VXUS vs VTI -- why invest in VXUS?

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pappupager
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Re: VXUS vs VTI -- why invest in VXUS?

Post by pappupager »

Billy C wrote: Thu Sep 22, 2022 12:48 pm
vineviz wrote: Thu Sep 22, 2022 10:44 am
enad wrote: Thu Sep 22, 2022 9:51 am If it helps you decide. Jack Bogle (as recently as April 29, 2017) said "international investing hasn’t provided much diversification. If you look at the last 10 years, the correlation between EAFE and the U.S. has been something like 92, that doesn’t seem to change your risk.”
With all due respect to Jack, statements like this suggest that he didn't really understand the concept of diversification especially well.
I hope you are being facetious.

Jack Bogle understood diversification better than any of us which is one of the reasons why he pioneered the first index mutual fund.

He also understood uncompensated risk, which is why he said international investing is completely unnecessary. If an investor is going to accept the additional risk of international investing (currency, political instability, war etc.) then they should be compensated with a higher reward. Jack was very skeptical that international investing would produce a higher return.

Jack first published his advice in 1993 in “Bogle on Mutual Funds” and the financial markets haven’t offered even a hint that he might have been wrong. U.S. has outperformed international by 375% over that span. And it’s done so with less volatility.

Diversification should offer a measure of safety, but international investing has done just the opposite. During the global financial crisis of 2007-09, which was centered in the U.S., foreign stocks should have offered a protective buffer if the diversification argument was correct. Foreign stock fared worse.

Those that followed Mr. Bogle’s advice reaped excellent investment results.
Well said.
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vineviz
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Re: VXUS vs VTI -- why invest in VXUS?

Post by vineviz »

Marseille07 wrote: Thu Sep 22, 2022 1:17 pm
vineviz wrote: Thu Sep 22, 2022 1:14 pm Given how objectively unsuccessful we can see that performance chasing is, I'm not sure it is the VXUS owners who should be concerned.
Then why would they create a thread like this?
Because the performance chasing sirens are ever-tempting. Just look at how many US-only investors have succumbed.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Billy C
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Billy C »

strummer6969 wrote: Thu Sep 22, 2022 12:56 pm
Billy C wrote: Thu Sep 22, 2022 12:48 pm
vineviz wrote: Thu Sep 22, 2022 10:44 am
enad wrote: Thu Sep 22, 2022 9:51 am If it helps you decide. Jack Bogle (as recently as April 29, 2017) said "international investing hasn’t provided much diversification. If you look at the last 10 years, the correlation between EAFE and the U.S. has been something like 92, that doesn’t seem to change your risk.”
With all due respect to Jack, statements like this suggest that he didn't really understand the concept of diversification especially well.
I hope you are being facetious.

Jack Bogle understood diversification better than any of us which is one of the reasons why he pioneered the first index mutual fund.

He also understood uncompensated risk, which is why he said international investing is completely unnecessary. If an investor is going to accept the additional risk of international investing (currency, political instability, war etc.) then they should be compensated with a higher reward. Jack was very skeptical that international investing would produce a higher return.

Jack first published his advice in 1993 in “Bogle on Mutual Funds” and the financial markets haven’t offered even a hint that he might have been wrong. U.S. has outperformed international by 375% over that span. And it’s done so with less volatility.

Diversification should offer a measure of safety, but international investing has done just the opposite. During the global financial crisis of 2007-09, which was centered in the U.S., foreign stocks should have offered a protective buffer if the diversification argument was correct. Foreign stock fared worse.

Those that followed Mr. Bogle’s advice reaped excellent investment results.
Does the lower P/E of ex-US compensate for that risk? Ex-US P/E was quite high when Bogle wrote that in 1993.

https://www.isabelnet.com/valuation-u-s ... ince-1969/
The lower valuations of international equities may very well compensate for the added risk of investing in them. That is a valid point. And even though I don’t invest internationally myself I wouldn’t be surprised if reversion to the mean occurs and there is a period of international outperformance.
“When there are multiple solutions to a problem, choose the simplest one.” ― John C. Bogle
Marseille07
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Marseille07 »

vineviz wrote: Thu Sep 22, 2022 1:39 pm Just look at how many US-only investors have succumbed.
Who? The only poster I'm aware who used to be US-only and not now is Nathan Drake.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by vineviz »

Marseille07 wrote: Thu Sep 22, 2022 2:40 pm
vineviz wrote: Thu Sep 22, 2022 1:39 pm Just look at how many US-only investors have succumbed.
Who? The only poster I'm aware who used to be US-only and not now is Nathan Drake.

Performance chasing is not limited to people who have recent changed their approach.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Triple digit golfer »

This is getting old already.

Clearly world stocks offer a more diversified portfolio than just those of one country. Whether you want to hold them all or just certain countries, sectors, sizes or styles is your own choice. There are probably hundreds of threads on this topic.

I prefer more diversification and to listen to the academic reasons for more diversification rather than less. The most diversified portfolio, though, won't be the best performing. No one knows what that will be.

"Because it has done better" is a very poor reason to invest in one asset but not another.

"Because it has a higher expected return for the same risk" or "Because it has a lower risk for the same expected return" are very good reasons.
nalor511
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Re: VXUS vs VTI -- why invest in VXUS?

Post by nalor511 »

I love these threads, particularly because they bring out the type of data and graphics that this thread has brought out.
Danw
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Danw »

I wish I had listened to Jack Bogle and never invested in international. That being said, I don’t want to “buy high sell low” so I’m holding on to it. If international ever has a multi-year period of outperformance, I plan to sell it.
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pappupager
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Re: VXUS vs VTI -- why invest in VXUS?

