Reasons to invest internationally, or not.

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dwickenh
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Reasons to invest internationally, or not.

Post by dwickenh »

I read 2 good articles this morning concerning the reasons to invest in foreign markets, or to invest only in the US. Compelling arguments for both are included in the linked articles below.

Happier at Home

Venturing Abroad

[links fixed by admin LadyGeek]

The academics mostly promote International investing. I don't think it will make a big difference either way.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
Blake7
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Re: Reasons to invest internationally, or not.

Post by Blake7 »

Deleted (ladygeek fixed the links).
Last edited by Blake7 on Sat Sep 12, 2020 8:18 am, edited 4 times in total.
Blake7
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Re: Reasons to invest internationally, or not.

Post by Blake7 »

Good articles that bring together the usual arguments on both sides, and maintains my cognitive dissonance on the foreign vs. domestic issue. :annoyed :happy
Last edited by Blake7 on Sat Sep 12, 2020 8:15 am, edited 2 times in total.
burritoLover
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Re: Reasons to invest internationally, or not.

Post by burritoLover »

According to Vanguard:
You may not be as familiar with the names of companies outside the United States—which might make you feel like the stocks and bonds they issue are overly risky.

But if you invest through international mutual funds or ETFs (exchange-traded funds), you can actually lower the risk in your portfolio, because it's just another means of diversification.

Markets outside the United States don't always rise and fall at the same time as the domestic market, so owning pieces of both can level out some of the volatility in your portfolio.
To get the full diversification benefits, we recommend that you consider investing about 40% of your stock allocation in international stocks and about 30% of your bond allocation in international bonds.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
am
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Re: Reasons to invest internationally, or not.

Post by am »

This has been discussed ad nauseum. No one knows what’s right. But I can assure you that when international starts to outperform, we’ll see all kinds of threads about going 100% international, overweighting emerging markets, Lowering US because of high valuations etc.
carolinaman
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Re: Reasons to invest internationally, or not.

Post by carolinaman »

International and emerging markets will have their day in the sun. But I think US equities will continue to outperform over the long term as advocated in Moberg's article, "Happier at Home" (see op for link). After all, a US only strategy advocated both by Buffet and Bogle must be good.
rascott
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Re: Reasons to invest internationally, or not.

Post by rascott »

"Indeed, over the period through year-end 2019, U.S stocks outperformed foreign stocks over the trailing five, 10, 15, 20, 25, 30, 40 and 50 years."

Enough said.
Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

Japan's disappointing stock market is mostly due to demographics! Or, in the author's words:

"But even after that initial precipitous decline, the Nikkei remains mired today at around 23,000, below 1991’s level. Why? Japan’s biggest problem is demographics. It not only has the world’s oldest population, but also its population is shrinking. That inhibits economic growth and puts severe fiscal pressure on the government. There’s nothing to suggest this situation will change soon."

Lest we forget, Alchemist points the finger at poor demographics, as the reason for poor international performance, in the thread, Demographic Destiny.
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k b
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Re: Reasons to invest internationally, or not.

Post by k b »

I don't understand this fixation of the average US investor to diversify internationally. Esp BH investors. Of course, EM will outperform from time to time. But history teaches us that this is accompanied by volatility and sometimes very heavy losses.

US investors able to invest in US companies get intl exposure via the companies they invest in. If you are looking for international speculation, that's understandable. But don't look too hard for arguments for and against. You will find plenty of them, yet none that completely convinces you.
Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

k b wrote: Sat Sep 12, 2020 10:35 am US investors able to invest in US companies get intl exposure via the companies they invest in.
At least in 2016, US revenues are largely domestically driven, with 63% exposure vs:

Revenue from US
Europe -- 20%
Japan -- 14%
EM -- 8%

Source:
https://seekingalpha.com/article/404743 ... -come-from
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
k b
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Re: Reasons to invest internationally, or not.

Post by k b »

Robot Monster wrote: Sat Sep 12, 2020 10:48 am
k b wrote: Sat Sep 12, 2020 10:35 am US investors able to invest in US companies get intl exposure via the companies they invest in.
At least in 2016, US revenues are largely domestically driven, with 63% exposure vs:

Revenue from US
Europe -- 20%
Japan -- 14%
EM -- 8%

Source:
https://seekingalpha.com/article/404743 ... -come-from
This means 37% exposure to non-US markets, just by investing in US companies? Sounds like reasonable exposure to me.

Am I reading this wrong?
Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

k b wrote: Sat Sep 12, 2020 12:23 pm
Robot Monster wrote: Sat Sep 12, 2020 10:48 am
k b wrote: Sat Sep 12, 2020 10:35 am US investors able to invest in US companies get intl exposure via the companies they invest in.
At least in 2016, US revenues are largely domestically driven, with 63% exposure vs:

Revenue from US
Europe -- 20%
Japan -- 14%
EM -- 8%

Source:
https://seekingalpha.com/article/404743 ... -come-from
This means 37% exposure to non-US markets, just by investing in US companies? Sounds like reasonable exposure to me.

