What's your U.S. : International ratio?
What's your U.S. : International ratio?
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Just curious how other Bogleheads have their U.S.:International ratio set up. I'm currently at 2:1 but I'm tempted to cap weight and go 1:1. After all, if I believe in cap weighting my U.S. equities, why not cap weight my global equities as well?
Just curious how other Bogleheads have their U.S.:International ratio set up. I'm currently at 2:1 but I'm tempted to cap weight and go 1:1. After all, if I believe in cap weighting my U.S. equities, why not cap weight my global equities as well?
Kevin
I'm 60:40. Within a pretty broad range, I don't think there is any way of telling in advance which allocation is best (e.g., I doubt one can know in advance whether 40%, 50%, or 60% international is a better idea). In my case, the international funds available to me are both more expensive and less flexible than the U.S. funds available to me. So, it makes sense to me to stay on the low end of my acceptable range. In other words, I think within limits it makes sense to "underweight" international if your options for international investing are not as good.
food for thought!?
"The S&P 500 has so much total international-sales exposure, your stock portfolio might not even need a separate international component for diversification. ... About 45% of the revenue of S&P 500 companies comes from outside of the U.S., and that figure could hit 50% by the end of the year, according to Silverblatt, the S&P analyst."
from Jonathan Burton, MarketWatch
Mar 7, 2007
"The S&P 500 has so much total international-sales exposure, your stock portfolio might not even need a separate international component for diversification. ... About 45% of the revenue of S&P 500 companies comes from outside of the U.S., and that figure could hit 50% by the end of the year, according to Silverblatt, the S&P analyst."
from Jonathan Burton, MarketWatch
Mar 7, 2007
Well that makes me wonder how international exposure is really defined.BrianTH wrote:Well, that assumes "sales exposure" to an international market is the same thing as owning equities in that international market.
An example might be Tupperware. It's a U.S. company, but nearly 90% of its profit comes from outside North America.
Since the profit isn't from the U.S., is their much relevance that the company stock trades on the NYSE rather than a European exchange or Tokyo?
Bob
P.S. I'm 2:1 as you can see from my avatar
Last edited by CyberBob on Fri Mar 09, 2007 2:47 pm, edited 1 time in total.
Bob,
I'm not sure the exchange matters per se. But my point was that a lot more goes into a company's earnings and stock price than where its sales end up being. For example, one would also want to know where a company's assets were, where its salaries were paid, where it was taxed, and so on.
So, while there is no doubt that the globalization of supply chains makes the distinction between many large companies in different countries weaker, I'd suggest it still matters where the company in question carries out the value-added part of its role in the supply chain.
I'm not sure the exchange matters per se. But my point was that a lot more goes into a company's earnings and stock price than where its sales end up being. For example, one would also want to know where a company's assets were, where its salaries were paid, where it was taxed, and so on.
So, while there is no doubt that the globalization of supply chains makes the distinction between many large companies in different countries weaker, I'd suggest it still matters where the company in question carries out the value-added part of its role in the supply chain.
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Brian: i'm not making that assumption ... nor do i think that assumption is implied in the original statement. i'm just passing on the observation, you can make of it as you wish.BrianTH wrote:d,
Well, that assumes "sales exposure" to an international market is the same thing as owning equities in that international market. That doesn't strike me as a plausible assumption.
60:40 right now.
Some thoughts behind this ratio:
1. US seems to be about 40% of world GDP, so this was the starting point.
2. We live, will retire, and spend our money in the US, so a higher allocation to US from 40% looked reasonable.
3. We didn't want to take too much country risk of the US, so we didn't want US to be too much higher than 40%.
4. The higher expenses of investing in international stocks vs that of the US stocks led us to overweighting the US a bit more. (i.e. If all else were equal I would expect US large caps and European large caps to return the same. Because Europe is more expensive to invest in, I would expect slightly lower returns from there.)
5. We trust the regulations in the US more than those of International firms, so we thought overweighting US was better.
6. Because of lack of cheap access to Small/Value classes of International stocks, and because our risk profile does not allow us to retire with the balance that we want simply by investing in Large Caps, we overweight US a bit more, but take the risk in US LV, SC, and SV.
7. Because EM stocks are expected to have a higher return, we overweight International a bit more.
Starting with point 1, and balancing roughtly points 2 through 7, we arrived at a 60:40 ratio of US:International. This isn't rigorous or scientific, but we are happy at where we arrived. This is also not cast in stone - if VINEX (International Explorer) opens to new investors for instance, we will definitely reconsider the ratio.
But we won't do it for performance chasing reasons.
[Edit]I incorrectly used the ticker VTRIX when I meant VINEX.