Post by pappupager »

Danw wrote: Thu Sep 22, 2022 3:39 pm I wish I had listened to Jack Bogle and never invested in international. That being said, I don’t want to “buy high sell low” so I’m holding on to it. If international ever has a multi-year period of outperformance, I plan to sell it.
OP here -- I started out 50/50 between VTI and VXUS in 2008 and did not rebalance and kept on investing (probably more VTI). I just checked my portfolio split. It's 80% VTI, 10% VXUS and 10% BND. I want to rebalance to a more 60/30/10 split but looking at the overall return of VXUS compared to VTI over the past 14 years, I just didn't see the point. So I created this thread.

I like the point from another poster about diversification and maybe the most diversified portfolio may not yield the best return. I added bonds to my portfolio for diversification. I assumed bonds are low risk and would provide a lower return than say VTI. I also assumed VTI is medium risk, medium to above average returns. I did not research enough about VXUS but I knew its high risk, and was hoping for corresponding higher returns over the long term -- that has not materialized for me.

I plan to keep VXUS in my portfolio, but I doubt it would exceed 20% share of the overall mix.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by visualguy »

Danw wrote: Thu Sep 22, 2022 3:39 pm I wish I had listened to Jack Bogle and never invested in international. That being said, I don’t want to “buy high sell low” so I’m holding on to it. If international ever has a multi-year period of outperformance, I plan to sell it.
It's sunk cost at this point. If you want out of it for good, it's best to make that portfolio adjustment already. Have the asset allocation you really want, and avoid further impact from the allocation you don't want. I wouldn't try to time it.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by strummer6969 »

visualguy wrote: Thu Sep 22, 2022 5:20 pm
Danw wrote: Thu Sep 22, 2022 3:39 pm I wish I had listened to Jack Bogle and never invested in international. That being said, I don’t want to “buy high sell low” so I’m holding on to it. If international ever has a multi-year period of outperformance, I plan to sell it.
It's sunk cost at this point. If you want out of it for good, it's best to make that portfolio adjustment already. Have the asset allocation you really want, and avoid further impact from the allocation you don't want. I wouldn't try to time it.
For once I agree with you. If an investment is causing you that much regret and turmoil, dump it. It's not for you.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Bearcat78 »

Owning VTI gives you some international diversification. Many companies have exposure to markets in many countries. May not be enough exposure for many who post here. I think Mr. Bogle had an opinion that it was enough.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by vineviz »

Bearcat78 wrote: Thu Sep 22, 2022 5:49 pm Owning VTI gives you some international diversification. Many companies have exposure to markets in many countries. May not be enough exposure for many who post here. I think Mr. Bogle had an opinion that it was enough.
Bogle bought into this myth, yes, but it is still a misconception.
.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Tamalak »

Bearcat78 wrote: Thu Sep 22, 2022 5:49 pm Owning VTI gives you some international diversification. Many companies have exposure to markets in many countries. May not be enough exposure for many who post here. I think Mr. Bogle had an opinion that it was enough.
It is "enough" diversification. I keep seeing people use that word, "enough", when it comes to the diversification within USA-only companies. It never made sense to me that you would eat only as much of the "only free lunch" as is enough, instead of the entire lunch.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by visualguy »

Tamalak wrote: Thu Sep 22, 2022 6:09 pm
Bearcat78 wrote: Thu Sep 22, 2022 5:49 pm Owning VTI gives you some international diversification. Many companies have exposure to markets in many countries. May not be enough exposure for many who post here. I think Mr. Bogle had an opinion that it was enough.
It is "enough" diversification. I keep seeing people use that word, "enough", when it comes to the diversification within USA-only companies. It never made sense to me that you would eat only as much of the "only free lunch" as is enough, instead of the entire lunch.
That's one heck of an expensive "free lunch" :wink:
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Re: VXUS vs VTI -- why invest in VXUS?

Post by strummer6969 »

visualguy wrote: Thu Sep 22, 2022 6:49 pm
Tamalak wrote: Thu Sep 22, 2022 6:09 pm
Bearcat78 wrote: Thu Sep 22, 2022 5:49 pm Owning VTI gives you some international diversification. Many companies have exposure to markets in many countries. May not be enough exposure for many who post here. I think Mr. Bogle had an opinion that it was enough.
It is "enough" diversification. I keep seeing people use that word, "enough", when it comes to the diversification within USA-only companies. It never made sense to me that you would eat only as much of the "only free lunch" as is enough, instead of the entire lunch.
That's one heck of an expensive "free lunch" :wink:
Why do you participate in every international thread? There's an odd obsession about it. I don't know why anyone cares so much whether others have an international allocation or not. I sense some insecurity about one's own investment choices.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by enad »

pappupager wrote: Thu Sep 22, 2022 4:47 pm
Danw wrote: Thu Sep 22, 2022 3:39 pm I wish I had listened to Jack Bogle and never invested in international. That being said, I don’t want to “buy high sell low” so I’m holding on to it. If international ever has a multi-year period of outperformance, I plan to sell it.
OP here -- I started out 50/50 between VTI and VXUS in 2008 and did not rebalance and kept on investing (probably more VTI). I just checked my portfolio split. It's 80% VTI, 10% VXUS and 10% BND. I want to rebalance to a more 60/30/10 split but looking at the overall return of VXUS compared to VTI over the past 14 years, I just didn't see the point. So I created this thread.

I like the point from another poster about diversification and maybe the most diversified portfolio may not yield the best return. I added bonds to my portfolio for diversification. I assumed bonds are low risk and would provide a lower return than say VTI. I also assumed VTI is medium risk, medium to above average returns. I did not research enough about VXUS but I knew its high risk, and was hoping for corresponding higher returns over the long term -- that has not materialized for me.