Am I reading this wrong?
Perfectly reasonable perspective! My own personal perspective is that 63% is still a lot of eggs in a single country-basket.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
k b
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Re: Reasons to invest internationally, or not.

Post by k b »

Robot Monster wrote: Sat Sep 12, 2020 12:39 pm
k b wrote: Sat Sep 12, 2020 12:23 pm
Robot Monster wrote: Sat Sep 12, 2020 10:48 am
k b wrote: Sat Sep 12, 2020 10:35 am US investors able to invest in US companies get intl exposure via the companies they invest in.
At least in 2016, US revenues are largely domestically driven, with 63% exposure vs:

Revenue from US
Europe -- 20%
Japan -- 14%
EM -- 8%

Source:
https://seekingalpha.com/article/404743 ... -come-from
This means 37% exposure to non-US markets, just by investing in US companies? Sounds like reasonable exposure to me.

Am I reading this wrong?
Perfectly reasonable perspective! My own personal perspective is that 63% is still a lot of eggs in a single country-basket.
IMHO, the issue of 'single-country' basket is relevant to every country in the world - except for the one that constitutes approx 25% of the world's GDP.
Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

k b wrote: Sat Sep 12, 2020 12:55 pm
Robot Monster wrote: Sat Sep 12, 2020 12:39 pm
k b wrote: Sat Sep 12, 2020 12:23 pm
Robot Monster wrote: Sat Sep 12, 2020 10:48 am
k b wrote: Sat Sep 12, 2020 10:35 am US investors able to invest in US companies get intl exposure via the companies they invest in.
At least in 2016, US revenues are largely domestically driven, with 63% exposure vs:

Revenue from US
Europe -- 20%
Japan -- 14%
EM -- 8%

Source:
https://seekingalpha.com/article/404743 ... -come-from
This means 37% exposure to non-US markets, just by investing in US companies? Sounds like reasonable exposure to me.

Am I reading this wrong?
Perfectly reasonable perspective! My own personal perspective is that 63% is still a lot of eggs in a single country-basket.
IMHO, the issue of 'single-country' basket is relevant to every country in the world - except for the one that constitutes approx 25% of the world's GDP.
Large basket = safe basket?
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
Broken Man 1999
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Re: Reasons to invest internationally, or not.

Post by Broken Man 1999 »

Robot Monster wrote: Sat Sep 12, 2020 1:35 pm
k b wrote: Sat Sep 12, 2020 12:55 pm
Robot Monster wrote: Sat Sep 12, 2020 12:39 pm
k b wrote: Sat Sep 12, 2020 12:23 pm
Robot Monster wrote: Sat Sep 12, 2020 10:48 am

At least in 2016, US revenues are largely domestically driven, with 63% exposure vs:

Revenue from US
Europe -- 20%
Japan -- 14%
EM -- 8%

Source:
https://seekingalpha.com/article/404743 ... -come-from
This means 37% exposure to non-US markets, just by investing in US companies? Sounds like reasonable exposure to me.

Am I reading this wrong?
Perfectly reasonable perspective! My own personal perspective is that 63% is still a lot of eggs in a single country-basket.
IMHO, the issue of 'single-country' basket is relevant to every country in the world - except for the one that constitutes approx 25% of the world's GDP.
Large basket = safe basket?
Large basket = safe basket?

Well, maybe. Suppose you are walking along with your large basket and trip? Having all your eggs in one basket might leave you with fewer eggs just at the eggact time you need eggs! :D

I really, really don't like most international stocks, but I pinch my nose and throw some dollars their way. Though, I do think I will be exiting Total Intl. Stock Market Index ETF in favor of another Intl. fund/ETF. High on my list is avoiding China.

Broken Man 1999
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Northern Flicker
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Re: Reasons to invest internationally, or not.

Post by Northern Flicker »

A point rarely discussed is that most BH's who diversify equities internationally do so at an allocation level that is actually betting on the performance of US equities to beat or exceed that of non-US equities over time. They may be diversifying risks that never materialize. At say 25% of equities in non-US, outcomes where one is really glad they held some non-US equity generally are not good outcomes.

The reason these threads go nowhere other than around in circles is that the question is always framed in terms of predicting which asset class will win moving forward, instead of being framed as what risks are present in different allocation choices.
Last edited by Northern Flicker on Sun Sep 13, 2020 1:27 am, edited 1 time in total.
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dml130
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Re: Reasons to invest internationally, or not.

Post by dml130 »

I have a related question. With regard to currency and appreciation/depreciation, what I hear people say about the corresponding effects on foreign stocks sometimes conflict, at least in my mind, so I'd appreciate if anybody could try and clarify. For example, on the one hand I've heard that currency depreciation can be good for that country's businesses because those can then make goods at a less expensive price and export to other countries where they sell for the more valuable currency, which would therefore make the company and its corresponding stock more profitable and valuable. On the other hand, I've also heard the opposite, that an appreciating currency would make the company based in that country more valuable. Would anyone who knows care to explain?
k b
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Re: Reasons to invest internationally, or not.

