International Stocks return will be superior to US

[Nathan Drake]

The problem is when you "overbet" in the manner that the 100%-U.S. proponents seem to be suggesting, you expose your portfolio to a much greater volatility/risk of ruin if you find you've "bet wrong" and have a few relatively bad years in a row.

Except that in this particular case, those who did so several years/decades ago and held fast have benefited from the "overbet" to such an extent that perhaps a few relatively bad years in a row don't do much more than bring them back to where a less lopsided bet would have placed them anyway. They have "bet right" over a period long enough, and with such greater returns than otherwise, that having the bet subsequently turn out to be "wrong" at/for some time in the future would be about the same as having chosen differently at the beginning.

This isn't really true in practice unless such an investor wants to keep working and drastically overshoot their number.

A retiree in 1966 may be cheering about all of the gains he's made and decide "I've saved the number I need to achieve FI and I don't need no stinkin' exUS in my portfolio", now knowing that the next 30 years would be pretty disastrous and fail a standard SWR for a 100% US only investor.

The only people that can look back and not worry about their future 100% equity position are those that are in their 80s and 90s and where it doesn't frankly matter much to them like it does for someone in their 20s through 70s because they've already overcome the hurdle of most of their sequence risk.

[Beensabu]

That's the point of contention: Whether one believes they "bet right" due to a post-hoc observation of afavorable outcome, or "bet wrong," but got lucky.

People believe what they want to believe.

A bet is only "right" in retrospect.

The point of contention is whether it's reasonable to use a post-hoc observation of a favorable outcome in support of that favorable outcome continuing for the time period relevant to others who are not you.

Have you ever played poker?

Not for real money. If I ever bet real money on any kind of game, I always lose. I think it's some kind of karmic thing.

[PotashDoggerd]

That's the point of contention: Whether one believes they "bet right" due to a post-hoc observation of afavorable outcome, or "bet wrong," but got lucky.

People believe what they want to believe.

A bet is only "right" in retrospect.

The point of contention is whether it's reasonable to use a post-hoc observation of a favorable outcome in support of that favorable outcome continuing for the time period relevant to others who are not you.

Have you ever played poker?

Not for real money. If I ever bet real money on any kind of game, I always lose. I think it's some kind of karmic thing.

The point about that question is that it's analytically incorrect to determine whether a probabilistic wagering strategy was a good strategy based on a single outcome. The fact that someone draws to an inside straight and hits it and wins the pot as a result does not mean betting or raising on it was a good strategy.

[burritoLover]

These brokerage models all boil down to valuations anyway - which is why they all seem to have more or less the same predictions. Valuations aren't a good predictor of future returns in the moment for one market but if you are comparing multiple global markets - all of which compete on the same global stage and one country has double the valuations of the others in aggregate, that is a huge headwind that country has to make up just to break-even with expectations. And a very low bar for the other countries to overcome.

[Nathan Drake]

These brokerage models all boil down to valuations anyway - which is why they all seem to have more or less the same predictions. Valuations aren't a good predictor of future returns in the moment for one market but if you are comparing multiple global markets - all of which compete on the same global stage and one country has double the valuations of the others in aggregate, that is a huge headwind that country has to make up just to break-even with expectations. And a very low bar for the other countries to overcome.

Yes, and Vanguard's models tend to be quite valuation-neutral across countries. Meaning it does not expect much change in valuation to drive performance.

Obviously, the past ten years US stocks had a HUGE tailwind of valuation expansion driving a substantial portion of the returns. This was unexpected.

[AlwaysLearningMore]

Just because I was curious... then I got bored.

Vanguard January 2013: https://www.tmag2.com/documentlibrary/1 ... 142013.pdf

The expected return differential between U.S. and non-U.S. equity portfolios is not statistically significant

Vanguard 2014: https://static.fmgsuite.com/media/docum ... b23cb3.pdf

the long-term median expected return for U.S. equity versus global ex-U.S. equity in Figure III-8may suggest that the expected U.S. equity market return may undercut both its own historical average and the expected global ex-U.S. equity return.

Vanguard 2015: https://silo.tips/download/vanguard-res ... ber-2015-2

The expected return outlook for non-U.S. equity markets is modestly higher from a U.S. investor’s perspective

Vanguard 2016: https://global.vanguard.com/documents/2 ... ook-ch.pdf

As a consequence of this strong past performance, our outlook for global equities remains guarded, in the 5%–8% range

Vanguard 2017: https://pressroom.vanguard.com/nonindex ... r-2017.pdf

Expected returns for the U.S. stock market are lower than those for international markets

Vanguard 2018: https://global.vanguard.com/documents/i ... 018-eu.pdf

expected return outlook for U.S. equities over the next decade is centered in the 3%–5% range

expected return outlook for non-U.S. equity markets is in the 5.5%–7.5% range

Vanguard 2019: https://static.vgcontent.info/crp/intl/ ... 019-mx.pdf

expected return outlook for U.S. equities over the next decade is centered in the 3%–5% range,

expected return outlook for non-U.S. equity markets is in the 6%–8% range, higher than that of U.S. equities

Vanguard 2020: https://corporate.vanguard.com/content/ ... -17-19.pdf

expected return outlook for U.S. equity over the next decade is centered in the modest 3.5%–5.5% range

the expected return outlook for non-U.S. equity markets is in the 6.5%–8.5% range, higher than that of U.S. equity

Vanguard 2021: https://corporate.vanguard.com/content/ ... Online.pdf

expected return outlook for U.S. equity for the next decade is centered in the modest 3.7%–5.7% range

the expected return outlook for non-U.S. equity markets is in the 7%–9% range, higher than that of U.S. equity

Vanguard 2022: https://corporate.vanguard.com/content/ ... online.pdf

we are projecting the lowest 10-year annualized returns for global equities since the early 2000s. We expect the lowest ones in the U.S. (2.3%–4.3% per year), with more attractive expected returns for non-U.S. developed markets (5.3%–7.3%)

Vanguard 2023: https://institutional.vanguard.com/cont ... online.pdf

projects higher 10-year annualized returns for non-U.S. developed markets (7.2%–9.2%) and emerging markets (7%–9%) than for U.S. markets (4.7%–6.7%)

I'm not trying to make any points here. I was just curious what was said in the past and started snooping. Figured I'd share what I found.
Edit: This is an old post of mine that I updated with 2021, 2022 and 2023 forecasts

Thanks for posting this. So, from 2013 they were only off by ~100% on the 10 year return. The Vanguard Total Intl returned ~4% over the last 10 years and they had their median estimate at around 8%.