I plan to keep VXUS in my portfolio, but I doubt it would exceed 20% share of the overall mix.
Taylor Larimore wrote: Mon Dec 29, 2008 9:10 pm Bogleheads:

Most of us are familiar with Adrian's Formula:

Maximum Tolerable Loss X 2 = Maximum Stock Allocation

Nearly all our posts equate "Maximum tolerable loss" with "risk tolerance" (fear). We may feel confident we would not sell because of fear, but this does not mean we should never sell stocks.

Let's assume we have a $800,000 retirement portfolio providing $32,000 annual return (4%). We decide we need a minimum $24,000 annual return. This means we cannot allow our portfolio to be less than $600,000 ($600,000 X 4% = $24,000).

Adrian's Forumula can be a big help. It tells us that our Maximum Tolerable Loss ($200,000) X 2 = $400,000 (Maximum Stock Allocation).

But what if our portfolio starts to go below $600,000 (maximum tolerable loss)? In this case we must exchange stocks for bonds or cash.

We should not invest in stocks if we cannot afford to lose (especially in retirement).

Happy New Year!
I agree with the sentiment that if it's causing you to worry about it, possibly losing sleep over it, then cut your loses and move on. If you want to average your way into the new position that's fine. Don't let others sway you. There's no shame in cutting your losses. As another poster said chalk it up as a lesson learned.

Best Wishes
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Re: VXUS vs VTI -- why invest in VXUS?

Post by visualguy »

strummer6969 wrote: Thu Sep 22, 2022 6:52 pm
visualguy wrote: Thu Sep 22, 2022 6:49 pm
Tamalak wrote: Thu Sep 22, 2022 6:09 pm
Bearcat78 wrote: Thu Sep 22, 2022 5:49 pm Owning VTI gives you some international diversification. Many companies have exposure to markets in many countries. May not be enough exposure for many who post here. I think Mr. Bogle had an opinion that it was enough.
It is "enough" diversification. I keep seeing people use that word, "enough", when it comes to the diversification within USA-only companies. It never made sense to me that you would eat only as much of the "only free lunch" as is enough, instead of the entire lunch.
That's one heck of an expensive "free lunch" :wink:
Why do you participate in every international thread? There's an odd obsession about it. I don't know why anyone cares so much whether others have an international allocation or not. I sense some insecurity about one's own investment choices.
Most of the folks you see here are regulars of many years on these threads. We're as perennial as the disappointing performance of ex-US. You must be new.

I'm primarily interested in gaining insight into what accounts for this very unfortunate long-term performance. I think it's surprising, scary, and important to understand. I never thought it was needed to invest in ex-US indexing, and never did so in my 26 years of investment, but I can't say I expected it to be THIS bad, so I'm surprised and curious. I like to think about it and try to understand the factors involved.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by strummer6969 »

Image
visualguy wrote: Thu Sep 22, 2022 7:51 pm
strummer6969 wrote: Thu Sep 22, 2022 6:52 pm
visualguy wrote: Thu Sep 22, 2022 6:49 pm
Tamalak wrote: Thu Sep 22, 2022 6:09 pm
Bearcat78 wrote: Thu Sep 22, 2022 5:49 pm Owning VTI gives you some international diversification. Many companies have exposure to markets in many countries. May not be enough exposure for many who post here. I think Mr. Bogle had an opinion that it was enough.
It is "enough" diversification. I keep seeing people use that word, "enough", when it comes to the diversification within USA-only companies. It never made sense to me that you would eat only as much of the "only free lunch" as is enough, instead of the entire lunch.
That's one heck of an expensive "free lunch" :wink:
Why do you participate in every international thread? There's an odd obsession about it. I don't know why anyone cares so much whether others have an international allocation or not. I sense some insecurity about one's own investment choices.
Most of the folks you see here are regulars of many years on these threads. We're as perennial as the disappointing performance of ex-US. You must be new.

I'm primarily interested in gaining insight into what accounts for this very unfortunate long-term performance. I think it's surprising, scary, and important to understand. I never thought it was needed to invest in ex-US indexing, and never did so in my 26 years of investment, but I can't say I expected it to be THIS bad, so I'm surprised and curious. I like to think about it and try to understand the factors involved.
Oh, okay. Thanks for being such a concerned fellow citizen. I must have missed the memo about how "scary" it has been.

Did your 26 years of investment experience perhaps coincide with the long period of ballooning debt to GDP? Do you expect that to continue indefinitely? I don't - and we've finally started to see the consequences with supply and demand way out of balance (use of debt to fuel demand and not enough to increase the means for production). Anyway, we greatly appreciate your 26 years of "expertise" which apparently is more valid than that of Vanguard's, investment advisors, and millions of investors. Thanks again. https://tradingeconomics.com/united-sta ... ebt-to-gdp (be sure to hit 'MAX' so you can zoom out).
Last edited by strummer6969 on Thu Sep 22, 2022 9:40 pm, edited 4 times in total.
lostdog
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Re: VXUS vs VTI -- why invest in VXUS?

Post by lostdog »

US only index investors are performance chasers...period. No different from a stock picker.

They use Jack Bogle and other excuses for lack of diversification. It's so glaringly obvious.

I hope young investors see this and learn.
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enad
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Re: VXUS vs VTI -- why invest in VXUS?

Post by enad »

strummer6969 wrote: Thu Sep 22, 2022 12:56 pm Does the lower P/E of ex-US compensate for that risk? Ex-US P/E was quite high when Bogle wrote that in 1993.
24 years later in an article dated April 29, 2017, Jack stated:

Think of it this way: Suppose you constructed a portfolio that mirrors the composition of the global stock market: 45% U.S., 55% overseas. If non-U.S. stocks were to outperform by two percentage points a year, that leaves only a one percentage point difference. “You could find that by investing in cheaper funds,” Mr. Bogle said.