Some thoughts behind this ratio:
1. US seems to be about 40% of world GDP, so this was the starting point.
2. We live, will retire, and spend our money in the US, so a higher allocation to US from 40% looked reasonable.
3. We didn't want to take too much country risk of the US, so we didn't want US to be too much higher than 40%.
4. The higher expenses of investing in international stocks vs that of the US stocks led us to overweighting the US a bit more. (i.e. If all else were equal I would expect US large caps and European large caps to return the same. Because Europe is more expensive to invest in, I would expect slightly lower returns from there.)
5. We trust the regulations in the US more than those of International firms, so we thought overweighting US was better.
6. Because of lack of cheap access to Small/Value classes of International stocks, and because our risk profile does not allow us to retire with the balance that we want simply by investing in Large Caps, we overweight US a bit more, but take the risk in US LV, SC, and SV.
7. Because EM stocks are expected to have a higher return, we overweight International a bit more.
Starting with point 1, and balancing roughtly points 2 through 7, we arrived at a 60:40 ratio of US:International. This isn't rigorous or scientific, but we are happy at where we arrived. This is also not cast in stone - if VINEX (International Explorer) opens to new investors for instance, we will definitely reconsider the ratio.
But we won't do it for performance chasing reasons.
[Edit]I incorrectly used the ticker VTRIX when I meant VINEX.
Last edited by AshKK on Fri Mar 09, 2007 8:06 pm, edited 1 time in total.
Ash |
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If all markets were the same as US then I would agree cap weighting makes perfect sense. Although the stat I have seen is now US is below 50% of world market cap---but not sure how markets like China are reflected in that since the govt still controls most of the business capital there....so do you include the stock "owned" by the govt or not? Didn't Vanguard just change the index for emerging markets to include more of China now that govt has released more stocks to the market?
So somehow you have to reflect the foreign market risks in portfolio balancing. One thing I have done is actually use ishares country ETFs to invest in the foreign markets I trust more as well as "value" countries. It costs a little more than an EFA/EEM approach but I sure "feel" better about investing in UK, Belgium, Netherlands, Brazil, S Korea, Austrailia, Canada then Germany, France, Italy, China, Russia, India!
So somehow you have to reflect the foreign market risks in portfolio balancing. One thing I have done is actually use ishares country ETFs to invest in the foreign markets I trust more as well as "value" countries. It costs a little more than an EFA/EEM approach but I sure "feel" better about investing in UK, Belgium, Netherlands, Brazil, S Korea, Austrailia, Canada then Germany, France, Italy, China, Russia, India!
China
Indexes such as the MSCI Global Capital Markets Index are free-float adjusted, and so wouldn't count stock that isn't actually available.LiveSoftMike wrote:...so do you include the stock "owned" by the govt or not?
In a market-cap weighted index, China isn't nearly as big as everyone seems to think. Emerging Markets equity is about 4.1% of total world market cap (equity and fixed income). Chinese equity is about 10% of that, or 0.41% of total world market cap (0.71% of equity).LiveSoftMike wrote:...not sure how markets like China are reflected...
Bob
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Currently moving towards 60/40 from a 70/30 position, and considering increasing it even more.
I'm not a US citizen, and am not sure where I will even be in 10 years time, so it doesn't really make sense for me to overweight the US relative to the rest of the world....
Having more international equities also hedges against the possibility of the US dollar declining (and me retiring outside of the US).
I'm not a US citizen, and am not sure where I will even be in 10 years time, so it doesn't really make sense for me to overweight the US relative to the rest of the world....
Having more international equities also hedges against the possibility of the US dollar declining (and me retiring outside of the US).
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New-Home Bias
To me, it looks like a bit of "new-home" bias.bpp wrote:US citizen living in Japan.
Japan:US:Elsewhere = 50:25:25...
Is this a smart plan?
Any particular reason you are overweighting Japan so much?
Bob
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I have to say, I'm a little surprised at the allocations, given that Bogle dislikes international and Vanguard recommends a 20% max. Obviously, there's plenty of logic in a cap-weighted portfolio, and plenty of reasons to adjust one's international allocation up or down, but I expected more people to have 20% or so, and I'm surprised that virtually no one has basically ignored international.
I'm at about 80 U.S./20 Int'l. Anything within the 10-25% range for international stocks is fine with me, although I wonder if I shouldn't raise the upper boundary of that given what other Diehards appear to be doing.
I'm at about 80 U.S./20 Int'l. Anything within the 10-25% range for international stocks is fine with me, although I wonder if I shouldn't raise the upper boundary of that given what other Diehards appear to be doing.
20 Percent
International equals 20 percent of my equities [approx 11 percent of the whole portfolio]
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Kevin,Kevinm1986 wrote:I have to say, I'm a little surprised at the allocations, given that Bogle dislikes international and Vanguard recommends a 20% max. ...