Post by k b »

Robot Monster wrote: Sat Sep 12, 2020 1:35 pm
k b wrote: Sat Sep 12, 2020 12:55 pm
Robot Monster wrote: Sat Sep 12, 2020 12:39 pm
k b wrote: Sat Sep 12, 2020 12:23 pm
Robot Monster wrote: Sat Sep 12, 2020 10:48 am

At least in 2016, US revenues are largely domestically driven, with 63% exposure vs:

Revenue from US
Europe -- 20%
Japan -- 14%
EM -- 8%

Source:
https://seekingalpha.com/article/404743 ... -come-from
This means 37% exposure to non-US markets, just by investing in US companies? Sounds like reasonable exposure to me.

Am I reading this wrong?
Perfectly reasonable perspective! My own personal perspective is that 63% is still a lot of eggs in a single country-basket.
IMHO, the issue of 'single-country' basket is relevant to every country in the world - except for the one that constitutes approx 25% of the world's GDP.
Large basket = safe basket?

Large basket = much safer basket (less vol in general, lower pol risk, no currency risk)

More recently - large basket seems to PULL other baskets with it, in both directions.

Remember - it's not just a 'large' basket, it's a large, solid (more solid than any other) basket.

To me, intl (esp EM) markets are attractive if you want to make timing bets on (relatively) short periods of outsized returns. Other than that, as a US-based investor, I wouldn't really agonise over intl exposure.
UpperNwGuy
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Re: Reasons to invest internationally, or not.

Post by UpperNwGuy »

Broken Man 1999 wrote: Sat Sep 12, 2020 1:57 pm I really, really don't like most international stocks, but I pinch my nose and throw some dollars their way. Though, I do think I will be exiting Total Intl. Stock Market Index ETF in favor of another Intl. fund/ETF. High on my list is avoiding China.
High on my list is avoiding China, Russia, India, and most undeveloped countries. I have too much first hand experience to want to bet my money on any of those four.
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simplesimon
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Re: Reasons to invest internationally, or not.

Post by simplesimon »

Sentiment on these boards seem to have shifted slightly to pro-international investing based on recent new thread topics. I might have to sell my international holdings soon...
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

k b wrote: Sat Sep 12, 2020 6:28 pm
Robot Monster wrote: Sat Sep 12, 2020 1:35 pm
k b wrote: Sat Sep 12, 2020 12:55 pm
Robot Monster wrote: Sat Sep 12, 2020 12:39 pm
k b wrote: Sat Sep 12, 2020 12:23 pm

This means 37% exposure to non-US markets, just by investing in US companies? Sounds like reasonable exposure to me.

Am I reading this wrong?
Perfectly reasonable perspective! My own personal perspective is that 63% is still a lot of eggs in a single country-basket.
IMHO, the issue of 'single-country' basket is relevant to every country in the world - except for the one that constitutes approx 25% of the world's GDP.
Large basket = safe basket?

Large basket = much safer basket (less vol in general, lower pol risk, no currency risk)

More recently - large basket seems to PULL other baskets with it, in both directions.

Remember - it's not just a 'large' basket, it's a large, solid (more solid than any other) basket.

To me, intl (esp EM) markets are attractive if you want to make timing bets on (relatively) short periods of outsized returns. Other than that, as a US-based investor, I wouldn't really agonise over intl exposure.
All good points, which I highlighted in bold below as I address them.

Currency risk is an interesting issue. Most international funds do not hedge against currency risk. There are exceptions, such as Vanguard Global Minimum Volatility Fund which "seeks to hedge away most of the currency exposure resulting from its foreign stock holdings". But I think the general thinking is the currency exposure is a form of diversification, which most international investors want. (Franklin Templeton offers two Japan ETFs, Franklin FTSE Japan ETF with $448.47 Million in Total Net Assets, and Franklin FTSE Japan Hedged ETF with only $4.98 Million, to give you an idea of the difference in popularity.) And yes, the currency diversification results in increased volatility, which is the price one pays for the desired exposure. If something happens to the USD, I'm happy to be in yen, pounds, etc.

Lower political risk. Perhaps an issue more to do with certain emerging markets than developed?

US market is highly correlated to other markets. When the US market tanks, so do all the other ones. True, and there's no escaping this through global investing, but single countries do slump more than others (Japan has never come anywhere close to its 1989 high, the UK is below where it was in 2007,) and this is where global investing can help.

The US is a very solid basket, but it's still a single basket, and there's increased risk in placing all eggs in one basket. I view the global investing play like insurance, and most of the time insurance does not pay off.

I should mention the Economist article "Should investors diversify away from America?" very much influenced my thinking on this subject.
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Northern Flicker
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Re: Reasons to invest internationally, or not.