He also states:

“Everyone tells me I’m wrong,” Mr. Bogle said. “In my book, ‘Bogle on Investing,’ I said, for a lot of reasons, you don’t need to own international stock.” His argument: International investing involves extra risk, ranging from currency risk and economic risk to societal instability risk.

“The reality is that we do better than the rest of the world. You don’t need currency risk, but if you want, don’t go over 20% in international,” he said.


So he gave cover for those who wish to invest in US-only, as well as to those who feel the need to invest in International.

Aren't we all hear because we are inspired by Jack Bogle? Both camps are right if it lets them sleep at night. Why worry about what someone else is doing?

Best Wishes
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Marseille07
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Marseille07 »

lostdog wrote: Thu Sep 22, 2022 8:13 pm US only index investors are performance chasers...period. No different from a stock picker.

They use Jack Bogle and other excuses for lack of diversification. It's so glaringly obvious.

I hope young investors see this and learn.
Okay...just to be clear, according to you 100% ex-US is also performance-chasing, correct? If the answer is no, could you explain why not?

I'm not discussing if anyone is actually 100% ex-US, just asking about the performance-chasing aspect.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Beensabu »

enad wrote: Thu Sep 22, 2022 8:18 pm Think of it this way: Suppose you constructed a portfolio that mirrors the composition of the global stock market: 45% U.S., 55% overseas. If non-U.S. stocks were to outperform by two percentage points a year, that leaves only a one percentage point difference. “You could find that by investing in cheaper funds,” Mr. Bogle said.
Okay. Let's try this out.

ex-US - 7%
US - 5%
45/55 US/exUS - 6%

So... the argument is that you could get to 6% with all-US by investing in cheaper funds?

But what if you are already using the cheapest funds (where the difference in expense ratio between US and ex-US is 7bps - that's 0.07%), and there is still that pre-determined two percentage points a year difference?

How do you get to 6% with all-US? What cheaper funds than VTIAX/VXUS do you use to do that in that scenario, exactly?

That quote is almost making me feel like maybe he was locked on 1%+ ERs being the norm for the industry even though they weren't anymore by then?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
strummer6969
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Re: VXUS vs VTI -- why invest in VXUS?

Post by strummer6969 »

enad wrote: Thu Sep 22, 2022 8:18 pm
strummer6969 wrote: Thu Sep 22, 2022 12:56 pm Does the lower P/E of ex-US compensate for that risk? Ex-US P/E was quite high when Bogle wrote that in 1993.
24 years later in an article dated April 29, 2017, Jack stated:

Think of it this way: Suppose you constructed a portfolio that mirrors the composition of the global stock market: 45% U.S., 55% overseas. If non-U.S. stocks were to outperform by two percentage points a year, that leaves only a one percentage point difference. “You could find that by investing in cheaper funds,” Mr. Bogle said.

He also states:

“Everyone tells me I’m wrong,” Mr. Bogle said. “In my book, ‘Bogle on Investing,’ I said, for a lot of reasons, you don’t need to own international stock.” His argument: International investing involves extra risk, ranging from currency risk and economic risk to societal instability risk.

“The reality is that we do better than the rest of the world. You don’t need currency risk, but if you want, don’t go over 20% in international,” he said.


So he gave cover for those who wish to invest in US-only, as well as to those who feel the need to invest in International.

Aren't we all hear because we are inspired by Jack Bogle? Both camps are right if it lets them sleep at night. Why worry about what someone else is doing?

Best Wishes
Mr. Bogle was a giant, and he has certainly been right from when posted his recommendations. However, for a 'set it and forget it' portfolio which is intended for 30-40 years out from when one starts investing, even a decade or two is noise.

I just found this article and it summarizes my view on the topic. https://www.forbes.com/sites/simonmoore ... 463bc121f9

I agree with you that no one should worry about what others are doing and you should invest in whatever will help you sleep at night. I could see it both ways, and it's very much a personal and informed decision for myself. If you're going to have a bias, you could do much worse than having the U.S. as a home country bias.
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Billy C
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Billy C »

Morningstar published an article in 2020 entitled, “Bogle Had a Point on International Stocks.”

https://www.morningstar.com/articles/97 ... nal-stocks

Some important takeaways:

“Counting 2020, blue-chip U.S.-stock funds have lost money in five calendar years since 2002. On each occasion, foreign large-blend mutual funds not only also finished in the red, but they fell even further than did their American cousins. As insurance policies go, I have seen better. Whenever U.S. equity-fund shareholders have needed the protection, their international funds have worsened their problems, not fixed them.”

“The past, of course, will not necessarily repeat. Indeed, it would be strange if U.S. stocks continued to beat their overseas equivalents during every down market. One of these days, holding European and Japanese equities during a stock-market slide will make American investors relatively happy. It’s doubtful, though, that the typical international fund will ever provide a significant diversification benefit.”

According to the results of the study period (1998-2019) it appears that overweighting U.S. small caps, particularly small cap value, provides equal or greater diversification than investing in international developed markets or emerging markets.
“When there are multiple solutions to a problem, choose the simplest one.” ― John C. Bogle
Northern Flicker
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Northern Flicker »

Marseille07 wrote: Wed Sep 21, 2022 11:09 am
pappupager wrote: Wed Sep 21, 2022 10:31 am I am 75-15-10 (VTI/VXUS/BND). Looking at VXUS specifically, the price has been the same in 2012 vs 2022, while during the same duration, VTI has quadrupled. No one has the crystal ball, and past performance is no indicator of the future, but why does everyone push heavily for VXUS as a counter for VTI? I would like a counter that has been profitable over a long duration of time.

