that the expenses involved with buying and holding a fund like EFA are higher than for most funds like IVV (iShares S&P 500 ETF)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

heyyou
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Re: SP500 versus EAFE

Post by heyyou » Sun Jun 23, 2019 2:25 pm

My foreign holdings are to just avoid the Japanese experience of a boom followed with a long crash, when I no longer can nor want to work for anyone. Any level of positive real returns over the next decade is good enough for that purpose, no need for my trying to guess which of your two choices will do better in the future.

My Dad was a 1968 retiree, with 14 more years before any real return occurred for US stocks.

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matthewmatt
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Re: SP500 versus EAFE

Post by matthewmatt » Sun Jun 28, 2020 6:28 pm

JoMoney wrote:
Sun Jun 23, 2019 2:00 pm
If you look at the total return of the MSCI EAFE "Gross Return" (not including foreign tax withholding), and priced in US dollars, the returns from 1970 until 2011 compared to that of the S&P 500 Total Return were just about the same
Morningstar Chart

If you make the same comparison using the MSCI EAFE "Net Return" index, which is the benchmark a U.S. fund investor would use because it incorporates the foreign tax withholding, in this comparison the S&P 500 came out ahead by the difference compounded over time
Morningstar Link

I'm not sure what you mean by
"What is current symbol that most accurately matches the EAFE ?"
But iShares offers a fund/ETF with the ticker EFA that matches the total return of the MSCI EAFE (NR) index
You might also notice that since 2011 the US market / S&P 500 has had higher returns... whether or not that will persist, or for how long it might persist, is an argument anyone could argue either side of.

You might also note, that the expenses involved with buying and holding a fund like EFA are higher than for most funds like IVV (iShares S&P 500 ETF)
I checked the M* and could not find where there is an option to calculate separately GROSS and NET return?
Also please tell me what foreign developed index you use in your portfolio?

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JoMoney
Posts: 9341
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Re: SP500 versus EAFE

Post by JoMoney » Sun Jun 28, 2020 7:22 pm

matthewmatt wrote:
Sun Jun 28, 2020 6:28 pm
JoMoney wrote:
Sun Jun 23, 2019 2:00 pm
If you look at the total return of the MSCI EAFE "Gross Return" (not including foreign tax withholding), and priced in US dollars, the returns from 1970 until 2011 compared to that of the S&P 500 Total Return were just about the same
Morningstar Chart

If you make the same comparison using the MSCI EAFE "Net Return" index, which is the benchmark a U.S. fund investor would use because it incorporates the foreign tax withholding, in this comparison the S&P 500 came out ahead by the difference compounded over time
Morningstar Link

I'm not sure what you mean by
"What is current symbol that most accurately matches the EAFE ?"
But iShares offers a fund/ETF with the ticker EFA that matches the total return of the MSCI EAFE (NR) index
You might also notice that since 2011 the US market / S&P 500 has had higher returns... whether or not that will persist, or for how long it might persist, is an argument anyone could argue either side of.

You might also note, that the expenses involved with buying and holding a fund like EFA are higher than for most funds like IVV (iShares S&P 500 ETF)
I checked the M* and could not find where there is an option to calculate separately GROSS and NET return?
Also please tell me what foreign developed index you use in your portfolio?
My post included two links that go to Morningstar showing the MSCI EAFE 'Gross' return and 'Net Return' in the other.
I don't have a foreign allocation.
"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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nisiprius
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Re: SP500 versus EAFE

Post by nisiprius » Sun Jun 28, 2020 7:36 pm

Here's William J. Bernstein's chart:

Image

And here it is, updated with newer data:

Image

The average (CAGR) of the two indexes over that time period has been:

S&P 500, 10.60%
MSCI EAFE, 8.68%

$1.00 would have grown to $154.14 in the S&P 500
$1.00 would have grown to $64.15 in the MSCI EAFE index.

You must decide whether you think those are "about the same."

You will be missing my point entirely if you think I am saying "the S&P was better." My real point is that you must be very careful about jumping to conclusions because the variation from year to year in financial data is huge. This is true of most financial data.

Someone's impression of the two indexes would depend heavily on the chosen time period. For example, during the infamous "lost decade" 2000-2009, the S&P 500 earned nothing, but the MSCI EAFE index grew.

Interestingly enough, the time period shown by Bernstein is one in which the two indexes performed, overall, similarly, but this is just the luck of the draw. As you see, over the next 25 years they performed very differently.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Que1999
Posts: 160
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Re: SP500 versus EAFE

Post by Que1999 » Tue Jun 30, 2020 4:52 am

JoMoney wrote:
Sun Jun 28, 2020 7:22 pm
matthewmatt wrote:
Sun Jun 28, 2020 6:28 pm
JoMoney wrote:
Sun Jun 23, 2019 2:00 pm
If you look at the total return of the MSCI EAFE "Gross Return" (not including foreign tax withholding), and priced in US dollars, the returns from 1970 until 2011 compared to that of the S&P 500 Total Return were just about the same
Morningstar Chart

If you make the same comparison using the MSCI EAFE "Net Return" index, which is the benchmark a U.S. fund investor would use because it incorporates the foreign tax withholding, in this comparison the S&P 500 came out ahead by the difference compounded over time
Morningstar Link

I'm not sure what you mean by
"What is current symbol that most accurately matches the EAFE ?"
But iShares offers a fund/ETF with the ticker EFA that matches the total return of the MSCI EAFE (NR) index
You might also notice that since 2011 the US market / S&P 500 has had higher returns... whether or not that will persist, or for how long it might persist, is an argument anyone could argue either side of.

You might also note, that the expenses involved with buying and holding a fund like EFA are higher than for most funds like IVV (iShares S&P 500 ETF)
I checked the M* and could not find where there is an option to calculate separately GROSS and NET return?
Also please tell me what foreign developed index you use in your portfolio?
My post included two links that go to Morningstar showing the MSCI EAFE 'Gross' return and 'Net Return' in the other.
I don't have a foreign allocation.
If you adjust the time-frame to be more current for the MSCI EAFE "Net Return" index, the difference becomes much more drastic with the foreign withholding tax incorporated... :shock:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

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