The International Cap Weight (and Beyond!) Discussion Thread

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AlwaysLearningMore
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by AlwaysLearningMore »

Da5id wrote: Thu Jun 10, 2021 1:34 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:04 pm
You've linked to Vanguard Health Care vs S&P 500. False analogy to compare a sector fund to the S&P 500, but if that's how you choose to invest, it's your prerogative.
Huh. I thought your point was that 25 years of data was enough to be indicative of future returns. But since you just were saying that the graph spoke for itself, I perhaps missed your point. What was it again?
Again, if you feel comparing a sector fund to the S&P 500 is a logical comparison, it's your choice. (Your next comparison could be single stocks :wink: )
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Da5id
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Da5id »

AlwaysLearningMore wrote: Thu Jun 10, 2021 1:57 pm
Da5id wrote: Thu Jun 10, 2021 1:34 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:04 pm
You've linked to Vanguard Health Care vs S&P 500. False analogy to compare a sector fund to the S&P 500, but if that's how you choose to invest, it's your prerogative.
Huh. I thought your point was that 25 years of data was enough to be indicative of future returns. But since you just were saying that the graph spoke for itself, I perhaps missed your point. What was it again?
Again, if you feel comparing a sector fund to the S&P 500 is a logical comparison, it's your choice. (Your next comparison could be single stocks :wink: )
Since you can't or won't say what the specific point of your graph was, I have to conclude that you don't have a point.
XacTactX
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by XacTactX »

I don't understand why we need to have threads about this every couple of days. The discussion doesn't add any new insights and people rarely change their minds about this subject.

EDIT Sorry I just want to add, no offense to Nathan Drake for making the topic and I agree with the logic of what he has written. I just think this subject does more harm than good, it brings distress to the forum.
Last edited by XacTactX on Thu Jun 10, 2021 2:38 pm, edited 1 time in total.
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NiceUnparticularMan
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by NiceUnparticularMan »

XacTactX wrote: Thu Jun 10, 2021 2:09 pm I don't understand why we need to have threads about this every couple of days. The discussion doesn't add any new insights and people rarely change their minds about this subject.
I'll admit I was hoping this would turn into an interesting discussion of the nuances of different higher-ex-U.S. strategies. But it did instead more get back to the same old debate.
jay22
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by jay22 »

XacTactX wrote: Thu Jun 10, 2021 2:09 pm I don't understand why we need to have threads about this every couple of days. The discussion doesn't add any new insights and people rarely change their minds about this subject.
We have nothing better to do. :D
ckangas
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by ckangas »

AlwaysLearningMore wrote: Thu Jun 10, 2021 1:57 pm
Da5id wrote: Thu Jun 10, 2021 1:34 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:04 pm
You've linked to Vanguard Health Care vs S&P 500. False analogy to compare a sector fund to the S&P 500, but if that's how you choose to invest, it's your prerogative.
Huh. I thought your point was that 25 years of data was enough to be indicative of future returns. But since you just were saying that the graph spoke for itself, I perhaps missed your point. What was it again?
Again, if you feel comparing a sector fund to the S&P 500 is a logical comparison, it's your choice. (Your next comparison could be single stocks :wink: )
The question is what is inherently different about comparing a sector [or insert any number of things here] to the wider US market compared to US vs the rest of the world?

If one should go 100% US due to the historical returns, why should we then ignore all of the other asset classes which have outperformed VOO/VTI over the same period?

Why should people hold 100% VTI/VOO since it has outperformed other asset choices, but in turn ignore those asset choices which have in turn outperformed it?
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

NiceUnparticularMan wrote: Thu Jun 10, 2021 2:13 pm
XacTactX wrote: Thu Jun 10, 2021 2:09 pm I don't understand why we need to have threads about this every couple of days. The discussion doesn't add any new insights and people rarely change their minds about this subject.
I'll admit I was hoping this would turn into an interesting discussion of the nuances of different higher-ex-U.S. strategies. But it did instead more get back to the same old debate.
I have very much appreciated your insight.

I think it speaks to the reasons many of us invest in exUS - to prevent bad outcomes, to reach our financial goals of “good enough” and not necessarily “best”

I personally think that exUS will dramatically outperform in the coming decades, and have a slight tilt. But I also believe that having a minimum of 20% exUS is enough to at least prevent serious harm during a gray swan event.

So I’m not dogmatic in needing any given percentage in exUS, but I find those that are 100% in anything to be really playing with fire for very little additional upside. And there’s a lot of mental gymnastics of illogical reasons as to why someone would pursue such a strategy, yet it can be very difficult to persuade someone with that mindset why it’s not in their best interest because it can go against human psychology.

I would like to think most Bogleheads are a bit more receptive to it, given how indexing goes against human psychology as well. People don’t like the idea “average”, yet Bogleheads have embraced the concept. I’m not sure why it is not popular for some to want to be better than average by omitting the vast majority of equities from their portfolio because history said it is the “average” with the highest performance.
ckangas
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by ckangas »

XacTactX wrote: Thu Jun 10, 2021 2:09 pm I don't understand why we need to have threads about this every couple of days. The discussion doesn't add any new insights and people rarely change their minds about this subject.
I've changed my mind considerably on the topic in the last month, going from a 100% US (following the advice of Buffet and Bogle), to 90, 80, 70, 60, 50, 40, and now 60% tax advantaged/40% taxable. Along with changing my mind constantly on whether I should just go 100% VT. Note that I haven't changed my actual asset allocation. I'm waiting until it doesn't change for a couple of months first, and then I'm hoping to stick with the ratio for at least the next few decades. So this is something that I want to get right. Or at least relatively close to what I think is right in the future.