Thoughts?
Places like Vanguard have to sell international to some degree. Imagine the uproar if they come out and say "we don't recommend international, please invest US-only, don't buy our product VXUS." They obviously can't say that.

As an individual investor, however, you get to decide what you want to do for your portfolio.
Vanguard has lots of products that they do not recommend to investors unless the investor has identified the interest or need for the product. There is not a dichotomy wherein they either have to recommend a product or explicitly recommend against it. This is not why Vanguard recommends ex-US stocks (and bonds) in their VPAS, Target Retirement, and LifeStrategy portfolios. They could just take no position on it, as they do with the vast majority of their products.

Some presentations of Vanguard's position on the matter:

https://investor.vanguard.com/investor- ... -portfolio

https://corporate.vanguard.com/content/ ... Online.pdf
Last edited by Northern Flicker on Fri Sep 23, 2022 1:10 am, edited 2 times in total.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Northern Flicker »

visualguy wrote: Wed Sep 21, 2022 8:06 pm
nisiprius wrote: Wed Sep 21, 2022 1:33 pm Over the period of time in which Vanguard has offered an international stock index fund, there was a long period when it did about the same as the US, then a long period when it did quite a lot better, and now we are in a long period when it is doing worse. It's all a big shrug.
A big shrug??? The difference in performance has been huge over that period (1986-2022). The CAGR for US has been 10.14%, and for ex-US it has been 5.36%. This means that $10,000 grew to $326,699 with US, and $65,696 with ex-US over that period. That's a big chasm, not a big shrug.
Did you lump sum into your portfolio in 1986? I think alot of investors are biased by the data available to them through portfolio visualizer. Ex-US equities left US equities in the dust in the 1970's.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Beensabu »

So does anyone think that the two indexes have performed similarly, so that only a few percentage points have separated their results? No? Yeah.

Why did all these people (including Bogle) seem to think that US and exUS should perform similarly, with only a few percentage points separating their results?

That's weird, right? That totally hasn't been the case at all for quite a while now, has it? Why did all these people think that? Is it because that's what essentially happened for a really long time over really long periods of time? Did it, really? Whoa... Go figure...

I mean, if they did perform similarly, over long periods of time, then it really wouldn't matter what you decided to do over long periods of time, would it? As long as you stuck to your decision. Like one could outperform the other for awhile and then the other could outperform that one for awhile, and over a long enough period of time, the difference between concentrating in the country with the highest proportion of global market cap for the last century vs. weighting actual global market cap would be pretty darn close enough. Right? Yup. That would be the thing to do.

OMG I give up. It's useless, and it doesn't matter, and you can go ahead and overpay for less with all the money you want for all I care. Go ahead and do it. Have a lovely next few decades.

Exclusively investing in a single country that has clearly recently outperformed the rest of the world for far longer than usual by a very great magnitude when earnings growth of that country's overall market clearly does not match up with multiple expansion of that very same market? You people have balls of steel. That's some scary stuff, man. How you are not absolutely terrified is beyond me.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by patrick »

Marseille07 wrote: Thu Sep 22, 2022 8:54 pm
lostdog wrote: Thu Sep 22, 2022 8:13 pm US only index investors are performance chasers...period. No different from a stock picker.

They use Jack Bogle and other excuses for lack of diversification. It's so glaringly obvious.

I hope young investors see this and learn.
Okay...just to be clear, according to you 100% ex-US is also performance-chasing, correct? If the answer is no, could you explain why not?

I'm not discussing if anyone is actually 100% ex-US, just asking about the performance-chasing aspect.
ex-US outperformed the US over the past month. VTI lost 9.2% while VXUS only lost 7.2%. If you choose to invest 100% ex-US because of that, then you are performance chasing. If you choose to invest 100% ex-US for different reasons then you are not performance chasing but I still don't recommend it.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by vineviz »

Marseille07 wrote: Thu Sep 22, 2022 8:54 pm Okay...just to be clear, according to you 100% ex-US is also performance-chasing, correct? If the answer is no, could you explain why not?
The answer is no, and I think you know what the term "performance chasing" means: making decision based on recent outperformance of an asset. It's a manifestation of "recency bias", and any 100% ex-US investor would have to using an anomalous definition of "recent" to show signs of suffering from this.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by vineviz »

Billy C wrote: Thu Sep 22, 2022 10:10 pm Morningstar published an article in 2020 entitled, “Bogle Had a Point on International Stocks.”

https://www.morningstar.com/articles/97 ... nal-stocks
Don't presume that John Rekenthaler grasps the concept of diversification any better than Bogle did.

The weight of that article is basically "see, US stocks outperformed recently".
Billy C wrote: Thu Sep 22, 2022 10:10 pm According to the results of the study period (1998-2019) it appears that overweighting U.S. small caps, particularly small cap value, provides equal or greater diversification than investing in international developed markets or emerging markets.
It's not either or. An modern investor can easily and cheaply obtain both geographical diversification AND factor diversification.
Last edited by vineviz on Fri Sep 23, 2022 10:14 am, edited 1 time in total.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by goodenyou »

I struggle with this too. I am not sure that I am being patient or stubborn about my international allocation. I am holding out for Godot. He will arrive.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Marseille07 »

vineviz wrote: Fri Sep 23, 2022 6:19 am The answer is no, and I think you know what the term "performance chasing" means: making decision based on recent outperformance of an asset. It's a manifestation of "recency bias", and any 100% ex-US investor would have to using an anomalous definition of "recent" to show signs of suffering from this.
You're right. If we define performance chasing as such, then obviously going 100% ex-US is not. It is actually something else but I'm not going to get into a flame war here.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Northern Flicker »

Billy C wrote: Morningstar published an article in 2020 entitled, “Bogle Had a Point on International Stocks.”
There was a time when the US economy was diversified enough that a US-only equity portfolio had sufficient sector diversification for a US investor to hold it. That may well still have been true when Mr. Bogle formulated his position on ex-US stocks, but I don't think that is true of a market where half of the market cap is in 2 sectors, counting tech and much of communications (google, facebook etc) as essentially 1 sector. And Amazon, a large cloud service provider is not classified as a tech company.