If Vanguard were a bookie, he’d be broke.

Last I checked, Vanguard recommends International at 40%. 60% in US.

So having 40% of your equities returning 4-5%, while 60% of them did roughly 15% is not what I'd call broke.

Vanguard's estimates are probabilistic. It was not EXPECTED that US stock valuations would double.

Bookie = a person who determines gambling odds and receives and pays off bets.

Vanguard's abysmal record of forecasting "the odds" in this arena would lead any self-respecting bookie to leave the prognostication business. Akin to insisting the 2022 Chicago Bears were headed for a turnaround -- just wait 'til next week

Such a record would also lead the bookie's clientele to vote with their feet.

This isn't about the domestic/international split.

No way to put lipstick on this pig(skin).

[PotashDoggerd]

Just because I was curious... then I got bored.

Vanguard January 2013: https://www.tmag2.com/documentlibrary/1 ... 142013.pdf


Vanguard 2014: https://static.fmgsuite.com/media/docum ... b23cb3.pdf


Vanguard 2015: https://silo.tips/download/vanguard-res ... ber-2015-2


Vanguard 2016: https://global.vanguard.com/documents/2 ... ook-ch.pdf


Vanguard 2017: https://pressroom.vanguard.com/nonindex ... r-2017.pdf


Vanguard 2018: https://global.vanguard.com/documents/i ... 018-eu.pdf



Vanguard 2019: https://static.vgcontent.info/crp/intl/ ... 019-mx.pdf



Vanguard 2020: https://corporate.vanguard.com/content/ ... -17-19.pdf



Vanguard 2021: https://corporate.vanguard.com/content/ ... Online.pdf



Vanguard 2022: https://corporate.vanguard.com/content/ ... online.pdf


Vanguard 2023: https://institutional.vanguard.com/cont ... online.pdf


I'm not trying to make any points here. I was just curious what was said in the past and started snooping. Figured I'd share what I found.
Edit: This is an old post of mine that I updated with 2021, 2022 and 2023 forecasts

Thanks for posting this. So, from 2013 they were only off by ~100% on the 10 year return. The Vanguard Total Intl returned ~4% over the last 10 years and they had their median estimate at around 8%.

If Vanguard were a bookie, he’d be broke.

Last I checked, Vanguard recommends International at 40%. 60% in US.

So having 40% of your equities returning 4-5%, while 60% of them did roughly 15% is not what I'd call broke.

Vanguard's estimates are probabilistic. It was not EXPECTED that US stock valuations would double.

Bookie = a person who determines gambling odds and receives and pays off bets.

Vanguard's abysmal record of forecasting "the odds" in this arena would lead any self-respecting bookie to leave the prognostication business. Akin to insisting the 2022 Chicago Bears were headed for a turnaround -- just wait 'til next week

Such a record would also lead the bookie's clientele to vote with their feet.

This isn't about the domestic/international split.

No way to put lipstick on this pig(skin).

If the weatherperson forecasts a 50% chance of a heavy rainstorm, and that doesn't turn out to happen in a particular instance, is it also your conclusion that umbrellas are for pigs, also?

[Beensabu]

Have you ever played poker?

Not for real money. If I ever bet real money on any kind of game, I always lose. I think it's some kind of karmic thing.

The point about that question is that it's analytically incorrect to determine whether a probabilistic wagering strategy was a good strategy based on a single outcome. The fact that someone draws to an inside straight and hits it and wins the pot as a result does not mean betting or raising on it was a good strategy.

Something about confusing strategy with outcome, yes?

I could swear I've heard a thing or two about that before...

[smooth_rough]

Forecasting international is tricky. Its not always (some might say rarely) rational market behavior. Political risk and corruption risk aren't easily quantified and can't easily be reduced to a number that can be plugged into a model.

[AlwaysLearningMore]

Thanks for posting this. So, from 2013 they were only off by ~100% on the 10 year return. The Vanguard Total Intl returned ~4% over the last 10 years and they had their median estimate at around 8%.

If Vanguard were a bookie, he’d be broke.

Last I checked, Vanguard recommends International at 40%. 60% in US.

So having 40% of your equities returning 4-5%, while 60% of them did roughly 15% is not what I'd call broke.

Vanguard's estimates are probabilistic. It was not EXPECTED that US stock valuations would double.

Bookie = a person who determines gambling odds and receives and pays off bets.

Vanguard's abysmal record of forecasting "the odds" in this arena would lead any self-respecting bookie to leave the prognostication business. Akin to insisting the 2022 Chicago Bears were headed for a turnaround -- just wait 'til next week

Such a record would also lead the bookie's clientele to vote with their feet.

This isn't about the domestic/international split.

No way to put lipstick on this pig(skin).

If the weatherperson forecasts a 50% chance of a heavy rainstorm, and that doesn't turn out to happen in a particular instance, is it also your conclusion that umbrellas are for pigs, also?

"PRECIPITATION PROBABILITY
The probability of precipitation forecast is one of the most least understood elements of the
weather forecast. The probability of precipitation has the following features:
..... The likelihood of occurrence of precipitation is stated as a percentage
..... A measurable amount is defined as 0.01" (one hundredth of an inch) or more
(usually produces enough runoff for puddles to form)
..... The measurement is of liquid precipitation or the water equivalent of frozen
precipitation
..... The probability is for a specified time period (i.e., today, this afternoon, tonight,
Thursday)
..... The probability forecast is for any given point in the forecast area"
https://www.weather.gov/media/pah/Weath ... on/pop.pdf

[Beensabu]

If the weatherperson forecasts a 50% chance of a heavy rainstorm, and that doesn't turn out to happen in a particular instance, is it also your conclusion that umbrellas are for pigs, also?