Post by Northern Flicker »

dml130 wrote: Sat Sep 12, 2020 5:16 pm I have a related question. With regard to currency and appreciation/depreciation, what I hear people say about the corresponding effects on foreign stocks sometimes conflict, at least in my mind, so I'd appreciate if anybody could try and clarify. For example, on the one hand I've heard that currency depreciation can be good for that country's businesses because those can then make goods at a less expensive price and export to other countries where they sell for the more valuable currency, which would therefore make the company and its corresponding stock more profitable and valuable. On the other hand, I've also heard the opposite, that an appreciating currency would make the company based in that country more valuable. Would anyone who knows care to explain?
Both are true-- they are competing forces. But a company does not usually just sell to the US so lots of exchange rates matter.
Last edited by Northern Flicker on Mon Sep 14, 2020 3:33 pm, edited 1 time in total.
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dru808
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Re: Reasons to invest internationally, or not.

Post by dru808 »

am wrote: Sat Sep 12, 2020 8:55 am This has been discussed ad nauseum. No one knows what’s right. But I can assure you that when international starts to outperform, we’ll see all kinds of threads about going 100% international, overweighting emerging markets, Lowering US because of high valuations etc.
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Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

dru808 wrote: Sat Sep 12, 2020 11:19 pm
am wrote: Sat Sep 12, 2020 8:55 am This has been discussed ad nauseum. No one knows what’s right. But I can assure you that when international starts to outperform, we’ll see all kinds of threads about going 100% international, overweighting emerging markets, Lowering US because of high valuations etc.
👍 yup
Very possibly. But those who got lured into international stocks during their recent period of outperformance hoping for that outperformance to continue must be woefully sorry today.
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Re: Reasons to invest internationally, or not.

Post by am »

Robot Monster wrote: Sun Sep 13, 2020 6:59 am
dru808 wrote: Sat Sep 12, 2020 11:19 pm
am wrote: Sat Sep 12, 2020 8:55 am This has been discussed ad nauseum. No one knows what’s right. But I can assure you that when international starts to outperform, we’ll see all kinds of threads about going 100% international, overweighting emerging markets, Lowering US because of high valuations etc.
👍 yup
Very possibly. But those who got lured into international stocks during their recent period of outperformance hoping for that outperformance to continue must be woefully sorry today.
That’s why we diversify and stay the course. It’s a good thing that international is underperforming US, because there will be a time when the reverse is true.
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Re: Reasons to invest internationally, or not.

Post by tibbitts »

Robot Monster wrote: Sat Sep 12, 2020 9:22 am Japan's disappointing stock market is mostly due to demographics! Or, in the author's words:

"But even after that initial precipitous decline, the Nikkei remains mired today at around 23,000, below 1991’s level. Why? Japan’s biggest problem is demographics. It not only has the world’s oldest population, but also its population is shrinking. That inhibits economic growth and puts severe fiscal pressure on the government. There’s nothing to suggest this situation will change soon."

Lest we forget, Alchemist points the finger at poor demographics, as the reason for poor international performance, in the thread, Demographic Destiny.
The demographics were known when the consensus was that Japan would dominate the world economy. The isolated and non-diverse population was considered a competitive advantage.
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Re: Reasons to invest internationally, or not.

Post by tibbitts »

simplesimon wrote: Sat Sep 12, 2020 7:52 pm Sentiment on these boards seem to have shifted slightly to pro-international investing based on recent new thread topics. I might have to sell my international holdings soon...
Interesting, it seems the opposite to me ... sentiment over the past several years seems to have shifted away from international. I'm not sure how to measure objectively, though.

I would say the same about value, incidentally: sentiment seems to have shifted definitely towards a total market approach, and even to some extent towards growth.
Last edited by tibbitts on Sun Sep 13, 2020 8:05 am, edited 1 time in total.
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Re: Reasons to invest internationally, or not.

Post by midareff »

rascott wrote: Sat Sep 12, 2020 9:20 am "Indeed, over the period through year-end 2019, U.S stocks outperformed foreign stocks over the trailing five, 10, 15, 20, 25, 30, 40 and 50 years."

Enough said.
I'll just add to that I worked here, saved here, live here, eat here, buy all my stuff here, bank here and invest here. Remind me again why I need international to decrease my portfolio performance in the name of diversification and some mystical free lunch? Since you can't push a diversified index such as Total Stock Market without pushing world-wide diversification in stocks and bonds you best be careful you don't need to work longer and save more due to the systemic under-performance as cited by rascott.

simplesimon wrote: ↑Sat Sep 12, 2020 10:52 pm
"Sentiment on these boards seem to have shifted slightly to pro-international investing based on recent new thread topics. I might have to sell my international holdings soon"...

tidbitts wrote in reply: "Interesting, it seems the opposite to me ... sentiment over the past several years seems to have shifted away from international. I'm not sure how to measure objectively, though."

Methinks: I think investing on sentiment and or perceived trends will get you off the Boglehead track and lower performance quickly. This isn't a sentiment game, it's pure do your homework and stick with your plan.
Last edited by midareff on Sun Sep 13, 2020 8:08 am, edited 2 times in total.
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Re: Reasons to invest internationally, or not.