Granted the changing of my mind was mostly due to books, podcasts, and papers. Not through reading through BH forum threads. But I'm always looking out for additional information. Since it's one of the few things that is both a difficult decision (there are things which are more important, but those tend to just be math) and impactful.
Triple digit golfer
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Triple digit golfer »

My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
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anon_investor
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by anon_investor »

Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
OR they may have a large emergency fund and the intestinal fortitude to hold 100% US through thick or thin! :beer
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Triple digit golfer »

anon_investor wrote: Thu Jun 10, 2021 3:29 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
OR they may have a large emergency fund and the intestinal fortitude to hold 100% US through thick or thin! :beer
Why does it take intestinal fortitude to hold what many call a less risky, higher reward portfolio?
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anon_investor
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by anon_investor »

Triple digit golfer wrote: Thu Jun 10, 2021 3:31 pm
anon_investor wrote: Thu Jun 10, 2021 3:29 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
OR they may have a large emergency fund and the intestinal fortitude to hold 100% US through thick or thin! :beer
Why does it take intestinal fortitude to hold what many call a less risky, higher reward portfolio?
I am not blindly investing in US. I understand the risk/reward. I have my own personal feelings on international, partially based on having worked in a particlar country that makes up a sizable chunk of VXUS and on professional experience dealing with many foreign governments and the US government. But I do think a mix of US/international may lead to less volatility, and I think the volatility of a US only portfolio may be beneficial during the accumulation phase if one does not panic.
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

anon_investor wrote: Thu Jun 10, 2021 3:38 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:31 pm
anon_investor wrote: Thu Jun 10, 2021 3:29 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
OR they may have a large emergency fund and the intestinal fortitude to hold 100% US through thick or thin! :beer
Why does it take intestinal fortitude to hold what many call a less risky, higher reward portfolio?
I am not blindly investing in US. I understand the risk/reward. I have my own personal feelings on international, partially based on having worked in a particlar country that makes up a sizable chunk of VXUS and on professional experience dealing with many foreign governments and the US government. But I do think a mix of US/international may lead to less volatility, and I think the volatility of a US only portfolio may be beneficial during the accumulation phase if one does not panic.
But don’t 100% US investors claim exUS has more volatility?

These periods can last so long that I don’t think it’s wise to omit any class during an accumulation phase
Robot Monster
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Robot Monster »

AlwaysLearningMore wrote: Thu Jun 10, 2021 1:46 pm
Robot Monster wrote: Thu Jun 10, 2021 1:25 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:04 pm
You've linked to Vanguard Health Care vs S&P 500. False analogy to compare a sector fund with the S&P 500, but if that's how you choose to invest, it's your prerogative.
Regarding Vanguard Health Care Fund, since it has outperformed the S&P for 25+ years, why not, at the very least, go overweight on it as a compliment to VOO? I asked someone this very question, and they answered in the affirmative this indeed made sense. link
If you think comparing a sector fund with a total-marked index fund is comparable, so be it. I daresay most investors would disagree. YMMV
I do not mean to imply they're comparable. I'm not suggesting you ditch your S&P fund for a single sector fund. You'd lose a ton of diversification if you did that.

This is what I'm asking: Why not go overweight on a sector that has outperformed the S&P for 25+ years, if that trait is such a determining factor. Health Care is 12.80% of the S&P. Even if you doubled that, you'd still have less sector concentration than Information Technology, which is 26.70% of the S&P. I'm not trying to play "gotcha". I'm honestly asking in good faith.

Let me put it another way. Let's say someone wanted to do this, overweight Health Care, for the simple reason it overperformed for 25+ years. Would you say that makes no sense, and try to dissuade them, or would you say that's sound logic?
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
Robot Monster
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Robot Monster »

NiceUnparticularMan wrote: Thu Jun 10, 2021 2:13 pm
XacTactX wrote: Thu Jun 10, 2021 2:09 pm I don't understand why we need to have threads about this every couple of days. The discussion doesn't add any new insights and people rarely change their minds about this subject.
I'll admit I was hoping this would turn into an interesting discussion of the nuances of different higher-ex-U.S. strategies. But it did instead more get back to the same old debate.
We should have a discussion like that! I'll create one! Not immediately. We need a breather on the international. But soon. I'm at 75% international and I want you guys to tear me to shreds!
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

I would be interested in seeing what an ideal ratio is for EM?

Right now exUS is about 25%. I’ve decided to tilt to 50% of exUS as EM, for more diversification since it features less strong correlations to US or DM

Certainly may carry more risk, but the EM portion of exUS has featured pretty strong long term returns
AlwaysLearningMore
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by AlwaysLearningMore »

Robot Monster wrote: Thu Jun 10, 2021 4:11 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:46 pm
Robot Monster wrote: Thu Jun 10, 2021 1:25 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:04 pm
You've linked to Vanguard Health Care vs S&P 500. False analogy to compare a sector fund with the S&P 500, but if that's how you choose to invest, it's your prerogative.
Regarding Vanguard Health Care Fund, since it has outperformed the S&P for 25+ years, why not, at the very least, go overweight on it as a compliment to VOO? I asked someone this very question, and they answered in the affirmative this indeed made sense. link
If you think comparing a sector fund with a total-marked index fund is comparable, so be it. I daresay most investors would disagree. YMMV
I do not mean to imply they're comparable. I'm not suggesting you ditch your S&P fund for a single sector fund. You'd lose a ton of diversification if you did that.

This is what I'm asking: Why not go overweight on a sector that has outperformed the S&P for 25+ years, if that trait is such a determining factor. Health Care is 12.80% of the S&P. Even if you doubled that, you'd still have less sector concentration than Information Technology, which is 26.70% of the S&P. I'm not trying to play "gotcha". I'm honestly asking in good faith.

Let me put it another way. Let's say someone wanted to do this, overweight Health Care, for the simple reason it overperformed for 25+ years. Would you say that makes no sense, and try to dissuade them, or would you say that's sound logic?
On your last point, there are BH's who choose to overweight certain sectors -- Healthcare, Utilities, Consumer Staples, etc. From the description in those threads, they supplement their broad market portfolios with those funds. They have their reasons. It's not for me to judge.
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Massdriver
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Massdriver »

I'm in this camp.