"PRECIPITATION PROBABILITY
The probability of precipitation forecast is one of the most least understood elements of the
weather forecast...

50% precipitation forecast for the entire day means maybe you get some drizzle for part of it.

Whether or not you want an umbrella for that is up to you. Maybe at least a waterproof jacket with a hood?

[PotashDoggerd]

If the weatherperson forecasts a 50% chance of a heavy rainstorm, and that doesn't turn out to happen in a particular instance, is it also your conclusion that umbrellas are for pigs, also?

"PRECIPITATION PROBABILITY
The probability of precipitation forecast is one of the most least understood elements of the
weather forecast...

50% precipitation forecast for the entire day means maybe you get some drizzle for part of it.

Whether or not you want an umbrella for that is up to you. Maybe at least a waterproof jacket with a hood?

Don't misstate the hypothetical, which was specifically "50% chance of a heavy rainstorm." Turning that into a chance of just "some drizzle" is the sort of cognitive bias (I assume you didn't misstate the hypothetical deliberately) that needs to be guarded against in these discussions.

[Beensabu]

If the weatherperson forecasts a 50% chance of a heavy rainstorm, and that doesn't turn out to happen in a particular instance, is it also your conclusion that umbrellas are for pigs, also?

"PRECIPITATION PROBABILITY
The probability of precipitation forecast is one of the most least understood elements of the
weather forecast...

50% precipitation forecast for the entire day means maybe you get some drizzle for part of it.

Whether or not you want an umbrella for that is up to you. Maybe at least a waterproof jacket with a hood?

Don't misstate the hypothetical, which was specifically "50% chance of a heavy rainstorm." Turning that into a chance of just "some drizzle" is the sort of cognitive bias (I assume you didn't misstate the hypothetical deliberately) that needs to be guarded against in these discussions.

I'm going to stick with this analogy that you chose.

When's the last time you actually heard a "50% chance of a heavy rainstorm" forecast? That's not how they work.

If you get 80-100% precipitation next-day forecast for several hours in a row, that's probably rain. If it's 90-100% for 12+ hours, that's a rainstorm.

If it's 50% or so, that's probably drizzle. Maybe actual rain for some folks under where that particular cluster of dark clouds happens to get blown.

It's not that there's a "50% chance of a heavy rainstorm", that's just the likelihood of water coming down from the sky above where you happen to be situated. The less the likelihood of water coming down, the higher the likelihood that any water that does come down will be lighter in intensity than otherwise possible.

And a waterproof jacket with a hood works well enough in case of drizzle or a bit of actual rain, though less well than an umbrella in a rainstorm.

Some people can't be convinced to carry an umbrella. But they might not be adverse to wearing a rain jacket, just in case.

[PotashDoggerd]

If the weatherperson forecasts a 50% chance of a heavy rainstorm, and that doesn't turn out to happen in a particular instance, is it also your conclusion that umbrellas are for pigs, also?

"PRECIPITATION PROBABILITY
The probability of precipitation forecast is one of the most least understood elements of the
weather forecast...

50% precipitation forecast for the entire day means maybe you get some drizzle for part of it.

Whether or not you want an umbrella for that is up to you. Maybe at least a waterproof jacket with a hood?

Don't misstate the hypothetical, which was specifically "50% chance of a heavy rainstorm." Turning that into a chance of just "some drizzle" is the sort of cognitive bias (I assume you didn't misstate the hypothetical deliberately) that needs to be guarded against in these discussions.

I'm going to stick with this analogy that you chose.

When's the last time you actually heard a "50% chance of a heavy rainstorm" forecast? That's not how they work.

If you get 80-100% precipitation next-day forecast for several hours in a row, that's probably rain. If it's 90-100% for 12+ hours, that's a rainstorm.

If it's 50% or so, that's probably drizzle. Maybe actual rain for some folks under where that particular cluster of dark clouds happens to get blown.

It's not that there's a "50% chance of a heavy rainstorm", that's just the likelihood of water coming down from the sky above where you happen to be situated. The less the likelihood of water coming down, the higher the likelihood that any water that does come down will be lighter in intensity than otherwise possible.

And a waterproof jacket with a hood works well enough in case of drizzle or a bit of actual rain, though less well than an umbrella in a rainstorm.

Some people can't be convinced to carry an umbrella. But they might not be adverse to wearing a rain jacket, just in case.

O.K., so now having been called out on misstating the hypothetical presented, you now claim that the hypothetical is impossible. Just like you believe that equities having negative equity risk premium over the course of one or two decades, or possibly over your entire investing lifetime, and therefore sabotaging your portfolio, is impossible.

I already knew that's what you thought. That was the point of the hypothetical.

[Nathan Drake]

Just because I was curious... then I got bored.

Vanguard January 2013: https://www.tmag2.com/documentlibrary/1 ... 142013.pdf


Vanguard 2014: https://static.fmgsuite.com/media/docum ... b23cb3.pdf


Vanguard 2015: https://silo.tips/download/vanguard-res ... ber-2015-2


Vanguard 2016: https://global.vanguard.com/documents/2 ... ook-ch.pdf


Vanguard 2017: https://pressroom.vanguard.com/nonindex ... r-2017.pdf


Vanguard 2018: https://global.vanguard.com/documents/i ... 018-eu.pdf



Vanguard 2019: https://static.vgcontent.info/crp/intl/ ... 019-mx.pdf



Vanguard 2020: https://corporate.vanguard.com/content/ ... -17-19.pdf



Vanguard 2021: https://corporate.vanguard.com/content/ ... Online.pdf



Vanguard 2022: https://corporate.vanguard.com/content/ ... online.pdf


Vanguard 2023: https://institutional.vanguard.com/cont ... online.pdf


I'm not trying to make any points here. I was just curious what was said in the past and started snooping. Figured I'd share what I found.
Edit: This is an old post of mine that I updated with 2021, 2022 and 2023 forecasts

Thanks for posting this. So, from 2013 they were only off by ~100% on the 10 year return. The Vanguard Total Intl returned ~4% over the last 10 years and they had their median estimate at around 8%.

If Vanguard were a bookie, he’d be broke.