Post by tibbitts »

carolinaman wrote: Sat Sep 12, 2020 9:10 am International and emerging markets will have their day in the sun. But I think US equities will continue to outperform over the long term as advocated in Moberg's article, "Happier at Home" (see op for link). After all, a US only strategy advocated both by Buffet and Bogle must be good.
The objective would be to invest in a market that resembles today the U.S. that Bogle and Buffett began their investing lives in. Whether that's the U.S. market is more difficult to determine.

I don't agree that a U.S.-only strategy "must be good" because of anything Bogle and Buffett have said.
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Re: Reasons to invest internationally, or not.

Post by tibbitts »

midareff wrote: Sun Sep 13, 2020 7:51 am ...
I think you might want to re-do your quotes to make it obvious who is/was saying what.
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Re: Reasons to invest internationally, or not.

Post by midareff »

tibbitts wrote: Sun Sep 13, 2020 8:04 am
midareff wrote: Sun Sep 13, 2020 7:51 am ...
I think you might want to re-do your quotes to make it obvious who is/was saying what.
done
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Re: Reasons to invest internationally, or not.

Post by Seasonal »

From the Happier article: "That brings us to the second reason to favor U.S. over foreign stocks: America’s future continues to look brighter."

That entirely misses the point. If U.S. stocks are priced for a better economy or political system or whatever, then U.S. stocks won't do any better if both markets live up to expectations.

The exception to that statement is what Bogle called speculative return - p/e ratios might expand indefinitely for U.S. stocks. Counting on that seems overly risky.
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Re: Reasons to invest internationally, or not.

Post by lostdog »

dru808 wrote: Sat Sep 12, 2020 11:19 pm
am wrote: Sat Sep 12, 2020 8:55 am This has been discussed ad nauseum. No one knows what’s right. But I can assure you that when international starts to outperform, we’ll see all kinds of threads about going 100% international, overweighting emerging markets, Lowering US because of high valuations etc.
👍 yup
Yes we will see this for sure.
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Re: Reasons to invest internationally, or not.

Post by whereskyle »

Since we don't know whether and how much we should invest internationally, VT (Vanguard Total World ETF, ER .08) provides an attractive proposition. If US continues to outperform, great. VT will give you more and more of that outperformance. If US starts to underperform, no worries. VT will give you less and less of that underperformance.

It's a great choice for the international agnostic. I personally am sympathetic to Jack's advice to stay in the US, but I am also uncomfortable with keeping all my eggs in one basket, so my portfolio is 50% VTI and 50% VT. I'll keep that allocation regardless of how VT's composition changes.
"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
Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

Sometimes I wonder if international-leery folks might take a stab at international if there was a fund like VT, but 1) had a much smaller international allocation, and 2) the international allocation was megacaps, companies whose revenue sources more closely resembled US megacaps'. Just compare Sanofi (a French biopharmaceutical company) with Apple:

Revenue by region

Sanofi
39.7% US
27.55% Europe
32.75 Asia/Latin America/Eurasia/Africa/Middle East/Rest of world

Apple
43.8% US
24% Europe
32% China/Japan/Rest of Asia Pacific

***

Sanofi source
Apple revenue based on total revenue for q1 2019
Source
Last edited by Robot Monster on Sun Sep 13, 2020 10:12 am, edited 1 time in total.
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simplesimon
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Re: Reasons to invest internationally, or not.

Post by simplesimon »

tibbitts wrote: Sun Sep 13, 2020 7:51 am
simplesimon wrote: Sat Sep 12, 2020 7:52 pm Sentiment on these boards seem to have shifted slightly to pro-international investing based on recent new thread topics. I might have to sell my international holdings soon...
Interesting, it seems the opposite to me ... sentiment over the past several years seems to have shifted away from international. I'm not sure how to measure objectively, though.

I would say the same about value, incidentally: sentiment seems to have shifted definitely towards a total market approach, and even to some extent towards growth.
I meant very recent...like the last several weeks.
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Re: Reasons to invest internationally, or not.

Post by k b »

Robot Monster wrote: Sat Sep 12, 2020 8:15 pm
k b wrote: Sat Sep 12, 2020 6:28 pm
Robot Monster wrote: Sat Sep 12, 2020 1:35 pm
k b wrote: Sat Sep 12, 2020 12:55 pm
Robot Monster wrote: Sat Sep 12, 2020 12:39 pm

Perfectly reasonable perspective! My own personal perspective is that 63% is still a lot of eggs in a single country-basket.
IMHO, the issue of 'single-country' basket is relevant to every country in the world - except for the one that constitutes approx 25% of the world's GDP.
Large basket = safe basket?

Large basket = much safer basket (less vol in general, lower pol risk, no currency risk)

More recently - large basket seems to PULL other baskets with it, in both directions.

Remember - it's not just a 'large' basket, it's a large, solid (more solid than any other) basket.

To me, intl (esp EM) markets are attractive if you want to make timing bets on (relatively) short periods of outsized returns. Other than that, as a US-based investor, I wouldn't really agonise over intl exposure.
All good points, which I highlighted in bold below as I address them.

