I thought a stroll down memory lane might be helpful. In my scrapbook I found these images from the 1970s, 1980s, 1990s, and 2000s showing the MSCI(ex. US) index and Ibbotson's large cap US stock index growing during each of those decades.
Enjoy.

I quibble with the use of a linear scale on the vertical axis.SimpleGift wrote: ↑Tue Jul 10, 2018 10:59 pm Appreciate the good graphical presentation, thanks. Some will always quibble with the choice of start/end dates, but decades are about as defensible and unbiased a choice as any, in my view.
An example of the power and effectiveness of simple data visualizations to perhaps break down preconceived ideas.
For all periods the index I used is the MSCI WORLD ex USA index, which differs from the EAFE index slightly in that WORLD ex USA includes Canada but EAFE does not.
To be clear: my comparison was between 1) 60% S&P 500, 40% intermediate-term Treasuries, and 2) 30% S&P 500, 30% EAFE, 40% intermediate-term Treasuries.azanon wrote: ↑Wed Jul 11, 2018 7:13 am Are we comparing all S&P 500 vs. S&P 500/EAFE mix, or all S&P 500 vs. S&P 500/xUS stock (which would of course include emerging markets)?
linear to log graphs, now a complete axing of 20% of international stocks - the most uncorrelated to US stock group i might add. It's hard to keep up with the changes.
>Aside thought, if I found nisipirus' argument convincing, I certainly would pick right now to dump my international and go all US! Now if one has been all US stock since 09, i guess no big deal there because one has banked years and years of gains with every rebalance.
VGTSX definitely includes emerging markets. I can't actually find the AQR data set referenced; I assume it includes emerging markets.Global ex-US Stock Market
AQR Global ex US MKT Factor (AQR Data Sets) 1986-1996
Vanguard Total International Stock Index Fund (VGTSX) 1997+
Performing " quite differently" is, in fact, the ONLY condition necessary for diversification. Or, to be more precise, having less-than-100%-correlation.
Many investors may be either too young or too old to remember the period from 1971 to 1988 (nearly two full decades) during which a globally diversified equity portfolio complex completely dominated a US-only equity portfolio.
I'm curious if the average size of company in the USA has grown faster than elsewhere -- have we been consolidating faster, or just not adding new publicly-traded companies as rapidly?SimpleGift wrote: ↑Wed Jul 11, 2018 10:07 am But if one is investing for the future, say the next 30-50 years, it might pay to notice where it is in the world today that entrepreneurial dynamism is greatest. The haystack is only growing larger beyond the shores of the United States.
Presumably that index started incorporating EM when the MSCI EM index was created in the late 1980's?
Both have been happening in the U.S., as best I'm aware. Not only has the number of publicly-traded companies been decreasing in recent decades, but the remaining companies have gotten much larger, wealthier and more concentrated since 1975 (table below).GAAP wrote: ↑Wed Jul 11, 2018 12:38 pmI'm curious if the average size of company in the USA has grown faster than elsewhere -- have we been consolidating faster, or just not adding new publicly-traded companies as rapidly?SimpleGift wrote: ↑Wed Jul 11, 2018 10:07 am But if one is investing for the future, say the next 30-50 years, it might pay to notice where it is in the world today that entrepreneurial dynamism is greatest. The haystack is only growing larger beyond the shores of the United States.
From a secular perspective, I think there are 5 "performance" periods for US vs non-US equities since 1969, no doubt not described with perfect accuracy:Many investors may be either too young or too old to remember the period from 1971 to 1988 (nearly two full decades) during which a globally diversified equity portfolio complex completely dominated a US-only equity portfolio.
It appeared to me that you were trying to make a rebuttal of the OP's claim where he was comparing/contrasting S&P 500 vs. Global xUS stocks, and then you used a straw man argument, of sorts, to show how EAFE index provided no real diversification benefit when mixed with S&P 500. I was just thinking at the time maybe that's true, but what did that have to do with the OP's point?nisiprius wrote:To be clear: my comparison was between 1) 60% S&P 500, 40% intermediate-term Treasuries, and 2) 30% S&P 500, 30% EAFE, 40% intermediate-term Treasuries.