Last I checked, Vanguard recommends International at 40%. 60% in US.

So having 40% of your equities returning 4-5%, while 60% of them did roughly 15% is not what I'd call broke.

Vanguard's estimates are probabilistic. It was not EXPECTED that US stock valuations would double.

Bookie = a person who determines gambling odds and receives and pays off bets.

Vanguard's abysmal record of forecasting "the odds" in this arena would lead any self-respecting bookie to leave the prognostication business. Akin to insisting the 2022 Chicago Bears were headed for a turnaround -- just wait 'til next week

Such a record would also lead the bookie's clientele to vote with their feet.

This isn't about the domestic/international split.

No way to put lipstick on this pig(skin).

Vanguard isn't a bookie, and gambling odds are a lot easier to forecast than investment returns.

[Beensabu]

Some people can't be convinced to carry an umbrella. But they might not be adverse to wearing a rain jacket, just in case.

O.K., so now having been called out on misstating the hypothetical presented, you now claim that the hypothetical is impossible. Just like you believe that equities having negative equity risk premium over the course of one or two decades, or possibly over your entire investing lifetime, and therefore sabotaging your portfolio, is impossible.

I already knew that's what you thought. That was the point of the hypothetical.

You did? I didn't even know I thought that. That's amazing.

You do realize I'm not the person you originally presented with the analogy, right?

My equity allocation is ~50/50 US/ex-US. Edit: Also, my AA is ~50/50 stock:bond. Go figure.

I think that's a pretty good analogy you came up with, by the way. One of the best on this issue that I've seen so far.

[michaeljc70]

5 pages of comments. My takeaway is that this Vanguard paper (and anything similar) is useless. If you change your AA based on this you are gambling and market timing.

[visualguy]

5 pages of comments. My takeaway is that this Vanguard paper (and anything similar) is useless. If you change your AA based on this you are gambling and market timing.

It's possible to make the case that they are actually really good at forecasting the opposite of what's going to happen, so I would start thinking about investing in ex-US when Vanguard forecasts US outperformance

[Chillstep]

the point that I want to bring up is that globalization plays a massive role in the future of the US.

Americans drive a tesla, Europeans drive a tesla, Chinese people drive a tesla.

I have literally never seen any American ever drive a NIO. Toyotas/Hondas are hybrids, not EV's.

30% of Amazon's revenue comes from outside the US. Only 9% of Alibaba's revenue comes from outside China.

SP500 stocks are more globalized than the very regionalized market of VXUS.

These comments going back to the 1960s as a metric of future predicted growth are not in the same reality of the current makeup of the sp500. If you are not factoring in how globalization plays a role in the US, which you are doing when you bring up 1960s data, you're not basing your investments in the current reality. VXUS could still outperform and thus why I am not 100% US, but basing graphs from cherry picking 1960s start points where black people did not have rights and sp500 was america first, not globalization, seems like a coping mechanism for INT massive underperformance during the globalization era.

[NiceUnparticularMan]

the point that I want to bring up is that globalization plays a massive role in the future of the US.

So a few important points on that subject.

First, the degree of globalization of US companies varies a LOT by sector. So, the idea of accessing global markets through US-based multinationals is de facto a form of sector bet as well.

It similarly varies by company size, with larger companies tending to get more.

So, it is a combined bet on the larger companies in certain sectors.

Second, the degree of globalization has shifted over time, and not always upwards. And again, it varies by sector. Predicting the future of all that is hard, but I think most people looking at this agree that for various reasons, such as catch-up industrialization/modernization continuing in many countries, domestic consumer markets further converging, reduced international migrant flows, and so on, at least some sectors are likely to see an increase in localization in coming decades. Some people also think various other geopolitical issues will contribute to localization--I am less certain about that but I would call it a risk factor.

So yes, it is not the 1960s any more. But nor is it the 1980s/90s/00s anymore either. The only real constant here is change.

Finally, as always, the real question for returns over the next long period is not whether good things will happen for high-priced Asset, it is whether it will be AS good as expected when Asset got such a high price. Meaning if Asset, say, was priced for A+ conditions, but only gets A- conditions, well, A- is still objectively good, but it could still lead to poor returns for Asset over the next long period, because it wasn't as good as expected when Asset was priced.

OK, so you have gone heavy into US stocks based on a globalization theory, and increasingly that has de facto become a bet on certain large "growth" companies, many concentrated in specific sectors like tech.

And that worked out from 2012-2021.

But we have actually seen a similar story before, and some of us are old enough to actually have invested during such a period before. And it did not in fact last forever.

[burritoLover]

the point that I want to bring up is that globalization plays a massive role in the future of the US.

Americans drive a tesla, Europeans drive a tesla, Chinese people drive a tesla.

I have literally never seen any American ever drive a NIO. Toyotas/Hondas are hybrids, not EV's.

30% of Amazon's revenue comes from outside the US. Only 9% of Alibaba's revenue comes from outside China.

SP500 stocks are more globalized than the very regionalized market of VXUS.

These comments going back to the 1960s as a metric of future predicted growth are not in the same reality of the current makeup of the sp500. If you are not factoring in how globalization plays a role in the US, which you are doing when you bring up 1960s data, you're not basing your investments in the current reality. VXUS could still outperform and thus why I am not 100% US, but basing graphs from cherry picking 1960s start points where black people did not have rights and sp500 was america first, not globalization, seems like a coping mechanism for INT massive underperformance during the globalization era.

ooohhh - I can cherry pick examples too. 80% of Kia's vehicle sales are outside Korea and they also sell several EV models making up 17% of sales and I see boatload of Kias/Hyundais around town, including the EVs. I have literally never seen any American that has a Phillips, Magnavox, or Sharp TV in their home - it is almost always a Samsung or LG. How many Android phones are manufactured by American companies?

[Chillstep]

the point that I want to bring up is that globalization plays a massive role in the future of the US.

Americans drive a tesla, Europeans drive a tesla, Chinese people drive a tesla.

I have literally never seen any American ever drive a NIO. Toyotas/Hondas are hybrids, not EV's.

30% of Amazon's revenue comes from outside the US. Only 9% of Alibaba's revenue comes from outside China.