If you ask me, the optimal equity portfolio for simplicity and opportunity right now while staying diversified and not going too crazy with factor overweighting would be something like:

VT- global equities 75%

25%-30% tilting with these 3 ETFs:
AVUV- Small cap value U.S.
AVDV- Small cap value ex. u.s. developed
EMGF- Multi factor EM

Many other ETFs would do just as well or better depending on taste.

I sleep better at night with a portfolio like this vs. 100% U.S. If you don't, maybe U.S. is better for you.

To stay balanced, I'm needing to add more to Emerging Markets. I think there are opportunities in international that just aren't there in U.S. equities right now. Dogmatic 100% U.S. allocations are fine, but I think some of us are more likely to stick with our plan if we have more diversification if U.S. starts underperforming. There is nothing wrong with a little tracking error compared to the S&P 500 if you are outperforming it!

I also think 100% ex u.s. is fine too. There is a reasonable argument for it at this time.
Last edited by Massdriver on Thu Jun 10, 2021 7:25 pm, edited 1 time in total.
Robot Monster
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Robot Monster »

AlwaysLearningMore wrote: Thu Jun 10, 2021 5:25 pm
Robot Monster wrote: Thu Jun 10, 2021 4:11 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:46 pm
Robot Monster wrote: Thu Jun 10, 2021 1:25 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:04 pm

You've linked to Vanguard Health Care vs S&P 500. False analogy to compare a sector fund with the S&P 500, but if that's how you choose to invest, it's your prerogative.
Regarding Vanguard Health Care Fund, since it has outperformed the S&P for 25+ years, why not, at the very least, go overweight on it as a compliment to VOO? I asked someone this very question, and they answered in the affirmative this indeed made sense. link
If you think comparing a sector fund with a total-marked index fund is comparable, so be it. I daresay most investors would disagree. YMMV
I do not mean to imply they're comparable. I'm not suggesting you ditch your S&P fund for a single sector fund. You'd lose a ton of diversification if you did that.

This is what I'm asking: Why not go overweight on a sector that has outperformed the S&P for 25+ years, if that trait is such a determining factor. Health Care is 12.80% of the S&P. Even if you doubled that, you'd still have less sector concentration than Information Technology, which is 26.70% of the S&P. I'm not trying to play "gotcha". I'm honestly asking in good faith.

Let me put it another way. Let's say someone wanted to do this, overweight Health Care, for the simple reason it overperformed for 25+ years. Would you say that makes no sense, and try to dissuade them, or would you say that's sound logic?
On your last point, there are BH's who choose to overweight certain sectors -- Healthcare, Utilities, Consumer Staples, etc. From the description in those threads, they supplement their broad market portfolios with those funds. They have their reasons. It's not for me to judge.
That's fine. Perhaps people are too judgemental of each other's decisions on this forum, particularly when it comes to people's decision to go ex-US, or not.
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
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anon_investor
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by anon_investor »

Nathan Drake wrote: Thu Jun 10, 2021 3:49 pm
anon_investor wrote: Thu Jun 10, 2021 3:38 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:31 pm
anon_investor wrote: Thu Jun 10, 2021 3:29 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
OR they may have a large emergency fund and the intestinal fortitude to hold 100% US through thick or thin! :beer
Why does it take intestinal fortitude to hold what many call a less risky, higher reward portfolio?
I am not blindly investing in US. I understand the risk/reward. I have my own personal feelings on international, partially based on having worked in a particlar country that makes up a sizable chunk of VXUS and on professional experience dealing with many foreign governments and the US government. But I do think a mix of US/international may lead to less volatility, and I think the volatility of a US only portfolio may be beneficial during the accumulation phase if one does not panic.
But don’t 100% US investors claim exUS has more volatility?

These periods can last so long that I don’t think it’s wise to omit any class during an accumulation phase
I am not sure who you are referring to. I am a 100% US equity investor but I do not claim exUS has more or less volatility. But overall volatility of a portfolio is not always negative. I can get different exposures with US only using size and value. If I want to reduce volatility fixed income works better.
AlwaysLearningMore
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by AlwaysLearningMore »

Da5id wrote: Thu Jun 10, 2021 2:01 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:57 pm
Da5id wrote: Thu Jun 10, 2021 1:34 pm
AlwaysLearningMore wrote: Thu Jun 10, 2021 1:04 pm
You've linked to Vanguard Health Care vs S&P 500. False analogy to compare a sector fund to the S&P 500, but if that's how you choose to invest, it's your prerogative.
Huh. I thought your point was that 25 years of data was enough to be indicative of future returns. But since you just were saying that the graph spoke for itself, I perhaps missed your point. What was it again?
Again, if you feel comparing a sector fund to the S&P 500 is a logical comparison, it's your choice. (Your next comparison could be single stocks :wink: )
Since you can't or won't say what the specific point of your graph was, I have to conclude that you don't have a point.
AlwaysLearningMore wrote: Thu Jun 10, 2021 9:07 am A previous poster stated:
burritoLover wrote: Tue Jun 08, 2021 6:25 pm 10 years is just noise in the market.
As a comparison, I looked at Vanguard Total Stock Index Fund in M* for the past 25+ years (from 1996, as far back as M* has data), showing 2 consecutive 10 year periods, and then the performance from 2016 to the present.