The US market now looks something like:

50% sector diversified portfolio
30% tech (including tech market cap not classified in tech sector)
20% health care

And 30% may underestimate the de facto tech sector.

In the past, a total international or developed markets index fund was more volatile than a total US market index fund because the ex-US fund has the extra contribution of currency fluctuations on top of equity volatility. But in recent years, the US market has become more volatile than a total int'l fund. If this is due to increased sector concentration, it may portend deeper drawdowns in the US market during some future bear market(s). Perhaps that won't happen. Perhaps it also may take US-only portfolios getting torched before many US-only investors re-evaluate their risk models.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Billy C »

Northern Flicker wrote: Fri Sep 23, 2022 5:04 pm
Billy C wrote: Morningstar published an article in 2020 entitled, “Bogle Had a Point on International Stocks.”
There was a time when the US economy was diversified enough that a US-only equity portfolio had sufficient sector diversification for a US investor to hold it. That may well still have been true when Mr. Bogle formulated his position on ex-US stocks, but I don't think that is true of a market where half of the market cap is in 2 sectors, counting tech and much of communications (google, facebook etc) as essentially 1 sector. And Amazon, a large cloud service provider is not classified as a tech company.

The US market now looks something like:

50% sector diversified portfolio
30% tech (including tech market cap not classified in tech sector)
20% health care

And 30% may underestimate the de facto tech sector.

In the past, a total international or developed markets index fund was more volatile than a total US market index fund because the ex-US fund has the extra contribution of currency fluctuations on top of equity volatility. But in recent years, the US market has become more volatile than a total int'l fund. If this is due to increased sector concentration, it may portend deeper drawdowns in the US market during some future bear market(s). Perhaps that won't happen. Perhaps it also may take US-only portfolios getting torched before many US-only investors re-evaluate their risk models.
Vanguard lists the weighted exposure of VTSAX as :

25.8% - Technology
14.8% - Consumer Discretionary
13.3% - Health Care
12.9% - Industrials
11.2% - Financials
5.6% - Consumer Staples
4.9% - Energy

In their own report linked a few posts back Vanguard says that the correlations between returns of stocks in the United States and those outside the United States have increased significantly, with the 10-year correlation rising from 0.51 as of December 31, 1989, to 0.86 as of September 30, 2020. The diversification effect of international equities has weakened with globalization.

Image

For me the small amount of added diversification from foreign stocks isn’t worth the extra risks of investing internationally. I agree with Mr. Bogle. Others may come to a different conclusion and that’s fine. I’d rather have my diversification remain in the U.S. in the form of small cap stocks.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Northern Flicker »

Billy C wrote: In their own report linked a few posts back Vanguard says that the correlations between returns of stocks in the United States and those outside the United States have increased significantly, with the 10-year correlation rising from 0.51 as of December 31, 1989, to 0.86 as of September 30, 2020.
Those are both historical sample correlations from two different sample periods, not the correlation of future returns.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by ray.james »

Robot Monster wrote: Wed Sep 21, 2022 10:59 am Small observation:

The US dollar has strengthened a lot since 2012, weighing down on international. Just look at Invesco DB US Dollar Index Bullish Fund (UUP)

https://finance.yahoo.com/quote/uup

On Jan 1st, 2012 it was at $22.12, and it's been increasing all these years since up to $29.74 at the moment.

BTW...

International has been talked about to death on this forum. I used to keep a list of the endless threads about it, link, but got tired of maintaining it.
A critical thing, often missed. Just this year dollar index is up 17.53%. A relative loss on VXUS purely from currency trade.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by vineviz »

Billy C wrote: Fri Sep 23, 2022 6:25 pm In their own report linked a few posts back Vanguard says that the correlations between returns of stocks in the United States and those outside the United States have increased significantly, with the 10-year correlation rising from 0.51 as of December 31, 1989, to 0.86 as of September 30, 2020. The diversification effect of international equities has weakened with globalization.
The Vanguard analysis has two problems.

One is the short timeframe. A longer look back will illustrate that what Vanguard calls "increased significantly" actually resulted in correlations still being more or less what they have been for long periods of time.

Image

A second is that when you closely at the data, you can see that several periods where international diversification really helped out investors (e.g. the 1960s and 2000s) were times when monthly correlations were also high. The reality is that if you're investing for many years or even decades, it turns out that correlations of monthly returns (even when rolled across long periods) aren't particularly useful indicators of anything in particular.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by OldSport »

Robot Monster wrote: Wed Sep 21, 2022 10:59 am Small observation:

The US dollar has strengthened a lot since 2012, weighing down on international. Just look at Invesco DB US Dollar Index Bullish Fund (UUP)

https://finance.yahoo.com/quote/uup

On Jan 1st, 2012 it was at $22.12, and it's been increasing all these years since up to $29.74 at the moment.

BTW...

International has been talked about to death on this forum. I used to keep a list of the endless threads about it, link, but got tired of maintaining it.
THIS is somewhat significant. If you adjust for currency fluctuations, International performance seems much more "in range".
Back in 2002-2008, heyday of International when US stocks did diddly squat, the USD devalued terribly. Look at USD vs. EUR. Traveling to Europe in the summer of 2008, everything seemed expensive. Going to parts of Europe now, especially if buying local, many things are CHEAPER to me NOW vs then, despite inflation, because of the much stronger USD, which is worth more than a Euro as of this post.