There's no getting around the fact that if one wants to sing the praises of US stock out-performance, there's never been a better time to do it. That 30 years captures the 90s, and 09 to now.nisiprius wrote:As you see, during this thirty-year time period, the benefits of international exposure failed to overcome the handicaps.
The name is a little confusing but it is still just developed markets. You can think of it as being pretty much just “EAFE+Canada” (which is yet another actual MSCI index, oddly).
Actually, if diversification is a virtue (and it is always upheld by Bogleheads as such), one can say that less diversification isn't as good as more. This is a quantifiable, not a judgemental, factor.
The graphs I posted are just one index vs another: there is nothing to rebalance.
You might be interested in the paper, if you haven't seen it before, entitled "Global Stock Markets in the Twentieth Century" by Philippe Jorion and William N. Goetzmann.rich126 wrote: ↑Wed Jul 11, 2018 1:14 pm Obviously we only have historical data to look at but I think it is foolish to think the future will continue to resemble the past. You have a rapidly aging US population (even more so if immigration is reduced), technology that is providing advantages to many countries, an education system that hasn't kept paced with the needs of a technological society, and a debt that is growing hugely.
I'm in the group that thinks it is foolish to put all your money in the US solely based on numbers from the past. Divide up the money and re-balance as necessary.
Over 1921 to 1996, the compound capital return on U.S. equities was 6.95 percent . . . . the return on the global comprehensive index was 7.25 percent.
How is this to be reconciled with Dimson & al's findings that for 1900-2015, total real return (CAGR) was:
because we have no data on global market capitalization going back that far, we assign weights based on Gross Domestic Product?
Exactly. Forget backtesting in this case, it doesn't help. Therefore hedge your bets for the future. Why is that complicated to understand? Beats me.SimpleGift wrote: ↑Wed Jul 11, 2018 10:07 am To my mind, the dissection of past returns in this case has only limited information value about possible futures. About all we can say is that international and domestic stocks behaved differently in the past. Future returns are unknown.
Instead of the "past returns" argument, I'd like to highlight another one: "buy the haystack." The chart below shows the growth in the number of listed companies worldwide since 1975. While listed companies in the U.S. have been shrinking (in blue), the number of listed companies outside the U.S. has exploded in recent decades, especially in East Asia (in red).
[...]
But if one is investing for the future, say the next 30-50 years, it might pay to notice where it is in the world today that entrepreneurial dynamism is greatest. The haystack is only growing larger beyond the shores of the United States.
Yeah, that's weird. I did a quick check, this doesn't seem to be fully explained by a start/end date issue (even if the 1921-1996 time period does make international look a bit better).nisiprius wrote: ↑Wed Jul 11, 2018 8:42 pmHow is this to be reconciled with Dimson & al's findings that for 1900-2015, total real return (CAGR) was:
6.4% for the U.S.
5.0% for the world
4.3% for the world ex-US?
Yeah it seems like there is a divide between those of us with the attitude that we can't know the future and therefore should invest with a split kinda close to market weight and those that use look at the not huge difference in returns and say it doesn't matter. To me it seem like the burden of proof is should be on the side that tries to justify not having significant international holdings. There is a significant contingent here who take the opposite position that the burden of proof should be on international to justify itself. So of course we look at the same data and come to opposite conclusions.siamond wrote: ↑Wed Jul 11, 2018 10:20 pmExactly. Forget backtesting in this case, it doesn't help. Therefore hedge your bets for the future. Why is that complicated to understand? Beats me.SimpleGift wrote: ↑Wed Jul 11, 2018 10:07 am To my mind, the dissection of past returns in this case has only limited information value about possible futures. About all we can say is that international and domestic stocks behaved differently in the past. Future returns are unknown.
Instead of the "past returns" argument, I'd like to highlight another one: "buy the haystack." The chart below shows the growth in the number of listed companies worldwide since 1975. While listed companies in the U.S. have been shrinking (in blue), the number of listed companies outside the U.S. has exploded in recent decades, especially in East Asia (in red).
[...]