SP500 stocks are more globalized than the very regionalized market of VXUS.

These comments going back to the 1960s as a metric of future predicted growth are not in the same reality of the current makeup of the sp500. If you are not factoring in how globalization plays a role in the US, which you are doing when you bring up 1960s data, you're not basing your investments in the current reality. VXUS could still outperform and thus why I am not 100% US, but basing graphs from cherry picking 1960s start points where black people did not have rights and sp500 was america first, not globalization, seems like a coping mechanism for INT massive underperformance during the globalization era.

ooohhh - I can cherry pick examples too. 80% of Kia's vehicle sales are outside Korea and they also sell several EV models making up 17% of sales and I see boatload of Kias/Hyundais around town, including the EVs. I have literally never seen any American that has a Phillips, Magnavox, or Sharp TV in their home - it is almost always a Samsung or LG. How many Android phones are manufactured by American companies?

Which is why some INT exposure is fine. But bogleheads go way too far with this idea that a 100-80% US portfolio is some doomsday scenario, which is completely missing that 30% of sp500's revenue comes from abroad. That was not the case in 1960s, so you can not make that comparison. That is why Buffet and John Bogle specifically brings up this exact retort. And looking at Phillip's stock graph, I'm okay with that not in my portfolio.

[Jungle]

Lately I've started to ask myself the question of "how much international" again, as well. From 1970 to 2010, Intl stock had similar returns to US stock. Hopefully the below-average performance of the past decade is an aberration. The PE ratio of Intl is also much lower than that of US. Though, I feel like increasing my share based on PE ratio would have an element of market timing to it. I felt that there are both good arguments for and against owning US only vs owning at world market cap, so I split the difference

[Chillstep]

the point that I want to bring up is that globalization plays a massive role in the future of the US.

But we have actually seen a similar story before, and some of us are old enough to actually have invested during such a period before. And it did not in fact last forever.

No you have not since globalization was not even close to as prevalent in the current modern era. There is a massive difference between globalized international exposure, and regionalized international exposure.

Adding KIA to my portfolio with most of their sales coming from ex-korea is fine with me. Adding Alibaba that only gets 9% international exposure is not the same international exposure in the globalization era.

[burritoLover]

the point that I want to bring up is that globalization plays a massive role in the future of the US.

Americans drive a tesla, Europeans drive a tesla, Chinese people drive a tesla.

I have literally never seen any American ever drive a NIO. Toyotas/Hondas are hybrids, not EV's.

30% of Amazon's revenue comes from outside the US. Only 9% of Alibaba's revenue comes from outside China.

SP500 stocks are more globalized than the very regionalized market of VXUS.

These comments going back to the 1960s as a metric of future predicted growth are not in the same reality of the current makeup of the sp500. If you are not factoring in how globalization plays a role in the US, which you are doing when you bring up 1960s data, you're not basing your investments in the current reality. VXUS could still outperform and thus why I am not 100% US, but basing graphs from cherry picking 1960s start points where black people did not have rights and sp500 was america first, not globalization, seems like a coping mechanism for INT massive underperformance during the globalization era.

ooohhh - I can cherry pick examples too. 80% of Kia's vehicle sales are outside Korea and they also sell several EV models making up 17% of sales and I see boatload of Kias/Hyundais around town, including the EVs. I have literally never seen any American that has a Phillips, Magnavox, or Sharp TV in their home - it is almost always a Samsung or LG. How many Android phones are manufactured by American companies?

Which is why some INT exposure is fine. But bogleheads go way too far with this idea that a 100-80% US portfolio is some doomsday scenario, which is completely missing that 30% of sp500's revenue comes from abroad. That was not the case in 1960s, so you can not make that comparison. That is why Buffet and John Bogle specifically brings up this exact retort. And looking at Phillip's stock graph, I'm okay with that not in my portfolio.

Ooops, I thought Philips was an American company - my bad. Hard to even think of an American company producing the most popular electronics outside of Apple.

[NiceUnparticularMan]

But bogleheads go way too far with this idea that a 100-80% US portfolio is some doomsday scenario, which is completely missing that 30% of sp500's revenue comes from abroad.

Again, those revenues are concentrated in certain sectors, and are potentially variable over time as well.

I do think sometimes people overemphasize disasters in these conversations, but it is certainly the case that if there was, say, a disastrous war that disproportionally affected the US, then one could not simply assume those ex-US revenues would be immune.

But there are non-disaster but still quite bad scenarios, like where the implied expectations for real revenue growth for those companies end up too optimistic, and then get accelerated into rapid stock price drops when expectations shift downward.

This sort of thing can take a lot of forms, including sector effects that actually don't depend on wars and such at all. Indeed, we saw that happen with the last tech bubble and burst, and there was no war or such involved, just a change from very optimistic to less optimistic expectations for tech sector growth.

[NiceUnparticularMan]

Though, I feel like increasing my share based on PE ratio would have an element of market timing to it.

Yeah, if, say, US stocks were getting less risky more rapidly than ex-US stocks, that would help explain rising relative valuations.

The thing is, that would also imply lower risk premiums for US stocks and therefore lower expected returns. This is an ongoing puzzle, why some people seem to assume that US stocks are both less risky and have higher expected returns.

Personally, though, I definitely do not try to time my investments in different countries based on analysis like this. But as someone who long ago committed to 60 US/40 ex-US, I do have in the back of my mind the understanding that if US valuations are running up, I should probably be moderating my expectations for the US equity risk premium going forward.

[NiceUnparticularMan]

Hard to even think of an American company producing the most popular electronics outside of Apple.

Depending on your scope, I think NVIDIA might be next up.

[burritoLover]

Hard to even think of an American company producing the most popular electronics outside of Apple.

Depending on your scope, I think NVIDIA might be next up.

I guess you could say Xbox as well (MSFT). There's a short list of big names in this category but you also have many others outside the US in various other countries.

[GaryA505]

Don't believe everything you read. Vanguard has been predicting international outperformance for nearly a decade. At some point in the future, it will outperform for a period of time ... and underperform for a period of time. Set your AA and stay the course.

Let’s see, how many times have they made this prediction?