Currency risk is an interesting issue. Most international funds do not hedge against currency risk. There are exceptions, such as Vanguard Global Minimum Volatility Fund which "seeks to hedge away most of the currency exposure resulting from its foreign stock holdings". But I think the general thinking is the currency exposure is a form of diversification, which most international investors want. (Franklin Templeton offers two Japan ETFs, Franklin FTSE Japan ETF with $448.47 Million in Total Net Assets, and Franklin FTSE Japan Hedged ETF with only $4.98 Million, to give you an idea of the difference in popularity.) And yes, the currency diversification results in increased volatility, which is the price one pays for the desired exposure. If something happens to the USD, I'm happy to be in yen, pounds, etc.

Lower political risk. Perhaps an issue more to do with certain emerging markets than developed?

US market is highly correlated to other markets. When the US market tanks, so do all the other ones. True, and there's no escaping this through global investing, but single countries do slump more than others (Japan has never come anywhere close to its 1989 high, the UK is below where it was in 2007,) and this is where global investing can help.

The US is a very solid basket, but it's still a single basket, and there's increased risk in placing all eggs in one basket. I view the global investing play like insurance, and most of the time insurance does not pay off.

I should mention the Economist article "Should investors diversify away from America?" very much influenced my thinking on this subject.
Thanks for the detailed response.

Very broadly speaking, developed market equities correlate to US equities correlate (major divergence could happen anytime; my own prediction is 2021, when US markets take off) and EM equities correlate to US HY bonds. So, if you want 'diversification', all you need is a 2-fund portfolio with some modification but without geographical diversification. Of course, there would be periods when certain EM does well. But that would be timing and that assumes that S&P 500 companies don't take advantage of those markets.
k b
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Re: Reasons to invest internationally, or not.

Post by k b »

lostdog wrote: Sun Sep 13, 2020 8:13 am
dru808 wrote: Sat Sep 12, 2020 11:19 pm
am wrote: Sat Sep 12, 2020 8:55 am This has been discussed ad nauseum. No one knows what’s right. But I can assure you that when international starts to outperform, we’ll see all kinds of threads about going 100% international, overweighting emerging markets, Lowering US because of high valuations etc.
👍 yup
Yes we will see this for sure.
My 2c:

Timing!

Good for speculation, for those with the appetite.

Bad for a major portfolio allocation in a BH way!
GAAP
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Re: Reasons to invest internationally, or not.

Post by GAAP »

As a group, investors will chase performance -- whether that means stocks vs bonds or domestic vs international. As a direct result of that, they buy high and sell low. This whole discussion seems to be showing that -- even in a group that supposedly "stays the course"...

My personal view treats the markets like they are a baby's crib mobile. The baby (investors) bats them around and various distractions (asset classes) move higher or lower. I invest globally for both stocks and bonds (VT and BNDW). I also am contrarian in nature, so I try not to do what most investors do.

There are valid reasons to stay domestic or not -- each person needs to decide for themselves which reasons make more sense personally, and what conditions would cause them to revise that decision. Then, until those conditions arise, stick to the plan.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
invest4
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Re: Reasons to invest internationally, or not.

Post by invest4 »

lostdog wrote: Sun Sep 13, 2020 8:13 am
dru808 wrote: Sat Sep 12, 2020 11:19 pm
am wrote: Sat Sep 12, 2020 8:55 am This has been discussed ad nauseum. No one knows what’s right. But I can assure you that when international starts to outperform, we’ll see all kinds of threads about going 100% international, overweighting emerging markets, Lowering US because of high valuations etc.
👍 yup
Yes we will see this for sure.
Ha...indeed.

Look, the last several years have only reinforced the idea that "I know nothing". We often make certain assumptions that appear steadfast and seemingly permanent, only to discover they are potentially much more fragile and / or fleeting. Given enough time in ones investing life, you are also afforded the opportunity to see the same "movie" played a few times (e.g. market upheavals and recoveries and investors response (panic and calm alike)). Same goes for sentiment about investor behavior as expressed above...all very true and funny. Valid arguments all around on this topic. Make your bets and enjoy the show.
Northern Flicker
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Re: Reasons to invest internationally, or not.

Post by Northern Flicker »

k b wrote: Very broadly speaking, developed market equities correlate to US equities correlate (major divergence could happen anytime; my own prediction is 2021, when US markets take off) and EM equities correlate to US HY bonds.
That is not what I see on portfoliovisualizer with actual investments for these asset classes:

https://www.portfoliovisualizer.com/ass ... &months=36
Risk is not a guarantor of return.
Actin
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Re: Reasons to invest internationally, or not.

Post by Actin »

It's natural to want to diversify. VTSAX has plenty of diversification, but it's natural to want more, even if what you're diversifying into is sub optimal or even negative. Investing in international just looks and feels correct on paper, not so much in reality though.

There is also a political aspect to it, and without getting too much into it, it's more or less politically incorrect to say the US is the best. That influences a lot of investors, particularly large institutions, such as Vanguard itself.
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Matigas
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Re: Reasons to invest internationally, or not.