I'm at about 80 U.S./20 Int'l. Anything within the 10-25% range for international stocks is fine with me, although I wonder if I shouldn't raise the upper boundary of that given what other Diehards appear to be doing.
I am someone who has an international allocation equal to 40% of our stock portfolio. We went this high because of the reasons I listed above. But we spent a lot of time thinking about. Bogle is a very smart guy, so we thought extra hard about the additional allocation.
So if you want a higher allocation go for it. But give it due thought.
Ash |
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The common guess seems to be market cap, although personally I see some point to GDP ratios. Lets flip the other way, How much of Toyota's, Sony's, e.t.c. profits are from outside their home country? I don't know but suspect it's not insignificant . I had one stock I own moved where it was listed to the US and seems to behave differently due to that (it's revenue was mostly US anyway) - obviously not meaningful with a single stock but interesting I thought.CyberBob wrote:Well that makes me wonder how international exposure is really defined.
An example might be Tupperware. It's a U.S. company, but nearly 90% of its profit comes from outside North America.
Since the profit isn't from the U.S., is their much relevance that the company stock trades on the NYSE rather than a European exchange or Tokyo?
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Rob |
Its a dangerous business going out your front door. - J.R.R.Tolkien
Me...
I am somewhere around:
63% US
37% International
I would go 50/50 in a heartbeat if I could get International Small Value at Vanguard or in my Company Plan.
If you consider Emerging Markets exposure at around 15% of your International Equity 1972-2006.... 50/50 has been about the right mix for maxing out the benefits of low correlation and rebalancing bonus.
I think it is also somewhat ideal from a diversification point of view.
The reason I am not there yet... can't get IS or ISV... Not how I want to get them anyway (low cost indexed or managed fund at Vanguard).
Trev H
63% US
37% International
I would go 50/50 in a heartbeat if I could get International Small Value at Vanguard or in my Company Plan.
If you consider Emerging Markets exposure at around 15% of your International Equity 1972-2006.... 50/50 has been about the right mix for maxing out the benefits of low correlation and rebalancing bonus.
I think it is also somewhat ideal from a diversification point of view.
The reason I am not there yet... can't get IS or ISV... Not how I want to get them anyway (low cost indexed or managed fund at Vanguard).
Trev H
Re: New-Home Bias
It is actually a lower allocation than is generally recommended to investors in Japan. But I would not feel comfortable with more than 50% in any one country.CyberBob wrote:To me, it looks like a bit of "new-home" bias.bpp wrote:US citizen living in Japan.
Japan:US:Elsewhere = 50:25:25...
Is this a smart plan?
Any particular reason you are overweighting Japan so much?
Pure market weight would put Japan at 10%, but I think that feels way too low for someone living in (and having no particular plans to leave) Japan. Bogle himself recommends that Canadian investors hold a 50% weighting in Canada, and Canada has a smaller market cap and GDP than Japan.
Japanese stocks also tend to move in opposition to the yen (due to export domination), so if the yen collapsed then Japanese stocks would probably rise, offsetting the higher cost of imported goods and inflation in general.
But I'm open to a reasonable argument for a different number. Any suggestions?
Re: New-Home Bias
The weighting of the country where you live is an interesting question.bpp wrote:But I'm open to a reasonable argument for a different number. Any suggestions?
As you mention, Japan is about 10% of world market-cap. But, if you live there and spend money in Yen, is that a reason to overweight it?
Or for me, since I live in the U.S. and spend dollars, is that a reason to overweight the U.S.? Or underweight it?
Bob
Re: New-Home Bias
My assumption has been that, on the whole, it is a reason to overweight. Norbert Schlenker has made this argument pretty forcefully in the context of Canadian investors, and also directly to me for investors living in Japan (if I recall correctly), and I think it makes sense in the general case.CyberBob wrote: Or for me, since I live in the U.S. and spend dollars, is that a reason to overweight the U.S.? Or underweight it?
Of course this argument falls apart somewhat for countries which have no or tiny stock markets, so it is not iron-clad. (Or maybe you just have to focus on other asset classes in that case?) But ask yourself, if and when the US market cap falls to be in line with world GDP share (~27% last I recall) or lower, would you really feel comfortable lowering your US allocation that far to match? Some would, I am sure. I doubt most would, however, and I'm not sure most should.
But again, I'm open to reasonable arguments.
Re: New-Home Bias
Bob- unfortunately the answer to this is unknowable in advance. If the US enters a Japan-style recession, you'll wish you'd invested more abroad. If the dollar strenghtens against the pound and yen, you'll wish you'd invested more here (all else equal).Or for me, since I live in the U.S. and spend dollars, is that a reason to overweight the U.S.? Or underweight it?