It's kind of like predicting the end of the world. Sooner or later, it WILL happen and they'll be right!

[Chillstep]

But bogleheads go way too far with this idea that a 100-80% US portfolio is some doomsday scenario, which is completely missing that 30% of sp500's revenue comes from abroad.

then one could not simply assume those ex-US revenues would be immune.

100%. during the great US recession, americans couldn't afford their houses, and yet international crashed harder than they did.

My worry for VXUS in the future is that they are not globally pivoted to have international revenues streams compared to the sp500. Additionally, 15% japan and 4% taiwan might be a drag depending on the future of those economies.

In the current globalized world, if the US tanks, it's going to take the rest of the world with it. JPOW affects the world economy. That may not always be the case, but it's going to take a lot of time and drastic changes to separate the two.

[NiceUnparticularMan]

Hard to even think of an American company producing the most popular electronics outside of Apple.

Depending on your scope, I think NVIDIA might be next up.

I guess you could say Xbox as well (MSFT). There's a short list of big names in this category but you also have many others outside the US in various other countries.

Yeah, the US has quite high industry concentration in this sort of business. It has worked out recently, but I get a little squeamish with how big, say, Apple alone has gotten in terms of market cap and such.

By the way, this is a fun visualization:

https://www.visualcapitalist.com/cp/lar ... 0-to-2022/

Really does a nice job illustrating how over even a relatively short period, we have seen different "macro trends"/industries come and go.

[NiceUnparticularMan]

My worry for VXUS in the future is that they are not globally pivoted to have international revenues streams compared to the sp500.

Again, those ex-US revenues for US-listed companies are not somehow guaranteed to persist in all plausible scenarios.

In the current globalized world, if the US tanks, it's going to take the rest of the world with it.

It very much depends what you mean by "tanks".

And I will note again the stocks listed in a certain country can do poorly even if the country itself is doing relatively well, if stock prices were set by expectations that things would go just a bit better than that.

[Charles Joseph]

Well, I'm 100% US with 2.5 years to go until retirement. I've been US forever, initially due to ignorance, and most recently deliberately. I'm finally 100% indexed - the two-fund portfolio. At this stage of the game, do I take the next step and add international, or just stay the course?

International is the most important DURING retirement when you are making withdrawals. You've already reached your goals, and increased diversification mitigates sequence risk. If we are going into a period as a retiree like 1966, you would wish you would have added exUS diversification 30 years later.

20% is probably the minimum you would want in exUS. Vanguard recommends 40%.

I still haven't made a decision, but I'm much closer. I'm thinking about adding 15 percent. My mentor said not to exceed 20 percent so that seems reasonable. PS I'm not performance chasing. My investing thoughts have evolved from active investing with sales load -> active investing without commission -> mostly index funds -> all index funds (all US) -> where I am now which is considering over a period of many recent months to further diversify at a level I might feel comfortable with. I keep re-reading David Swenson. 15% developed and 5% emerging markets is his take as I recall.

Thanks for the above, by the way. Very informative.

[Nathan Drake]

Well, I'm 100% US with 2.5 years to go until retirement. I've been US forever, initially due to ignorance, and most recently deliberately. I'm finally 100% indexed - the two-fund portfolio. At this stage of the game, do I take the next step and add international, or just stay the course?

International is the most important DURING retirement when you are making withdrawals. You've already reached your goals, and increased diversification mitigates sequence risk. If we are going into a period as a retiree like 1966, you would wish you would have added exUS diversification 30 years later.

20% is probably the minimum you would want in exUS. Vanguard recommends 40%.

I still haven't made a decision, but I'm much closer. I'm thinking about adding 15 percent. My mentor said not to exceed 20 percent so that seems reasonable. PS I'm not performance chasing. My investing thoughts have evolved from active investing with sales load -> active investing without commission -> mostly index funds -> all index funds (all US) -> where I am now which is considering over a period of many recent months to further diversify at a level I might feel comfortable with. I keep re-reading David Swenson. 15% developed and 5% emerging markets is his take as I recall.

Thanks for the above, by the way. Very informative.

It's very much a personal decision. Unfortunately, nobody can tell you what will happen in the future. Not a mentor, not a guru, not any beloved figure within personal finance. Bogle first started Vaguard during one of the worst periods of US stock performance, especially relative to international. He should know the value of that diversification first hand by what happened in the 60s through early 90s. But, as humans, we all have our own personal biases that shape our ability to invest.

But investing globally is merely an extension of the same idea that Bogle had - diversify, keep costs low, and stay the course. With a 15% allocation, it's better than nothing.

Somebody that allocated 85%/15% fared better than someone allocating 60%/40% over the past 26 years. But the difference may not be as big as you would expect. Starting in 2012, the US heavy portfolio began outperforming. But this is only the past 10 years of recent history. The next 10 or 20 years could be a lot different. And one thing to keep in mind is that diversification isn't about getting the best possible return, it's about protecting your downside risk. The US will probably be just fine. But what if it's not? That's worth diversifying against that remote outcome.

https://www.portfoliovisualizer.com/bac ... tion2_2=40

[Blue456]

Well, I'm 100% US with 2.5 years to go until retirement. I've been US forever, initially due to ignorance, and most recently deliberately. I'm finally 100% indexed - the two-fund portfolio. At this stage of the game, do I take the next step and add international, or just stay the course?

Perhaps the diversification maybe more important during retirement as less human capital is available to make up for 10 or 15 years of underperformance.

[HomerJ]

Ignore what Vanguard, and anyone else, predicts or forecasts about future market performance. One could be just as accurate rolling a pair of dice or tossing a dart at a dartboard. Nobody knows.

This. It really comes down to this...

Nobody knows enough to make good predictions... pick your asset allocation based on risk management, and stick with it.