Image

Image

Image
As above, a previous poster felt "10 years is just noise in the market." For context, I found 2 consecutive 10-year performances, followed by a 5+ year performance. Whether or not that still constitutes "noise" is up to the interpretation of each investor. My point is, each investor makes her/his own decision as to how to view 25+ years of international stock index fund under-performance compared to US equities.
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Da5id
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Da5id »

AlwaysLearningMore wrote: Thu Jun 10, 2021 5:38 pm As above, a previous poster felt "10 years is just noise in the market." For context, I found 2 consecutive 10-year performances, followed by a 5+ year performance. Whether or not that still constitutes "noise" is up to the interpretation of each investor. My point is, each investor makes her/his own decision as to how to view 25+ years of international stock index fund under-performance compared to US equities.
Got it. I thought you were suggesting making forward looking predictions or something from the graph. Couldn't really tell what your implication was. Your point was simply that US has outperformed international in the last 25 years. OK. I don't personally infer much of anything for the future returns of US or international from that myself. I guess some think it will go on forever.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by UpperNwGuy »

NiceUnparticularMan wrote: Thu Jun 10, 2021 9:10 am However, I do not in fact think the right solution is to try to beat them into investing in ex-U.S. stocks. I think the best solution is probably to just encourage such people to strongly consider investing in a single fund which takes such decisions out of their hands. Although both routes are not necessarily going to work all that often, I am least a little more confident that a person who goes with a single fund approach will not revisit that decision again in the future.
If Vanguard would give us single funds at various ratios of US/ex-US, many of us might go for it. However, at Vanguard today our choices are limited to 100/0 (VTSAX), 60/40 (Target Date and Life Strategy), 55/45 (VTWAX), or 0/100 (VTIAX). To get to 80/20 or 70/30 we have to use separate funds for US and ex-US. Most of us pro-US investors are never going to put 40% or 45% of our equities into ex-US, so the current choices of single funds don't work for us.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by anon_investor »

UpperNwGuy wrote: Thu Jun 10, 2021 6:25 pm
NiceUnparticularMan wrote: Thu Jun 10, 2021 9:10 am However, I do not in fact think the right solution is to try to beat them into investing in ex-U.S. stocks. I think the best solution is probably to just encourage such people to strongly consider investing in a single fund which takes such decisions out of their hands. Although both routes are not necessarily going to work all that often, I am least a little more confident that a person who goes with a single fund approach will not revisit that decision again in the future.
If Vanguard would give us single funds at various ratios of US/ex-US, many of us might go for it. However, at Vanguard today our choices are limited to 100/0 (VTSAX), 60/40 (Target Date and Life Strategy), 55/45 (VTWAX), or 0/100 (VTIAX). To get to 80/20 or 70/30 we have to use separate funds for US and ex-US. Most of us pro-US investors are never going to put 40% or 45% of our equities into ex-US, so the current choices of single funds don't work for us.
When will Fidelity or Schwab buy M1 finance to use their tech. Then someone could easily get 80%/20%.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Ocean77 »

Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
^^^ This.

In the very long run (i.e. the investor lifetime), the returns of US, international or mixed stock portfolios (in any ratio between US and ex US) will probably be roughly all the same. The ride will be different for sure. And the most important part will be to stick with whatever portfolio one had started with, no matter what.
UpperNwGuy
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by UpperNwGuy »

Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.
Here are the current sizes (per Vanguard) of the three key funds:

VTWAX - $29 billion

VTSAX - $1.2 trillion

VTIAX - $393 billion

Given the minuscule size of VTWAX (world market cap) relative to the pure-US and pure-ex-US funds, how can you possibly assume world market cap to be the default? You're basing your assumption purely on theoretical factors and your own personal views, not on the consensus of what investors actually do.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Triple digit golfer »

UpperNwGuy wrote: Thu Jun 10, 2021 6:41 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.
Here are the current sizes (per Vanguard) of the three key funds:

VTWAX - $29 billion

VTSAX - $1.2 trillion

VTIAX - $393 billion

Given the minuscule size of VTWAX (world market cap) relative to the pure-US and pure-ex-US funds, how can you possibly assume world market cap to be the default? You're basing your assumption purely on theoretical factors and your own personal views, not on the consensus of what investors actually do.
I am basing it exactly on what the market weighing are, which is what investors do.

But, I fail to see how it is relevant to do what others do anyway.

If it is important for you to do what investors actually do, you should hold world market cap.

For the record, when I say world market cap, I don't mean a specific fund. I mean roughly 57% total U.S. market and 43% total international market.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Robot Monster »

UpperNwGuy wrote: Thu Jun 10, 2021 6:25 pm
NiceUnparticularMan wrote: Thu Jun 10, 2021 9:10 am However, I do not in fact think the right solution is to try to beat them into investing in ex-U.S. stocks. I think the best solution is probably to just encourage such people to strongly consider investing in a single fund which takes such decisions out of their hands. Although both routes are not necessarily going to work all that often, I am least a little more confident that a person who goes with a single fund approach will not revisit that decision again in the future.
If Vanguard would give us single funds at various ratios of US/ex-US, many of us might go for it. However, at Vanguard today our choices are limited to 100/0 (VTSAX), 60/40 (Target Date and Life Strategy), 55/45 (VTWAX), or 0/100 (VTIAX). To get to 80/20 or 70/30 we have to use separate funds for US and ex-US. Most of us pro-US investors are never going to put 40% or 45% of our equities into ex-US, so the current choices of single funds don't work for us.
Don't forget about Vanguard Wellington Fund which, as of 04/30/2021, has 7.6% foreign holdings, and this, as I understand it, can go up to max 25%. It has an expense ratio of only 0.16%.
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Northern Flicker »

Nathan Drake wrote: I would argue that it would be a better decision to be 100% exUS than 100% US on the basis of currency diversification....
If you live in the US, this is not correct. Currency risk is a risk associated with the currency of your assets differing from the currencies of your liabilities.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

Northern Flicker wrote: Thu Jun 10, 2021 8:18 pm
Nathan Drake wrote: I would argue that it would be a better decision to be 100% exUS than 100% US on the basis of currency diversification....
If you live in the US, this is not correct. Currency risk is a risk associated with the currency of your assets differing from the currencies of your liabilities.
What you see as currency risk, I see as a form of diversification. When the majority of tangible products you buy are already produced outside of the US, you are also significantly exposed to inflationary pressures in the case of a relatively weak dollar.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by drumboy256 »

Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
This right here (imo) is the salient point of peak Boglehead investing. The VTSAX, VTI, ITOT and chill crowd while entertaining, should be split 5X% US and 4X% International. Now, the next fun question is "But Bruh, what about Bonds--- international as well?" Yes actually; The point of total indexing is total indexing, nothing more, nothing less. The raging debate of how much International is more or less the point is to go total world. I've gone down the rabbit hole of trying to be cute with factor investing--- it's a waste of time. Tilting US is just exposing your risk to thinking you know better than owning the whole market (bonds included). I'm not here to change anyone's mind but not having International as a way to not only diversify but save yourself from yourself.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Northern Flicker »

Nathan Drake wrote: Thu Jun 10, 2021 10:58 pm
Northern Flicker wrote: Thu Jun 10, 2021 8:18 pm
Nathan Drake wrote: I would argue that it would be a better decision to be 100% exUS than 100% US on the basis of currency diversification....
If you live in the US, this is not correct. Currency risk is a risk associated with the currency of your assets differing from the currencies of your liabilities.
What you see as currency risk, I see as a form of diversification. When the majority of tangible products you buy are already produced outside of the US, you are also significantly exposed to inflationary pressures in the case of a relatively weak dollar.
The dollar can go both ways. A retiree in the US has substantial domestic consumption to fund.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

drumboy256 wrote: Thu Jun 10, 2021 11:44 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
This right here (imo) is the salient point of peak Boglehead investing. The VTSAX, VTI, ITOT and chill crowd while entertaining, should be split 5X% US and 4X% International. Now, the next fun question is "But Bruh, what about Bonds--- international as well?" Yes actually; The point of total indexing is total indexing, nothing more, nothing less. The raging debate of how much International is more or less the point is to go total world. I've gone down the rabbit hole of trying to be cute with factor investing--- it's a waste of time. Tilting US is just exposing your risk to thinking you know better than owning the whole market (bonds included). I'm not here to change anyone's mind but not having International as a way to not only diversify but save yourself from yourself.
I think factor investing can add another element of diversification. That may be for a different topic, but SCV and TSM can behave quite differently and seem less correlated than even US vs exUS.

I think it’s worth looking into, but by no means is required in my opinion. But I think it can lead to better outcomes if you are willing to stay the course (which is critical)
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

Northern Flicker wrote: Thu Jun 10, 2021 11:54 pm
Nathan Drake wrote: Thu Jun 10, 2021 10:58 pm
Northern Flicker wrote: Thu Jun 10, 2021 8:18 pm
Nathan Drake wrote: I would argue that it would be a better decision to be 100% exUS than 100% US on the basis of currency diversification....
If you live in the US, this is not correct. Currency risk is a risk associated with the currency of your assets differing from the currencies of your liabilities.
What you see as currency risk, I see as a form of diversification. When the majority of tangible products you buy are already produced outside of the US, you are also significantly exposed to inflationary pressures in the case of a relatively weak dollar.
The dollar can go both ways. A retiree in the US has substantial domestic consumption to fund.
While true, I think a double whammy of higher inflation due to fiscal policy and weaker dollar is a larger risk.

When investing in exUS you are exposed to so many currencies that over long horizons I don’t believe the swings will materially impact your ability to fund domestic consumption, even in the case of someone going 100% exUS.
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drumboy256
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by drumboy256 »

Nathan Drake wrote: Thu Jun 10, 2021 11:55 pm
drumboy256 wrote: Thu Jun 10, 2021 11:44 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
This right here (imo) is the salient point of peak Boglehead investing. The VTSAX, VTI, ITOT and chill crowd while entertaining, should be split 5X% US and 4X% International. Now, the next fun question is "But Bruh, what about Bonds--- international as well?" Yes actually; The point of total indexing is total indexing, nothing more, nothing less. The raging debate of how much International is more or less the point is to go total world. I've gone down the rabbit hole of trying to be cute with factor investing--- it's a waste of time. Tilting US is just exposing your risk to thinking you know better than owning the whole market (bonds included). I'm not here to change anyone's mind but not having International as a way to not only diversify but save yourself from yourself.
I think factor investing can add another element of diversification. That may be for a different topic, but SCV and TSM can behave quite differently and seem less correlated than even US vs exUS.

I think it’s worth looking into, but by no means is required in my opinion. But I think it can lead to better outcomes if you are willing to stay the course (which is critical)
I'm not going to argue that factor investing isn't without a place in a portfolio for some people, however, for the 90% of Bogleheads, it's not worth the time and effort to do so. To your point, SCV vs. TSM is different in terms of ups and downs simply because if you tilt, favor or factor a % towards something other than TSM, you're missing the point of simplicity over complexity. There is no denying that the returns on SCV or even ex-US SCV could be greater than the TSM, but again, not the point. I've come full circle on that and for me, it's not worth the effort. :beer
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
Northern Flicker
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Northern Flicker »

Nathan Drake wrote: Thu Jun 10, 2021 11:58 pm
Northern Flicker wrote: Thu Jun 10, 2021 11:54 pm
Nathan Drake wrote: Thu Jun 10, 2021 10:58 pm
Northern Flicker wrote: Thu Jun 10, 2021 8:18 pm
Nathan Drake wrote: I would argue that it would be a better decision to be 100% exUS than 100% US on the basis of currency diversification....
If you live in the US, this is not correct. Currency risk is a risk associated with the currency of your assets differing from the currencies of your liabilities.
What you see as currency risk, I see as a form of diversification. When the majority of tangible products you buy are already produced outside of the US, you are also significantly exposed to inflationary pressures in the case of a relatively weak dollar.
The dollar can go both ways. A retiree in the US has substantial domestic consumption to fund.
While true, I think a double whammy of higher inflation due to fiscal policy and weaker dollar is a larger risk.