Even if USD stays strong, the relative International underperformance should get better, unless the USD continues to get STRONGER. Understanding this, I'm planning to stay the course with my 25% International.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Northern Flicker »

ray.james wrote: Fri Sep 23, 2022 6:54 pm
Robot Monster wrote: Wed Sep 21, 2022 10:59 am Small observation:

The US dollar has strengthened a lot since 2012, weighing down on international. Just look at Invesco DB US Dollar Index Bullish Fund (UUP)

https://finance.yahoo.com/quote/uup

On Jan 1st, 2012 it was at $22.12, and it's been increasing all these years since up to $29.74 at the moment.

BTW...

International has been talked about to death on this forum. I used to keep a list of the endless threads about it, link, but got tired of maintaining it.
A critical thing, often missed. Just this year dollar index is up 17.53%. A relative loss on VXUS purely from currency trade.
Currency effects are not missed. They are often discussed on BH as a motivation for not using a very high ex-US diversification. For instance, I think 50% of equities in ex-US is too high for US investors due to currency risk.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by OldSport »

Northern Flicker wrote: Fri Sep 23, 2022 7:29 pm
ray.james wrote: Fri Sep 23, 2022 6:54 pm
Robot Monster wrote: Wed Sep 21, 2022 10:59 am Small observation:

The US dollar has strengthened a lot since 2012, weighing down on international. Just look at Invesco DB US Dollar Index Bullish Fund (UUP)

https://finance.yahoo.com/quote/uup

On Jan 1st, 2012 it was at $22.12, and it's been increasing all these years since up to $29.74 at the moment.

BTW...

International has been talked about to death on this forum. I used to keep a list of the endless threads about it, link, but got tired of maintaining it.
A critical thing, often missed. Just this year dollar index is up 17.53%. A relative loss on VXUS purely from currency trade.
Currency effects are not missed. They are often discussed on BH as a motivation for not using a very high ex-US diversification. For instance, I think 50% of equities in ex-US is too high for US investors due to currency risk.
In light of this International Value has not done all that bad this year, but International Growth has been dreadful, even worse than Bonds and EM. But Intl Growth did do much better 2016-2021.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Billy C »

vineviz wrote: Fri Sep 23, 2022 6:57 pm
Billy C wrote: Fri Sep 23, 2022 6:25 pm In their own report linked a few posts back Vanguard says that the correlations between returns of stocks in the United States and those outside the United States have increased significantly, with the 10-year correlation rising from 0.51 as of December 31, 1989, to 0.86 as of September 30, 2020. The diversification effect of international equities has weakened with globalization.
The Vanguard analysis has two problems.

One is the short timeframe. A longer look back will illustrate that what Vanguard calls "increased significantly" actually resulted in correlations still being more or less what they have been for long periods of time.

Image

A second is that when you closely at the data, you can see that several periods where international diversification really helped out investors (e.g. the 1960s and 2000s) were times when monthly correlations were also high. The reality is that if you're investing for many years or even decades, it turns out that correlations of monthly returns (even when rolled across long periods) aren't particularly useful indicators of anything in particular.
I wouldn’t call half a century a short timeframe. That’s an investing lifetime for most people.

Vanguard’s own analysis admits that the diversification benefits of international investing are relatively modest, even though they continue to recommend it.

You say that international diversification really helped out investors in the 2000’s. It’s true that ex-U.S. outperformed total U.S. during that decade by 1.86% annually. But U.S. small caps outperformed total U.S. by an even larger margin, 5.09% annually.

Image
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Re: VXUS vs VTI -- why invest in VXUS?

Post by vineviz »

Billy C wrote: Fri Sep 23, 2022 7:39 pm
I wouldn’t call half a century a short timeframe. That’s an investing lifetime for most people.
It's a short timeframe given the kind of cycles they're trying to analyze.


Billy C wrote: Fri Sep 23, 2022 7:39 pm Vanguard’s own analysis admits that the diversification benefits of international investing are relatively modest, even though they continue to recommend it.
It's not an "admission". It's an unsupported opinion based on poor data analysis.
Billy C wrote: Fri Sep 23, 2022 7:39 pm You say that international diversification really helped out investors in the 2000’s. It’s true that ex-U.S. outperformed total U.S. during that decade by 1.86% annually. But U.S. small caps outperformed total U.S. by an even larger margin, 5.09% annually.
Yes. And?

Factor diversification and geographic diversification aren't mutually exclusive. Doing both is better than doing just one or the other.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by nisiprius »

acegolfer wrote: Wed Sep 21, 2022 10:35 am...Since the correlation between VTI and VXUS is less than 1.00, and the 2 don't overlap, there will be positive diversification effect...
Without going down the rabbit hole of "what is diversification," let's accept for the sake of argument that "positive diversification effect" means "improved risk-adjusted return as measured by the Sharpe ratio." (Vineviz takes exception to this idea).

Anyway, it is a myth that any diversifier will improve a portfolio as long as the correlation is less than 1.00.

It is a balancing act. If the diversifier has lower risk-adjusted return than the original portfolio, you will get two effects pulling in opposite directions. Low correlation will tend to increase the portfolio's risk-adjusted return, but the lower risk-adjusted return of the diversifier will tend to drag it down. There is no certainty at all about which one wins.

In order for the diversifier to improve the Sharpe ratio, there is a simple relationship that tells us how low the correlation must be. You simply take the Sharpe ratio of the original portfolio and the Sharpe ratio of the diversifier, divide the smaller by the larger; call the quotient Q. In order for the diversifier to raise the Sharpe ratio of the portfolio, it is not good enough just for the correlation ρ to be less than 1.00. It is necessary to have ρ < Q.