But if one is investing for the future, say the next 30-50 years, it might pay to notice where it is in the world today that entrepreneurial dynamism is greatest. The haystack is only growing larger beyond the shores of the United States.
I don't have an international allocation, and I wouldn't suggest someone else do something I'm not doing.jeffh19 wrote: ↑Wed Jul 11, 2018 11:36 pm So what do all of you recommend for AA for US/international? 80/20?
In my brokerage, I’m only 11.7% international. I auto invest a good chunk of money each month, which I have set to 75% VTSAX 25% VTIAX. I’m thinking of maybe doing 50/50 for a while as international is supposed to be a better value right now, and I keep hearing not great things predicted for the Us market the next several years. I can always adjust back if the US market crashes to buy a ton more of that if it becomes a much better value with a correction or crash.
I’m also 100% US in my Roth IRA, and 13% international in my 401k.
Not trying to hijack the thread, but I’m curious what all of you guys above would recommend.
This is a topic that has been endlessly discussed on the forum.
I live in the U.S. and have 0% international equities (or bonds) in my portfolio, which works for me.jeffh19 wrote: ↑Wed Jul 11, 2018 11:36 pm So what do all of you recommend for AA for US/international? 80/20?
In my brokerage, I’m only 11.7% international. I auto invest a good chunk of money each month, which I have set to 75% VTSAX 25% VTIAX. I’m thinking of maybe doing 50/50 for a while as international is supposed to be a better value right now, and I keep hearing not great things predicted for the Us market the next several years. I can always adjust back if the US market crashes to buy a ton more of that if it becomes a much better value with a correction or crash.
I’m also 100% US in my Roth IRA, and 13% international in my 401k.
Not trying to hijack the thread, but I’m curious what all of you guys above would recommend.
+1. You are paying more for the diversity you seek.JoMoney wrote: ↑Wed Jul 11, 2018 7:14 pm International stocks...
Higher volatility
More explicit risks, in terms of sovereignty issues, currency risk etc..
Higher costs and tax implications
For better or worse, it isn't going to track with U.S. benchmark
If you recognize all that, and feel compelled that you need some allocation to it for the sake of "diversification"... go for it.
Thank you for these and past posts on this topic. I know they take time and effort, and I appreciate that. Everyone needs to decide what’s best for them and make a plan. Your posts have helped me make a plan I’m satisfied with.
While I don't disagree with your conclusion, the problems you mention are not limited to the US and it is easy to have home bias against these types of risks in one's home country due to their familiarity.Obviously we only have historical data to look at but I think it is foolish to think the future will continue to resemble the past. You have a rapidly aging US population (even more so if immigration is reduced), technology that is providing advantages to many countries, an education system that hasn't kept paced with the needs of a technological society, and a debt that is growing hugely.
I'm in the group that thinks it is foolish to put all your money in the US solely based on numbers from the past. Divide up the money and re-balance as necessary.
That link takes me to a Credit Suisse marketing brochure. I can’t find a peer-reviewed paper by those authors on this topic.nisiprius wrote: ↑Wed Jul 11, 2018 8:42 pmHow is this to be reconciled with Dimson & al's findings that for 1900-2015, total real return (CAGR) was:
6.4% for the U.S.
5.0% for the world
4.3% for the world ex-US?
This was a reference to the 'Triumph of the Optimists' work (a seminal book published in Jan 2002 about global returns), and the continuation work published every year by the authors in the 'Credit Suisse Global Investment Returns Yearbook'. Here is a direct link to the 2016 yearbook.vineviz wrote: ↑Thu Jul 12, 2018 3:39 pmThat link takes me to a Credit Suisse marketing brochure. I can’t find a peer-reviewed paper by those authors on this topic.nisiprius wrote: ↑Wed Jul 11, 2018 8:42 pmHow is this to be reconciled with Dimson & al's findings that for 1900-2015, total real return (CAGR) was:
6.4% for the U.S.
5.0% for the world
4.3% for the world ex-US?
Too true. This is a great mental exercise. There’s really no telling.siamond wrote: ↑Thu Jul 12, 2018 4:46 pm Somebody asked me for a per-decade illustration of US (Total-Market, aka TSM) vs. the rest of the world (developed, aka EAFED). I added Emerging Markets (EM) for good measure. Data comes from a mix of Dimson and al. and what we have in the Simba backtesting spreadsheet.