Post by Matigas »

Are you diversifying to reduce volatility, or diversifying to increase performance?
Can you have both?
Can anyone truly define risk as compensated Vs. whateveryouwanttocallit?
k b
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Re: Reasons to invest internationally, or not.

Post by k b »

Northern Flicker wrote: Sun Sep 13, 2020 2:27 pm
k b wrote: Very broadly speaking, developed market equities correlate to US equities correlate (major divergence could happen anytime; my own prediction is 2021, when US markets take off) and EM equities correlate to US HY bonds.
That is not what I see on portfoliovisualizer with actual investments for these asset classes:

https://www.portfoliovisualizer.com/ass ... &months=36
I compared VWEAX and VEMAX - EM equity vs DM HY
https://www.portfoliovisualizer.com/ass ... &months=36

Separately, I compared VTSAX and VTGMX
https://www.portfoliovisualizer.com/ass ... &months=36

Looks like the correlations are pretty high - 0.73 and 0.88.
Rolling correlations for 2006 to 2020 shows drop below 0.65 in the EM case in the last couple of years, followed by a serious reversion. In the US to DM case, correlation is consistently above 0.7 other than for a short period in 2015.

Perhaps you expected a higher correlation based on my comments? But my basic point (worth no more than 2c) is that this kind of 'diversification' is not worth the extra effort - UNLESS you time it (esp in the EM case) well due to luck or skill.

Or maybe I am reading the graphs wrong. Happy to be corrected.
FIby45
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Re: Reasons to invest internationally, or not.

Post by FIby45 »

At some point the US was an "emerging market."

I would have hated to miss that buy.
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PicassoSparks
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Re: Reasons to invest internationally, or not.

Post by PicassoSparks »

rascott wrote: Sat Sep 12, 2020 9:20 am "Indeed, over the period through year-end 2019, U.S stocks outperformed foreign stocks over the trailing five, 10, 15, 20, 25, 30, 40 and 50 years."

Enough said.
Which direction do you think this argues in favor of?
Northern Flicker
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Re: Reasons to invest internationally, or not.

Post by Northern Flicker »

k b wrote: Sun Sep 13, 2020 8:43 pm
Northern Flicker wrote: Sun Sep 13, 2020 2:27 pm
k b wrote: Very broadly speaking, developed market equities correlate to US equities correlate (major divergence could happen anytime; my own prediction is 2021, when US markets take off) and EM equities correlate to US HY bonds.
That is not what I see on portfoliovisualizer with actual investments for these asset classes:

https://www.portfoliovisualizer.com/ass ... &months=36
I compared VWEAX and VEMAX - EM equity vs DM HY
https://www.portfoliovisualizer.com/ass ... &months=36

Separately, I compared VTSAX and VTGMX
https://www.portfoliovisualizer.com/ass ... &months=36

Looks like the correlations are pretty high - 0.73 and 0.88.
Rolling correlations for 2006 to 2020 shows drop below 0.65 in the EM case in the last couple of years, followed by a serious reversion. In the US to DM case, correlation is consistently above 0.7 other than for a short period in 2015.

Perhaps you expected a higher correlation based on my comments? But my basic point (worth no more than 2c) is that this kind of 'diversification' is not worth the extra effort - UNLESS you time it (esp in the EM case) well due to luck or skill.

Or maybe I am reading the graphs wrong. Happy to be corrected.
First, these are sample correlations calculated from historical samples, not the actual correlations calculated from the joint and individual distributions of return (which are unknown). They are fair estimates, but are susceptible to sample bias from different time periods.

By separating them into separate pairwise sample correlation calculations, you are computing them for different time periods. This introduces even more uncertainty into your interpretation then just the bias of a single sample.

The time period is constrained by when the fund existed or data available to PV. By just computing a single correlation matrix for all of the funds you remove the uncertainty of different time periods.

But there still is enough bias in a single time period that I would not make such a result the primary consideration or primary driver for constructing a portfolio.
Risk is not a guarantor of return.
Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

Matigas wrote: Sun Sep 13, 2020 8:18 pm Are you diversifying to reduce volatility, or diversifying to increase performance?
Can you have both?
Can anyone truly define risk as compensated Vs. whateveryouwanttocallit?
I'm diversifying to diversify. It's an end unto itself. Let me illustrate what I mean with a little story.

A farmer named Santiago and his son, Pedro, lived in a tiny village far up in the mountain ranges of Peru. Farming there was difficult, as you can well imagine; the terrain being so rocky meant it was difficult to find suitable spots to farm. After some years of trial and error, Santiago felt he found the best place to plant his crops, a field that would give him the best bounty among the rest. Having finally found the ideal field, he told his son, "This year we shall plant all our crops there."
"But, father, my friend Alejandro says his father always plants his crops across twenty fields!"
"That's silly!" said Santiago, with a dismissive wave of the hand. "You want to plant in the best field! Best field means best results!"
"Oh, father!," said Pedro. "No! Alejandro's father says crop yields can vary widely from field to field, because of erratic microclimates. He says it's best to spread one's bets, to have your eggs in more than one basket, in order to reduce the risk of starvation!"
"I prefer to place all my eggs in the best basket, thank you very much."
A few months later, Santiago found himself on his hands and knees, digging his fingers into the barren soil of his favorite field, crying to the gods, why, oh, why.
"Because microclimates, father," said Pedro quietly. He clutched at his own thin body, feeling his stomach crying out beneath his flesh.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
burritoLover
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Re: Reasons to invest internationally, or not.

