S&P 500 International Exposure

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Da5id
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Re: S&P 500 International Exposure

Post by Da5id »

visualguy wrote: Sat Sep 18, 2021 4:13 pm
patrick wrote: Sat Sep 18, 2021 11:16 am And we certainly don't ignore the past performance you allude to. If we did, we couldn't accuse country-pickers of performance chasing.
You do realize that passive indexing is by itself inherently performance chasing, right? Yet we all still do it. Why? Because it worked well in the past, so double dose of performance chasing, actually.
What is your specific definition of performance chasing?
visualguy
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Re: S&P 500 International Exposure

Post by visualguy »

Da5id wrote: Sat Sep 18, 2021 4:45 pm
visualguy wrote: Sat Sep 18, 2021 4:13 pm
patrick wrote: Sat Sep 18, 2021 11:16 am And we certainly don't ignore the past performance you allude to. If we did, we couldn't accuse country-pickers of performance chasing.
You do realize that passive indexing is by itself inherently performance chasing, right? Yet we all still do it. Why? Because it worked well in the past, so double dose of performance chasing, actually.
What is your specific definition of performance chasing?
Increase holdings of what has done better, and decrease holdings of what has done worse. This is exactly what happens with passive indexing.
Nathan Drake
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Re: S&P 500 International Exposure

Post by Nathan Drake »

visualguy wrote: Sat Sep 18, 2021 5:04 pm
Da5id wrote: Sat Sep 18, 2021 4:45 pm
visualguy wrote: Sat Sep 18, 2021 4:13 pm
patrick wrote: Sat Sep 18, 2021 11:16 am And we certainly don't ignore the past performance you allude to. If we did, we couldn't accuse country-pickers of performance chasing.
You do realize that passive indexing is by itself inherently performance chasing, right? Yet we all still do it. Why? Because it worked well in the past, so double dose of performance chasing, actually.
What is your specific definition of performance chasing?
Increase holdings of what has done better, and decrease holdings of what has done worse. This is exactly what happens with passive indexing.
The goal isn't to only buy what has done better. That's just a reflection of active market pricing. And there are momentum strategies that try and capture recent performance more effectively.

If you buy market cap weighting, you are ambivalent to what has recently performed well as you are letting the market make that decision through its activity with the understanding that what currently has done well may not persist.
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Somethingwitty92912
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

patrick wrote: Sat Sep 18, 2021 1:54 pm
Somethingwitty92912 wrote: Sat Sep 18, 2021 11:41 am
patrick wrote: Sat Sep 18, 2021 11:25 am
Somethingwitty92912 wrote: Sat Sep 18, 2021 7:13 amSpeaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
You have this backwards. A widespread shift from US-only to internationally diversified would not benefit diversified investors. Their non-US holdings could go up but their US holdings would go down to match. On the other hand, stock-pickers and country-pickers would lose if enough people diversify from the individual stocks or countries they favor.
That would depend on asset allocation. Which is sort of implied knowledge when talking portfolio management. So I don’t see your point?
All US-only investors have a profit incentive to discourage diversification. A widespread shift of investment from US-only stocks portfolios to diversified portfolios could push US stock prices down. This would impact US stock prices broadly and this is a risk to any portfolio that has all its stocks in the US regardless of the exact asset allocation.

The same incentive doesn't exist for diversified investors whose gains on non-US stocks would be balanced by losses on US stocks. This one does, however, presume that the allocation is balanced. Someone who has only a small amount of non-US stocks would still prefer US-only investors to stay that way. The only asset allocations that generate incentives to push non-US investing are the ones heavily tilted away from the US.

Of course, the above is only relevant if you actually can persuade enough people to have an impact on asset prices. Realistically, anything that anyone says here has approximately zero chance of doing that. But if, hypothetically, we were able to convince enough people of their views, then the US-only investors have a profit incentive to do so, but not the diversified investors.
You say “diversified” that depends on how you are using the words. Someone who holds 60/40 international stock/bond could literally make the same statement. So in other words what you are saying is the news is water is wet.
stan1
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Re: S&P 500 International Exposure

Post by stan1 »

nisiprius wrote: Sat Sep 18, 2021 8:17 am I have tended to resist international stocks--20% of my stock allocation is international--out of sales resistance. The case for international stocks has never seemed anywhere near as strong as the voices of those advocating for it. I've always had a feeling of being sold something under high pressure. I have an impression that Vanguard and others must feel that it is important to them to develop a global stock investment capability, and that the strangely strident push for it reflects the needs of fund companies at least as much as it reflects the needs of investors.
I do agree with that on how Vanguard is pitching international bonds to Americans, but not on equities. In ratio terms Vanguard I think Vanguard is projecting so much growth in the numerator (bond AUM) to the point where they need to grow the denominator (investable bond market) to operate efficiently. I can't for the life of me understand why I would want to own debt issued by the Spanish or Italian government.