Don't make changes based on predictions or valuations or any other external metric. Make changes slowly as YOUR life changes ( like getting closer to retirement, as an example)

[watchnerd]

Vanguard came out with its prediction of future returns and is stating that international stocks will return more than US stocks in the future. How is it possible given the following macro issues:

1) Interest rates - Europe is negative trending higher, Developed world x EU is trending higher. Neither of these regions returned superior to the US with negative interest rates. How can they do better than in the past with interest rates that are going higher.
2) US currency vs Currencies of developed countries - US interest rates are trending higher strengthening USD - I am assuming this will make any earnings brought from the developed countries to the US shareholder be less. This trend is not likely to reverse until USD weakens beyond what it was when US interest rates were at zero.
3) If US interest rates go in reverse due to a recession, 1 and 2 should have less of a negative impact on the developed countries improving their earning s, but the US is typically their largest trading partner and will contribute negatively to that same bottom line.

Does superior return mean its in nominal terms and should not be translated to USD for US shareholders?

I am not arguing the diversification of international but only return expectations.
I am also asking to exclude emerging markets from this conversation as it is a bit of a red hearing.

A. Valuations are less inflated
B. European-domiciled global corporations (e.g. Nestle) aren't beholden to European demographics

[GaryA505]

Well, I'm 100% US with 2.5 years to go until retirement. I've been US forever, initially due to ignorance, and most recently deliberately. I'm finally 100% indexed - the two-fund portfolio. At this stage of the game, do I take the next step and add international, or just stay the course?

International is the most important DURING retirement when you are making withdrawals. You've already reached your goals, and increased diversification mitigates sequence risk. If we are going into a period as a retiree like 1966, you would wish you would have added exUS diversification 30 years later.

20% is probably the minimum you would want in exUS. Vanguard recommends 40%.

I still haven't made a decision, but I'm much closer. I'm thinking about adding 15 percent. My mentor said not to exceed 20 percent so that seems reasonable. PS I'm not performance chasing. My investing thoughts have evolved from active investing with sales load -> active investing without commission -> mostly index funds -> all index funds (all US) -> where I am now which is considering over a period of many recent months to further diversify at a level I might feel comfortable with. I keep re-reading David Swenson. 15% developed and 5% emerging markets is his take as I recall.

Thanks for the above, by the way. Very informative.

It's very much a personal decision. Unfortunately, nobody can tell you what will happen in the future. Not a mentor, not a guru, not any beloved figure within personal finance. Bogle first started Vaguard during one of the worst periods of US stock performance, especially relative to international. He should know the value of that diversification first hand by what happened in the 60s through early 90s. But, as humans, we all have our own personal biases that shape our ability to invest.

But investing globally is merely an extension of the same idea that Bogle had - diversify, keep costs low, and stay the course. With a 15% allocation, it's better than nothing.

Somebody that allocated 85%/15% fared better than someone allocating 60%/40% over the past 26 years. But the difference may not be as big as you would expect. Starting in 2012, the US heavy portfolio began outperforming. But this is only the past 10 years of recent history. The next 10 or 20 years could be a lot different. And one thing to keep in mind is that diversification isn't about getting the best possible return, it's about protecting your downside risk. The US will probably be just fine. But what if it's not? That's worth diversifying against that remote outcome.

https://www.portfoliovisualizer.com/bac ... tion2_2=40

That chart shows a result starting from 1966. Cherry-picking some other time period would show something else.

[Nathan Drake]

Well, I'm 100% US with 2.5 years to go until retirement. I've been US forever, initially due to ignorance, and most recently deliberately. I'm finally 100% indexed - the two-fund portfolio. At this stage of the game, do I take the next step and add international, or just stay the course?

International is the most important DURING retirement when you are making withdrawals. You've already reached your goals, and increased diversification mitigates sequence risk. If we are going into a period as a retiree like 1966, you would wish you would have added exUS diversification 30 years later.

20% is probably the minimum you would want in exUS. Vanguard recommends 40%.

I still haven't made a decision, but I'm much closer. I'm thinking about adding 15 percent. My mentor said not to exceed 20 percent so that seems reasonable. PS I'm not performance chasing. My investing thoughts have evolved from active investing with sales load -> active investing without commission -> mostly index funds -> all index funds (all US) -> where I am now which is considering over a period of many recent months to further diversify at a level I might feel comfortable with. I keep re-reading David Swenson. 15% developed and 5% emerging markets is his take as I recall.

Thanks for the above, by the way. Very informative.

It's very much a personal decision. Unfortunately, nobody can tell you what will happen in the future. Not a mentor, not a guru, not any beloved figure within personal finance. Bogle first started Vaguard during one of the worst periods of US stock performance, especially relative to international. He should know the value of that diversification first hand by what happened in the 60s through early 90s. But, as humans, we all have our own personal biases that shape our ability to invest.

But investing globally is merely an extension of the same idea that Bogle had - diversify, keep costs low, and stay the course. With a 15% allocation, it's better than nothing.

Somebody that allocated 85%/15% fared better than someone allocating 60%/40% over the past 26 years. But the difference may not be as big as you would expect. Starting in 2012, the US heavy portfolio began outperforming. But this is only the past 10 years of recent history. The next 10 or 20 years could be a lot different. And one thing to keep in mind is that diversification isn't about getting the best possible return, it's about protecting your downside risk. The US will probably be just fine. But what if it's not? That's worth diversifying against that remote outcome.

https://www.portfoliovisualizer.com/bac ... tion2_2=40

That chart shows a result starting from 1966. Cherry-picking some other time period would show something else.

I wasn't "cherry picking" anything.

In the post you are quoting, I also display a period with my portfoliovisualizer link where US outperformed over a long period (late 90s until today).

Both periods display the possible dispersion of returns, which strengthens the notion in favor of increased diversification of an unknown future.

[GaryA505]

International is the most important DURING retirement when you are making withdrawals. You've already reached your goals, and increased diversification mitigates sequence risk. If we are going into a period as a retiree like 1966, you would wish you would have added exUS diversification 30 years later.

20% is probably the minimum you would want in exUS. Vanguard recommends 40%.

I still haven't made a decision, but I'm much closer. I'm thinking about adding 15 percent. My mentor said not to exceed 20 percent so that seems reasonable. PS I'm not performance chasing. My investing thoughts have evolved from active investing with sales load -> active investing without commission -> mostly index funds -> all index funds (all US) -> where I am now which is considering over a period of many recent months to further diversify at a level I might feel comfortable with. I keep re-reading David Swenson. 15% developed and 5% emerging markets is his take as I recall.