When investing in exUS you are exposed to so many currencies that over long horizons I don’t believe the swings will materially impact your ability to fund domestic consumption, even in the case of someone going 100% exUS.
Diversification of risk does not mean deciding what you believe is the larger risk and protecting against it. That is just closet market timing. If there is one thing I know to be true about equity markets, it is their robust ability to prove us wrong when we think we know what will offer the best return or what would be the largest risks.

With the Fed rate virtually zero, the Fed has lots of headroom to fight inflation. The bond market is not predicting much inflation at the current TIPS breakevens. But we don't know whether US inflation will be higher or lower than the rest if the world.

A US retiree realizes about 56% of their expenses from housing and medical care based on the government CPI-E measure (CPI realized by people 62 and older):

https://www.bls.gov/opub/ted/2012/mobil ... 120302.htm

I don't know what the optimal mix of US and non-US equities is for a US retiree, but I'm reasonably confident that it is neither 100% US nor 100% ex-US.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

drumboy256 wrote: Fri Jun 11, 2021 12:05 am
Nathan Drake wrote: Thu Jun 10, 2021 11:55 pm
drumboy256 wrote: Thu Jun 10, 2021 11:44 pm
Triple digit golfer wrote: Thu Jun 10, 2021 3:23 pm My opinion (and it's just that, an opinion, and you know what they say about opinions) is that the default should be world market cap. In other words, if an investor has no idea about anything, doesn't want to think about it, just wants to invest in "stocks," then world market cap is most appropriate.

If the investor is a thinker, as most Bogleheads probably are, then the prudent course is to understand what deviating from world market cap means, what the risks are, and from that point, make an informed decision and choose the allocation that you're most likely to stick with through thick and thin.

Someone who is 100% U.S. may flip to include some international right after international outperforms for a while. This investor would have been better off all along with some international.

The opposite, a much more common occurrence, is also true. The person holding world market cap or a decent sized international allocation seeing U.S. outperform for a decade may sell international and go to 100% U.S. right at the end of the U.S. dominance.
This right here (imo) is the salient point of peak Boglehead investing. The VTSAX, VTI, ITOT and chill crowd while entertaining, should be split 5X% US and 4X% International. Now, the next fun question is "But Bruh, what about Bonds--- international as well?" Yes actually; The point of total indexing is total indexing, nothing more, nothing less. The raging debate of how much International is more or less the point is to go total world. I've gone down the rabbit hole of trying to be cute with factor investing--- it's a waste of time. Tilting US is just exposing your risk to thinking you know better than owning the whole market (bonds included). I'm not here to change anyone's mind but not having International as a way to not only diversify but save yourself from yourself.
I think factor investing can add another element of diversification. That may be for a different topic, but SCV and TSM can behave quite differently and seem less correlated than even US vs exUS.

I think it’s worth looking into, but by no means is required in my opinion. But I think it can lead to better outcomes if you are willing to stay the course (which is critical)
I'm not going to argue that factor investing isn't without a place in a portfolio for some people, however, for the 90% of Bogleheads, it's not worth the time and effort to do so. To your point, SCV vs. TSM is different in terms of ups and downs simply because if you tilt, favor or factor a % towards something other than TSM, you're missing the point of simplicity over complexity. There is no denying that the returns on SCV or even ex-US SCV could be greater than the TSM, but again, not the point. I've come full circle on that and for me, it's not worth the effort. :beer
Fair enough, geographical diversity is more important. However a small factor tilt isn’t too complex. It certainly can be hard for some to stay the course when they don’t observe a premium yet the daily volatility is so high.

For the longest time I avoided SCV, but after digging further I came to agree with allocating roughly 20% in this area. While the premium is sometimes not observed, it also appears to more strongly avoid poor 10 year periods.
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

Northern Flicker wrote: Fri Jun 11, 2021 12:40 am
Nathan Drake wrote: Thu Jun 10, 2021 11:58 pm
Northern Flicker wrote: Thu Jun 10, 2021 11:54 pm
Nathan Drake wrote: Thu Jun 10, 2021 10:58 pm
Northern Flicker wrote: Thu Jun 10, 2021 8:18 pm
If you live in the US, this is not correct. Currency risk is a risk associated with the currency of your assets differing from the currencies of your liabilities.
What you see as currency risk, I see as a form of diversification. When the majority of tangible products you buy are already produced outside of the US, you are also significantly exposed to inflationary pressures in the case of a relatively weak dollar.
The dollar can go both ways. A retiree in the US has substantial domestic consumption to fund.
While true, I think a double whammy of higher inflation due to fiscal policy and weaker dollar is a larger risk.

When investing in exUS you are exposed to so many currencies that over long horizons I don’t believe the swings will materially impact your ability to fund domestic consumption, even in the case of someone going 100% exUS.
Diversification of risk does not mean deciding what you believe is the larger risk and protecting against it. That is just closet market timing. If there is one thing I know to be true about equity markets, it is their robust ability to prove us wrong when we think we know what will offer the best return or what would be the largest risks.

With the Fed rate virtually zero, the Fed has lots of headroom to fight inflation. The bond market is not predicting much inflation at the current TIPS breakevens. But we don't know whether US inflation will be higher or lower than the rest if the world.

A US retiree realizes about 56% of their expenses from housing and medical care based on the government CPI-E measure (CPI realized by people 62 and older):

https://www.bls.gov/opub/ted/2012/mobil ... 120302.htm

I don't know what the optimal mix of US and non-US equities is for a US retiree, but I'm reasonably confident that it is neither 100% US nor 100% ex-US.
On the latter point I agree. I’m not in favor of 100% in any extreme.

But I suppose if I were to pick one of the extremes, it would be 100% exUS because I don’t find the currency volatility to be meaningful since it’s not straightforward that an increase or decrease in currency relative to another will be the main driver in equity returns; it’s but a single factor.