Now do a little mental exercise. Project yourself at the end of each decade, one decade at a time. With zero knowledge of the future beyond this point. What conclusion would you reach? Be fair, try hard to set aside any preconceived idea.
For me, the conclusion is pretty clear: I would have been fooled a couple of times, I now realize that I have no clue where this is going, so I'll hedge my bets!
I think the inclusion of emerging markets is a distraction. It's fantasy football, for two reasons. I know Dimson & al tried to gen up some kind of numbers, but:
I disagree about the lack of significance, but I agree that an EM data series isn't germane to THIS thread, and possibly distracting. We'll argue about it another time!nisiprius wrote: ↑Thu Jul 12, 2018 8:22 pmI think the inclusion of emerging markets is a distraction. [...] it would have been such a microscopic fraction of global market cap that adding it to a developed markets index fund--had such a thing existed, which it didn't--would have made essentially zero difference in performance.
I am not US based. It's crazy for me to underweight USA. I have, and it has hurt.jeffh19 wrote: ↑Wed Jul 11, 2018 11:36 pm So what do all of you recommend for AA for US/international? 80/20?
In my brokerage, I’m only 11.7% international. I auto invest a good chunk of money each month, which I have set to 75% VTSAX 25% VTIAX. I’m thinking of maybe doing 50/50 for a while as international is supposed to be a better value right now, and I keep hearing not great things predicted for the Us market the next several years. I can always adjust back if the US market crashes to buy a ton more of that if it becomes a much better value with a correction or crash.
I’m also 100% US in my Roth IRA, and 13% international in my 401k.
Not trying to hijack the thread, but I’m curious what all of you guys above would recommend.
https://www.vanguard.com/pdf/ISGGEB.pdfValuethinker wrote: ↑Fri Jul 13, 2018 10:07 am Someone will perhaps post the link to the Vanguard study. I can't do so from where I am right now.
Conclusion: In light of quantitative analysis and qualitative considerations, we have demonstrated that domestic investors should consider allocating part of their portfolios to international securities, and that a 20% allocation may be a reasonable starting point. Although finance theory dictates that an upper asset allocation limit should be based on the global market capitalization for international equities (currently approximately 51%), we have demonstrated that international allocations exceeding 40% have not historically added significant additional diversification benefits, particularly accounting for costs. For many investors, an allocation between 20% and 40% should be considered reasonable, given the historical benefits of diversification. Allocations closer to 40% may be suitable for those investors seeking to be closer to a market proportional weighting or for those who are hoping to obtain potentially greater diversification benefits and are less concerned with the potential risks and higher costs. On the other hand, allocations closer to 20% may be viewed as offering a greater balance among the benefits of diversification, the risks of currency volatility and higher U.S. to non-U.S. stock correlations, investor preferences, and costs.
Thank you.zonto wrote: ↑Fri Jul 13, 2018 11:11 amhttps://www.vanguard.com/pdf/ISGGEB.pdfValuethinker wrote: ↑Fri Jul 13, 2018 10:07 am Someone will perhaps post the link to the Vanguard study. I can't do so from where I am right now.
Conclusion: In light of quantitative analysis and qualitative considerations, we have demonstrated that domestic investors should consider allocating part of their portfolios to international securities, and that a 20% allocation may be a reasonable starting point. Although finance theory dictates that an upper asset allocation limit should be based on the global market capitalization for international equities (currently approximately 51%), we have demonstrated that international allocations exceeding 40% have not historically added significant additional diversification benefits, particularly accounting for costs. For many investors, an allocation between 20% and 40% should be considered reasonable, given the historical benefits of diversification. Allocations closer to 40% may be suitable for those investors seeking to be closer to a market proportional weighting or for those who are hoping to obtain potentially greater diversification benefits and are less concerned with the potential risks and higher costs. On the other hand, allocations closer to 20% may be viewed as offering a greater balance among the benefits of diversification, the risks of currency volatility and higher U.S. to non-U.S. stock correlations, investor preferences, and costs.