Thanks for the above, by the way. Very informative.

It's very much a personal decision. Unfortunately, nobody can tell you what will happen in the future. Not a mentor, not a guru, not any beloved figure within personal finance. Bogle first started Vaguard during one of the worst periods of US stock performance, especially relative to international. He should know the value of that diversification first hand by what happened in the 60s through early 90s. But, as humans, we all have our own personal biases that shape our ability to invest.

But investing globally is merely an extension of the same idea that Bogle had - diversify, keep costs low, and stay the course. With a 15% allocation, it's better than nothing.

Somebody that allocated 85%/15% fared better than someone allocating 60%/40% over the past 26 years. But the difference may not be as big as you would expect. Starting in 2012, the US heavy portfolio began outperforming. But this is only the past 10 years of recent history. The next 10 or 20 years could be a lot different. And one thing to keep in mind is that diversification isn't about getting the best possible return, it's about protecting your downside risk. The US will probably be just fine. But what if it's not? That's worth diversifying against that remote outcome.

https://www.portfoliovisualizer.com/bac ... tion2_2=40

That chart shows a result starting from 1966. Cherry-picking some other time period would show something else.

I wasn't "cherry picking" anything.

In the post you are quoting, I also display a period with my portfoliovisualizer link where US outperformed over a long period (late 90s until today).

Both periods display the possible dispersion of returns, which strengthens the notion in favor of increased diversification of an unknown future.

Exactly what I said. We can show almost anything by picking the right time period. And, it's all in the past so doesn't mean anything going forward.

[Apathizer]

Exactly what I said. We can show almost anything by picking the right time period. And, it's all in the past so doesn't mean anything going forward.

The past means nothing? Really? I understand cautiousness in relying too much on past returns, but disregarding them entirely seems even more imprudent.

At the very least global diversification improves risk-adjusted returns which is especially important during the withdrawal (retirement) stage of investing. To me this seems like a compelling reason on it's own regardless of whether it improves overall returns.

[GaryA505]

Exactly what I said. We can show almost anything by picking the right time period. And, it's all in the past so doesn't mean anything going forward.

The past means nothing? Really? I understand cautiousness in relying too much on past returns, but disregarding them entirely seems even more imprudent.

At the very least global diversification improves risk-adjusted returns which is especially important during the withdrawal (retirement) stage of investing. To me this seems like a compelling reason on it's own regardless of whether it improves overall returns.

I've read that "global diversification improves risk-adjusted returns" so many times and I'd really love to believe that it's true. Seems like global diversification improves portfolio diversification but anything beyond that is just guesswork. Nobody knows.

[Apathizer]

Exactly what I said. We can show almost anything by picking the right time period. And, it's all in the past so doesn't mean anything going forward.

The past means nothing? Really? I understand cautiousness in relying too much on past returns, but disregarding them entirely seems even more imprudent.

At the very least global diversification improves risk-adjusted returns which is especially important during the withdrawal (retirement) stage of investing. To me this seems like a compelling reason on it's own regardless of whether it improves overall returns.

I've read that "global diversification improves risk-adjusted returns" so many times and I'd really love to believe that it's true. Seems like global diversification improves portfolio diversification but anything beyond that is just guesswork. Nobody knows.

This Vanguard paper summarizes the research showing the benefits of global diversification, including reducing overall volatility. For US investors a 25-40% ex-allocation seems to provide optimal volatility reduction.
https://corporate.vanguard.com/content/ ... Online.pdf

[Beensabu]

And, it's all in the past so doesn't mean anything going forward.

The past doesn't have to repeat itself for us to learn something from it.

[Apathizer]

And, it's all in the past so doesn't mean anything going forward.

The past doesn't have to repeat itself for us to learn something from it.

Also, probability laws doesn't change. For simplification there are 4 broad categories: US equities, global equities, US bonds, global bonds. Over any time interval the likelihood any 2 will underperform is higher than all 4 will.

We can use a coin flip as analogy, with heads representing 'not underperform' and tails representing 'underperform'. If we flip the coin 4 times, the likelihood of getting tails all 4 times is lower than if we only flip it twice. That's just basic probability.

[GaryA505]

It would be great if this "US equity vs. international equity" debate could be settled once and for all. Then everyone could just invest in a globally-weighted portfolio and be happy.

[watchnerd]

And, it's all in the past so doesn't mean anything going forward.

The past doesn't have to repeat itself for us to learn something from it.

Also, probability laws doesn't change. For simplification there are 4 broad categories: US equities, global equities, US bonds, global bonds. Over any time interval the likelihood any 2 will underperform is higher than all 4 will.

We can use a coin flip as analogy, with heads representing 'not underperform' and tails representing 'underperform'. If we flip the coin 4 times, the likelihood of getting tails all 4 times is lower than if we only flip it twice. That's just basic probability.

Assuming that performance between 4 assets (with myriad real-world infuences other than physics) follow the same laws of chance that govern a coin flip seems a giant leap.

[Apathizer]

It would be great if this "US equity vs. international equity" debate could be settled once and for all. Then everyone could just invest in a globally-weighted portfolio and be happy.

It's not necessarily versus, but and. Ex-US markets provide different sources of risk and potential return than only US markets, so it makes sense to hold both.

[Apathizer]

And, it's all in the past so doesn't mean anything going forward.

The past doesn't have to repeat itself for us to learn something from it.

Also, probability laws doesn't change. For simplification there are 4 broad categories: US equities, ex-US equities, US bonds, ex-US bonds. Over any time interval the likelihood any 2 will underperform is higher than all 4 will.

We can use a coin flip as analogy, with heads representing 'not underperform' and tails representing 'underperform'. If we flip the coin 4 times, the likelihood of getting tails all 4 times is lower than if we only flip it twice. That's just basic probability.

Assuming that performance between 4 assets (with myriad real-world infuences other than physics) follow the same laws of chance that govern a coin flip seems a giant leap.

Admittedly it's an oversimplification since the likelihood isn't equal for all markets, but in terms of general probability it's still credible. Relying on one country, no matter how seemingly dominant, is riskier than spreading that risk out over all investable markets.