Post by burritoLover »

Robot Monster wrote: Mon Sep 14, 2020 9:54 am
Matigas wrote: Sun Sep 13, 2020 8:18 pm Are you diversifying to reduce volatility, or diversifying to increase performance?
Can you have both?
Can anyone truly define risk as compensated Vs. whateveryouwanttocallit?
I'm diversifying to diversify. It's an end unto itself. Let me illustrate what I mean with a little story.

A farmer named Santiago and his son, Pedro, lived in a tiny village far up in the mountain ranges of Peru. Farming there was difficult, as you can well imagine; the terrain being so rocky meant it was difficult to find suitable spots to farm. After some years of trial and error, Santiago felt he found the best place to plant his crops, a field that would give him the best bounty among the rest. Having finally found the ideal field, he told his son, "This year we shall plant all our crops there."
"But, father, my friend Alejandro says his father always plants his crops across twenty fields!"
"That's silly!" said Santiago, with a dismissive wave of the hand. "You want to plant in the best field! Best field means best results!"
"Oh, father!," said Pedro. "No! Alejandro's father says crop yields can vary widely from field to field, because of erratic microclimates. He says it's best to spread one's bets, to have your eggs in more than one basket, in order to reduce the risk of starvation!"
"I prefer to place all my eggs in the best basket, thank you very much."
A few months later, Santiago found himself on his hands and knees, digging his fingers into the barren soil of his favorite field, crying to the gods, why, oh, why.
"Because microclimates, father," said Pedro quietly. He clutched at his own thin body, feeling his stomach crying out beneath his flesh.
Except Santiago's field is larger than all the other 20 fields combined and when all fields (including Santiago's) are especially unproductive, the other 20 (as a whole) tend to do worse than Santiago's field. And even when Santiago's field under-produces the other 20, the difference is not nearly as great as when Santiago's field out-produces the other 20. So Santiago really just needs an emergency fund.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Robot Monster
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Re: Reasons to invest internationally, or not.

Post by Robot Monster »

burritoLover wrote: Mon Sep 14, 2020 10:23 am
Robot Monster wrote: Mon Sep 14, 2020 9:54 am
Matigas wrote: Sun Sep 13, 2020 8:18 pm Are you diversifying to reduce volatility, or diversifying to increase performance?
Can you have both?
Can anyone truly define risk as compensated Vs. whateveryouwanttocallit?
I'm diversifying to diversify. It's an end unto itself. Let me illustrate what I mean with a little story.

A farmer named Santiago and his son, Pedro, lived in a tiny village far up in the mountain ranges of Peru. Farming there was difficult, as you can well imagine; the terrain being so rocky meant it was difficult to find suitable spots to farm. After some years of trial and error, Santiago felt he found the best place to plant his crops, a field that would give him the best bounty among the rest. Having finally found the ideal field, he told his son, "This year we shall plant all our crops there."
"But, father, my friend Alejandro says his father always plants his crops across twenty fields!"
"That's silly!" said Santiago, with a dismissive wave of the hand. "You want to plant in the best field! Best field means best results!"
"Oh, father!," said Pedro. "No! Alejandro's father says crop yields can vary widely from field to field, because of erratic microclimates. He says it's best to spread one's bets, to have your eggs in more than one basket, in order to reduce the risk of starvation!"
"I prefer to place all my eggs in the best basket, thank you very much."
A few months later, Santiago found himself on his hands and knees, digging his fingers into the barren soil of his favorite field, crying to the gods, why, oh, why.
"Because microclimates, father," said Pedro quietly. He clutched at his own thin body, feeling his stomach crying out beneath his flesh.
Except Santiago's field is larger than all the other 20 fields combined and when all fields (including Santiago's) are especially unproductive, the other 20 (as a whole) tend to do worse than Santiago's field. And even when Santiago's field under-produces the other 20, the difference is not nearly as great as when Santiago's field out-produces the other 20. So Santiago really just needs an emergency fund.
Alright, my beautifully illustrated story about the importance of keeping eggs in more than one basket is officially ruined. I'm gonna cry out "unfair metaphor extension" anyway. If I have $100,000, the size of my field will be the same if it's invested in the US, or globally. So, there. Put that in your burrito and smoke it. :wink:

Back to the basic idea of keeping eggs in more than one basket: if something bad and sustained happens to the US, having placed eggs in another basket, having crops in another field, will be rewarding. I do not expect anything like this to happen to the US, just as I do not expect my house to burn down, but I have fire insurance, just in case.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
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