And of course this ignores the impact of fixed income which will be quite high during withdrawals. I certainly don’t think it would be wise to be 100% exUS for both equities and fixed income during this stage, but if you had 100% exUS + US dominant fixed income that would be preferable to me than 100% US of both.

Ideally of course you’d have exposure to everything
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Northern Flicker »

Nathan Drake wrote: But I suppose if I were to pick one of the extremes, it would be 100% exUS because I don’t find the currency volatility to be meaningful...
Currency volatility can be significant for EM equities. Here is a comparison of hedged and unhedged EM index ETFs that track the same underlying portfolio:

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

To me, that is a meaningful increase in volatility for that time period.

Currency volatility typically is less significant for DM equities. Here is a comparison of hedged and unhedged DM index ETFs both tracking the same underlying portfolio:

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

US indices are not free of currency volatility, as substantial revenue comes from overseas. And a weak currency can boost sales of products to foreign buyers, so any analysis of currency risk is very complex.

But when we reduce equity portfolio decisions to narratives we tell ourselves about return potential, or the likelihood of different risks materializing, the equity markets often prove us wrong. Two years ago, nobody predicted a global pandemic. And then when the pandemic materialized, few people predicted the outcome we observed in equity markets.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by fisher0815 »

Northern Flicker wrote: Fri Jun 11, 2021 12:40 am Diversification of risk does not mean deciding what you believe is the larger risk and protecting against it. That is just closet market timing. If there is one thing I know to be true about equity markets, it is their robust ability to prove us wrong when we think we know what will offer the best return or what would be the largest risks.
Thank you for this. I printed this out and it will get a place on my pinwall.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Bernmaster »

To me, this whole topic is simply a matter of logic. If you want to own the haystack, it simply does not make any sense to only invest in US stocks. By definition, the market-cap-weighted global stock market is and must be the most efficient equity portfolio with the highest expected forward returns. Anything else is betting on a specific country or sector. Lars Kroijer likes to frame it like this: "By deviating from the market-cap-weighted global portfolio you essentially say that you know better than the billion-dollar financial industry."
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Northern Flicker »

While that may be true, the optimal portfolio, at least for a retiree, probably is the one whose production is most aligned with the retiree's consumption, which unfortunately is an indeterminate, moving target.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
Johnathon Livingston
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Johnathon Livingston »

Interesting opinion piece about how ex-US doesn’t protect you during a bear market:

https://www.google.com/amp/s/www.market ... 2020-03-31

A major reason for promoting ex-US back in the 2000s was that they had a low correlation to US, which is no longer true. Now the argument is that US and ex-US, while highly correlated, May trade places outperforming. I guess only time will tell.
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Triple digit golfer »

Johnathon Livingston wrote: Fri Jun 11, 2021 6:16 am Interesting opinion piece about how ex-US doesn’t protect you during a bear market:

https://www.google.com/amp/s/www.market ... 2020-03-31

A major reason for promoting ex-US back in the 2000s was that they had a low correlation to US, which is no longer true. Now the argument is that US and ex-US, while highly correlated, May trade places outperforming. I guess only time will tell.
I don't hold stocks to protect my portfolio during a bear market. That would be highly unwise. I hold bonds to do that.
NiceUnparticularMan
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by NiceUnparticularMan »

Nathan Drake wrote: Thu Jun 10, 2021 2:38 pm I would like to think most Bogleheads are a bit more receptive to it, given how indexing goes against human psychology as well. People don’t like the idea “average”, yet Bogleheads have embraced the concept. I’m not sure why it is not popular for some to want to be better than average by omitting the vast majority of equities from their portfolio because history said it is the “average” with the highest performance.
I definitely think it is an interesting question why this particular pursuit of a "better than average" result that arguably violates normal Boglehead skepticism about such pursuits has some many adherents anyway.

I think there are a lot of possible answers to that question, but I believe at least one major factor is just that when it comes to daily conversations about how "the markets" are doing, for U.S. investors at least, those conversations are dominated by broad U.S. indices. And virtually no one is tracking something like the FTSE Global All Cap Index (aka VT).

So, I think mentally, for a lot of U.S. investors at least, SP500 (or something basically the same) represents the "average" result (or normal, or good enough, or whatever). And so even if they don't make this explicit to themselves, if VT is tracking below SP500, that isn't a case of SP500 being above average, that is a case of VT being below average.

In contrast, they ALSO don't track the MSCI US Investable Market Health Care 25/50 Index (aka VHT). So, if VHT is tracking above SP500, now that isn't a case of SP500 being below average, that is a case of VHT being above average.

Anyway, that's just my read on the situation for at least some posters. And psychologically, the idea that VHT might be tracking above SP500 doesn't cause them to fear they are missing out. But VT tracking below SP500 does, because SP500 and not VT is anchoring their concept of average (or normal, or good enough, or whatever).
NiceUnparticularMan
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by NiceUnparticularMan »

Robot Monster wrote: Thu Jun 10, 2021 4:20 pm
NiceUnparticularMan wrote: Thu Jun 10, 2021 2:13 pm
XacTactX wrote: Thu Jun 10, 2021 2:09 pm I don't understand why we need to have threads about this every couple of days. The discussion doesn't add any new insights and people rarely change their minds about this subject.
I'll admit I was hoping this would turn into an interesting discussion of the nuances of different higher-ex-U.S. strategies. But it did instead more get back to the same old debate.
We should have a discussion like that! I'll create one! Not immediately. We need a breather on the international. But soon. I'm at 75% international and I want you guys to tear me to shreds!
I for one would love it (although my meager 40% ex-U.S. may well be mocked for timidity).
netrammgc
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by netrammgc »

Nathan Drake wrote: Mon Jun 07, 2021 10:35 pm US stocks get plenty of love on this forum. Jack Bogle has been a long proponent of not needing international. Buffet uses the S&P 500 as a common benchmark and will invest his wealth in this fund for his wife (despite owning plenty of international as part of Berkshire). While these industry mavens have done much for the average investor throughout their lives, I don't blindly follow all of their advice. And often, their own beliefs are in conflict with bigger picture investment themes. And that's perfectly fine. We all have our own biases.