Diversifiers that would be lousy investments in themselves might improve a portfolio, but only if they have seriously low correlations with the portfolio. Just being less than 1.00 is not good enough.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Northern Flicker »

Billy C wrote: Fri Sep 23, 2022 7:39 pm Vanguard’s own analysis admits that the diversification benefits of international investing are relatively modest, even though they continue to recommend it.
The primary diversification benefit of ex-US equity is to diversify risks of variance of return over longer periods. Reducing volatility and focusing on correlation of short-term return is secondary, although the increase in sector concentration in the US market is a concern for shorter term risks as well.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by Beensabu »

nisiprius wrote: Fri Sep 23, 2022 8:06 pm Without going down the rabbit hole of "what is diversification,"
Why not? It is by far the most interesting possible discussion while also being potentially the most helpful to the most people, as far as personal investments and theory are concerned.
let's accept for the sake of argument that "positive diversification effect" means "improved risk-adjusted return as measured by the Sharpe ratio." (Vineviz takes exception to this idea).
I also take exception to this idea, but Vineviz is far more educated and experienced in this area, and he's better articulating himself as well. I read the things he says. I think he says things worth reading.
Anyway, it is a myth that any diversifier will improve a portfolio as long as the correlation is less than 1.00.
I think it's a myth that anyone should look to correlation over a past period that is done and gone as an indication of anything for the future. I have learned this the hard way.
It is a balancing act.
YES
If the diversifier has lower risk-adjusted return than the original portfolio, you will get two effects pulling in opposite directions. Low correlation will tend to increase the portfolio's risk-adjusted return, but the lower risk-adjusted return of the diversifier will tend to drag it down.
Has had.
There is no certainty at all about which one wins.
YES
In order for the diversifier to improve the Sharpe ratio, there is a simple relationship that tells us how low the correlation must be. You simply take the Sharpe ratio of the original portfolio and the Sharpe ratio of the diversifier, divide the smaller by the larger; call the quotient Q. In order for the diversifier to raise the Sharpe ratio of the portfolio, it is not good enough just for the correlation ρ to be less than 1.00. It is necessary to have ρ < Q.
This is the very first time I have ever read this, and I am interested in learning more and potentially changing my ever changeable mind about stuff should I be adequately persuaded to do so. Could you please provide additional resources in this direction? I am sure there are other interested people as well.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by the_wiki »

lostdog wrote: Thu Sep 22, 2022 8:13 pm US only index investors are performance chasers...period. No different from a stock picker.

They use Jack Bogle and other excuses for lack of diversification. It's so glaringly obvious.

I hope young investors see this and learn.
No different than a stock picker? C'mon man, don't be ridiculous.

100% VOO might as well be 50% TSLA and 50% WMT in your mind?
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Re: VXUS vs VTI -- why invest in VXUS?

Post by beyou »

visualguy wrote: Thu Sep 22, 2022 12:23 am
strummer6969 wrote: Wed Sep 21, 2022 10:25 pm That sounds similar to TINA - There is No Alternative. People kept saying that last year about stocks. Well, we know how that one turns out. There is no alternative until there is. Sure you can allocate to international when that happens. But then you don't know if that alternative is temporary so you continue with your original allocation. I'm going to skip the guessing game.
No need for guessing. The new empire of Atlantis or whatever it ends up being isn't coming in our lifetime. Empires don't suddenly materialize out of thin air. We're stuck with the countries we have, and no US alternative. Empire lifecycles are long, while human life is short. A future generation may see a different world, but not us. For our generation, do it the Bogle way - VTI and chill.
The world changes during SOMEONE’s lifetime.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by strummer6969 »

beyou wrote: Fri Sep 23, 2022 11:13 pm
visualguy wrote: Thu Sep 22, 2022 12:23 am
strummer6969 wrote: Wed Sep 21, 2022 10:25 pm That sounds similar to TINA - There is No Alternative. People kept saying that last year about stocks. Well, we know how that one turns out. There is no alternative until there is. Sure you can allocate to international when that happens. But then you don't know if that alternative is temporary so you continue with your original allocation. I'm going to skip the guessing game.
No need for guessing. The new empire of Atlantis or whatever it ends up being isn't coming in our lifetime. Empires don't suddenly materialize out of thin air. We're stuck with the countries we have, and no US alternative. Empire lifecycles are long, while human life is short. A future generation may see a different world, but not us. For our generation, do it the Bogle way - VTI and chill.
The world changes during SOMEONE’s lifetime.
How do you know if you are someone ?
but...but...but...Mr. Bogle said.. As usual people take a great idea and turn it into an orthodoxy. It happens with every great idea.

It's useless. I'm done with the int'l threads.
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Re: VXUS vs VTI -- why invest in VXUS?

Post by visualguy »

beyou wrote: Fri Sep 23, 2022 11:13 pm
visualguy wrote: Thu Sep 22, 2022 12:23 am
strummer6969 wrote: Wed Sep 21, 2022 10:25 pm That sounds similar to TINA - There is No Alternative. People kept saying that last year about stocks. Well, we know how that one turns out. There is no alternative until there is. Sure you can allocate to international when that happens. But then you don't know if that alternative is temporary so you continue with your original allocation. I'm going to skip the guessing game.
No need for guessing. The new empire of Atlantis or whatever it ends up being isn't coming in our lifetime. Empires don't suddenly materialize out of thin air. We're stuck with the countries we have, and no US alternative. Empire lifecycles are long, while human life is short. A future generation may see a different world, but not us. For our generation, do it the Bogle way - VTI and chill.
The world changes during SOMEONE’s lifetime.
How do you know if you are someone ?
I can't live long enough for that to happen - life is too short. If and when this new empire arises, I'll be long gone. During my lifetime, we're stuck with the world we have.
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