My advice: Base this one on emotions: do what allows you to sleep at night.
Nick
Long, slow cap gains slog
For me, investing in international has meant freeing up money from stocks I've held for a very long time with sizeable cap gains. Some of them are particularly tax inefficient (i.e. utilities). To the extent I can, I've been cutting down my income any way possible in order to take capital gains at the lowest possible tax rate.
My international now is just 5% of my entire portfolio. At 50-50, it amounts to 10% of my equities. My long term goal is to get to 10% International, 10% Tips, as part of a 50-50 portfolio.
I started out using Tax Managed International, but just switched to investing lump sums when I have them in the new FTSE World Fund ETF (veu is the ticker).
Tim
My international now is just 5% of my entire portfolio. At 50-50, it amounts to 10% of my equities. My long term goal is to get to 10% International, 10% Tips, as part of a 50-50 portfolio.
I started out using Tax Managed International, but just switched to investing lump sums when I have them in the new FTSE World Fund ETF (veu is the ticker).
Tim
Re: What's your U.S. : International ratio?
Nearly 11 years later, have people changed their minds? 11 years, a lot has happened. Did the crash affect your line of thinking?
Going Bogle's way of 80/20 equity? Or going with the 2017 market weight 50/50 equity?
Going Bogle's way of 80/20 equity? Or going with the 2017 market weight 50/50 equity?
Re: What's your U.S. : International ratio?
Currently 100% equity with 80% US and 20% international. The 2 funds I use for my retirement are As follows:
80% VTSMX (vanguard total stock market)
20% VGTSX (vanguard total international)
I have thought about going 70-30 or 75-25 but my core holding in VTSMX has plenty of foreign influence.
Let's face it. The US economy will out perform international in the long run. If not.... we are all in trouble
80% VTSMX (vanguard total stock market)
20% VGTSX (vanguard total international)
I have thought about going 70-30 or 75-25 but my core holding in VTSMX has plenty of foreign influence.
Let's face it. The US economy will out perform international in the long run. If not.... we are all in trouble
Re: What's your U.S. : International ratio?
100-0
All U.S. Portfolio! I followed Jack's advice and get my international through the S&P or Total Market Index. The accidental tourist if you will.
All U.S. Portfolio! I followed Jack's advice and get my international through the S&P or Total Market Index. The accidental tourist if you will.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
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Re: What's your U.S. : International ratio?
I disagree with the latter half of this statement and its reflected in my US/Intl allocation, which is weighted like the Total World stock index...about 53/47 at the moment.
I've always held world weightings since I started investing about 10 years ago.
Re: What's your U.S. : International ratio?
100% US : 0% INTL
Last edited by Global100 on Wed Jan 24, 2018 4:44 pm, edited 1 time in total.
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Re: What's your U.S. : International ratio?
70/30, moving towards 50/50 longer term. My contributions have been 50/50 or even greater for International vs. US over the last 12-18 months.
What keeps me around 70% US is that the US keeps performing well (!) and I bought some individual US stocks....
What keeps me around 70% US is that the US keeps performing well (!) and I bought some individual US stocks....
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Re: What's your U.S. : International ratio?
We're 50/50 U.S./ex-US with a heavy small-cap tilt on both sides and an extra tilt toward emerging markets.
Re: What's your U.S. : International ratio?
2/3 TSM 1/3 TISM
Been that way for years.
Been that way for years.
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Re: What's your U.S. : International ratio?
We are 50:50 based on the specific question asked, but I must add a disclaimer because I'm a Canadian investor.
My disclaimer or explanation. Our asset allocation specifies Canada 50%, US 25% and International 25%. I am well aware of our Home country bias and the fact that Canada only makes up about 4% of the global equity market cap. However, for taxation and future spending/expense reasons it is more appropriate for us to overweight Canadian equities. A couple of research papers that I found very useful in understanding this issue are Vanguard's
From my reading of the various 'how much international' discussions that come up regularly on the BH forum, I find US investors don't fully understand their own home country bias.
My disclaimer or explanation. Our asset allocation specifies Canada 50%, US 25% and International 25%. I am well aware of our Home country bias and the fact that Canada only makes up about 4% of the global equity market cap. However, for taxation and future spending/expense reasons it is more appropriate for us to overweight Canadian equities. A couple of research papers that I found very useful in understanding this issue are Vanguard's
- The role of home bias in global asset allocation decisions
- Global equity: balancing home bias and diversification - a Canadian investor perspective
From my reading of the various 'how much international' discussions that come up regularly on the BH forum, I find US investors don't fully understand their own home country bias.
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