I am going to make the argument that if you live in the US, and are investing 100% in US stocks, that you are taking a big risk that is completely unnecessary. A risk that is easily diversified away by investing in cheap index funds. And even if you believe that the US will perpetually see superior returns over the coming decades, a 20% allocation will likely be a good starting point to mitigate significant risk that you are wrong.

But this thread isn't about those that just want to wet their toes into international investing. It's for those that are truly "owning the haystack" at near market weights! 40-60% Depending on where you think the appropriate global cap of exUS should be. For those even more daring, we invest even more than 60% in international.
Interested in where you got the higher range level of 60%? Vanguard often uses 40%, you can round up market cap average right now to 50% for simplicity, and A Random Walk Down Wall Street now is 50%. Are there any whitepapers, books, and/or other suggesting 60%? Or is just a tilt?

Thanks. Genuinely curious. I'm at 57% international now but thinking about reducing down to 50% for simplicity and so I don't "tweak" anymore.
NiceUnparticularMan
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by NiceUnparticularMan »

Nathan Drake wrote: Thu Jun 10, 2021 4:25 pm I would be interested in seeing what an ideal ratio is for EM?

Right now exUS is about 25%. I’ve decided to tilt to 50% of exUS as EM, for more diversification since it features less strong correlations to US or DM

Certainly may carry more risk, but the EM portion of exUS has featured pretty strong long term returns
I think I mentioned my targets are 20% of ex-U.S. in dedicated EM funds, then whatever else shows up in the remaining 80% (which is SV tilted). I note this was an attempted solution to the problem of a lack of good SV EM funds at the time (including in the 401K that at least has an EM fund).

Anyway, I don't bother tracking such things, but presumably that could be about 40% (25% of 80% plus 20%), but could be more less depending on the exact EM percentages in other funds.

As for ideal--I have no idea, of course. But I do like the general concept of reducing overlap with U.S. large caps with these sorts of measures in ex-U.S.
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Nathan Drake
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by Nathan Drake »

netrammgc wrote: Fri Jun 11, 2021 9:49 am
Nathan Drake wrote: Mon Jun 07, 2021 10:35 pm US stocks get plenty of love on this forum. Jack Bogle has been a long proponent of not needing international. Buffet uses the S&P 500 as a common benchmark and will invest his wealth in this fund for his wife (despite owning plenty of international as part of Berkshire). While these industry mavens have done much for the average investor throughout their lives, I don't blindly follow all of their advice. And often, their own beliefs are in conflict with bigger picture investment themes. And that's perfectly fine. We all have our own biases.

I am going to make the argument that if you live in the US, and are investing 100% in US stocks, that you are taking a big risk that is completely unnecessary. A risk that is easily diversified away by investing in cheap index funds. And even if you believe that the US will perpetually see superior returns over the coming decades, a 20% allocation will likely be a good starting point to mitigate significant risk that you are wrong.

But this thread isn't about those that just want to wet their toes into international investing. It's for those that are truly "owning the haystack" at near market weights! 40-60% Depending on where you think the appropriate global cap of exUS should be. For those even more daring, we invest even more than 60% in international.
Interested in where you got the higher range level of 60%? Vanguard often uses 40%, you can round up market cap average right now to 50% for simplicity, and A Random Walk Down Wall Street now is 50%. Are there any whitepapers, books, and/or other suggesting 60%? Or is just a tilt?

Thanks. Genuinely curious. I'm at 57% international now but thinking about reducing down to 50% for simplicity and so I don't "tweak" anymore.
It’s a personal tilt due to valuations and where I expect the market cap of exUS to settle relative to US in the coming decades (60%).

US is at or near historic cap weight highs vs exUS and I don’t believe it’s very sustainable long term. It could still go higher but I find the argument unlikely.

But being practical about it, 50% vs 60% isn’t a huge difference. But my 40% US is split in half with a SCV tilt, so I’m only exposed to 20% of my portfolio against the US TSM
NiceUnparticularMan
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Re: The International Cap Weight (and Beyond!) Discussion Thread

Post by NiceUnparticularMan »

UpperNwGuy wrote: Thu Jun 10, 2021 6:25 pm
NiceUnparticularMan wrote: Thu Jun 10, 2021 9:10 am However, I do not in fact think the right solution is to try to beat them into investing in ex-U.S. stocks. I think the best solution is probably to just encourage such people to strongly consider investing in a single fund which takes such decisions out of their hands. Although both routes are not necessarily going to work all that often, I am least a little more confident that a person who goes with a single fund approach will not revisit that decision again in the future.
If Vanguard would give us single funds at various ratios of US/ex-US, many of us might go for it. However, at Vanguard today our choices are limited to 100/0 (VTSAX), 60/40 (Target Date and Life Strategy), 55/45 (VTWAX), or 0/100 (VTIAX). To get to 80/20 or 70/30 we have to use separate funds for US and ex-US. Most of us pro-US investors are never going to put 40% or 45% of our equities into ex-US, so the current choices of single funds don't work for us.
I mean, the whole point would be to persuade you that there is too much behavioral risk in making these decisions for yourself.

So, if you think Vanguard is a reputable company, you should just choose one of their Target or LifeStrategy funds, without even looking at how much ex-U.S. it holds (or one of Global Wellesley or Global Wellington, if active management more appeals). Indeed, it might change over time, but you should keep not peeking and go on with your other business.

Because, as soon as you think to yourself you know better than Vanguard how much should be in U.S., you are not really eliminating the behavioral risks that I identified.
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