I can understand why I might want to be a shareholder in Toyota, Shell, Samsung, and Taiwan Semiconductor.
Carousel
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Re: S&P 500 International Exposure

Post by Carousel »

Que1999 wrote: Sat Sep 18, 2021 9:23 am I saved this chart and always refer to it when I'm having an International investing crisis. It's the after-tax returns of the S&P 500 vs. International since 1970. It helps me out a bit. That being said, I invest in VTSAX/VFIAX, but that is subject to change.

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D
Am I misunderstanding? Chart shows MSCI EAFE Index vs IXUS.
Carousel
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Re: S&P 500 International Exposure

Post by Carousel »

Nathan Drake wrote: Sat Sep 18, 2021 12:48 pm And we have seen countless examples where investments in only a single country have had disastrous results despite: 1) those countries having a huge portion of their revenue from foreign sources, 2) the size of those countries being meaningful in relation to global GDP. Yes, US fits both 1) & 2), but that does not prevent the tail risk from showing up in a meaningful way. And the US does not need to have a bad acute event for the investment returns to be poor. It simply needs to underperform relative to the pricing expectations of the market.
Serious question: examples beyond Japan? Thanks!
secondopinion
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Re: S&P 500 International Exposure

Post by secondopinion »

mrjohnanderson007 wrote: Sat Sep 18, 2021 7:23 am
secondopinion wrote: Fri Sep 17, 2021 5:01 pm
mkpainter wrote: Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.

Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.

I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.

In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.

So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
The argument that the US provides enough international exposure is not correct; despite the considerable amount of foreign sales.

Just because quite a bit of US revenue may come from foreign sales, it does not mean that it is sufficient exposure to actually match what the foreign companies are doing or even the representative of sales in that country (or even the US). Take a look at any country and you will see a difference in which sectors the country specializes in versus the US; after all, they get sales from the US as well. One gets only what the US specializes in by investing only in the US -- not the specialities of the other countries.

See how many things say "Made in [elsewhere]" or are from elsewhere, and you will see what I mean. How many have bought a Swiss computer? But most have bought from Nestle before.

In short, the US is not representative of the world.
The U.S is not representative of the world, however for many people it's representative enough to not feel the need for international. In the 80's and 90's a different story. But with internet and globalization things have changed.

We are also not a little closed off island with limited resources called Japan. We are the melting pot of talent, resources, agriculture/land called the U.S.A. International people always say "well look at Japan for example that could happen to the U.S" Well VXUS number 1 holder is Japan, 15%. Have they broke even after 30 years? And 9% of it is China. If there's money to be made in China you can bet the government is going to funnel it their way.
Open economies encourage specialization of the country's companies. If a country is open, then the country does not feel they have to devote resources to those industries which are not as profitable to them. Globalization makes this more so, not less.

The U.S. might be diverse, but it is still weighted towards some industries versus others.
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Beensabu
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Re: S&P 500 International Exposure

Post by Beensabu »

Somethingwitty92912 wrote: Sat Sep 18, 2021 11:41 am
patrick wrote: Sat Sep 18, 2021 11:25 am
Somethingwitty92912 wrote: Sat Sep 18, 2021 7:13 amSpeaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
You have this backwards. A widespread shift from US-only to internationally diversified would not benefit diversified investors. Their non-US holdings could go up but their US holdings would go down to match. On the other hand, stock-pickers and country-pickers would lose if enough people diversify from the individual stocks or countries they favor.
That would depend on asset allocation. Which is sort of implied knowledge when talking portfolio management. So I don’t see your point?
As you were implying that those who diversify internationally have a profit incentive for suggesting an international stock allocation, the point is that it is actually the US-only folks who have a profit incentive for suggesting a US-only stock allocation. As does any person or group suggesting concentration of any kind. Which is not to say that anyone in particular is actually consciously incentivized in such a way when providing their input. But you still had it backwards.
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Taylor Larimore
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Re: S&P 500 International Exposure

Post by Taylor Larimore »

mkpainter wrote: Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.

Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.

I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.

In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.

So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Bogleheads:

I made a post about this subject. It was written 12 years ago but I feel the same today. You can read it here:

How Much International Stock? A suggestion.

Best wishes.
Taylor
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Somethingwitty92912
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

Beensabu wrote: Sat Sep 18, 2021 6:39 pm
Somethingwitty92912 wrote: Sat Sep 18, 2021 11:41 am
patrick wrote: Sat Sep 18, 2021 11:25 am
Somethingwitty92912 wrote: Sat Sep 18, 2021 7:13 amSpeaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
You have this backwards. A widespread shift from US-only to internationally diversified would not benefit diversified investors. Their non-US holdings could go up but their US holdings would go down to match. On the other hand, stock-pickers and country-pickers would lose if enough people diversify from the individual stocks or countries they favor.
That would depend on asset allocation. Which is sort of implied knowledge when talking portfolio management. So I don’t see your point?
As you were implying that those who diversify internationally have a profit incentive for suggesting an international stock allocation, the point is that it is actually the US-only folks who have a profit incentive for suggesting a US-only stock allocation. As does any person or group suggesting concentration of any kind. Which is not to say that anyone in particular is actually consciously incentivized in such a way when providing their input. But you still had it backwards.
Yes, I also said a lot of other things with mountains of evidences that is easily available that the other folks have not. At least none has been shown to me that’s worth anything.

If your argument is “nananana mine is better!” I’ll pass.
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nisiprius
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Re: S&P 500 International Exposure

Post by nisiprius »

Just to show that things get complicated, only 481 of the 505 stocks in the S&P 500 are US stocks. The other 24 are:

(Bermuda) Everest Re Group Ltd.
(Bristol, United Kingdom) Amcor plc
(Ireland) Accenture plc
(Ireland) Allegion
(Ireland) Aptiv PLC
(Ireland) Eaton Corporation
(Ireland) Johnson Controls International
(Ireland) Medtronic plc
(Ireland) Perrigo
(Ireland) Seagate Technology
(Ireland) STERIS plc
(Ireland) Trane Technologies plc
(Kingdom of the Netherlands) Schlumberger Ltd.
(Netherlands) LyondellBasell
(Netherlands) Mylan N.V.
(Surrey, United Kingdom) Linde plc
(Switzerland) Chubb Limited
(Switzerland) Garmin Ltd.
(Switzerland) TE Connectivity Ltd.
(UK) Pentair plc
(United Kingdom) Aon plc
(United Kingdom) IHS Markit Ltd.
(United Kingdom) TechnipFMC
(United Kingdom) Willis Towers Watson

I am not going to argue that these 24 stocks give you significant "international exposure," but it does show you that globalization has blurred boundaries to the point where it is not always easy to tell whether a particular stock is US or ex-US!
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secondopinion
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Re: S&P 500 International Exposure

Post by secondopinion »

Somethingwitty92912 wrote: Sat Sep 18, 2021 7:13 am
mkpainter wrote: Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.

Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.

I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.

In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.

So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
You don't need any international.

You will have a simpler portfolio with less fees by using S&P500 only. Here's some arguments you will get.

"something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

By adding in another countries market you also add in, Fees of that fund, Currency risks for despots and destabilized economies. I'll give one example to avoid the no politics talk. Chinas the second largest economy in the world. It also manipulates its currency, and enslaves its citizenry, and controls private markets. There are a lot of critiques you could have for the states. However, here people are free to follow their destiny free to start a business.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)

Happy researching. Full disclosure: I am 90/10 S&P500/cash.

My opinion, should you wish to dip a toe in to international... 10% no more, but really a lot less.
To fees, it is far cheaper now to hold international than it was a long time ago. For all intent and purposes, it is not a factor really anymore. You can even buy a Canadian-only stock ETF for 0.09% ER (I think that is FLCA); there are a few other countries that also have this be the case. Go with a general global stock ETF and it is even less.

To stagflation, it can happen to anybody. The current US is better than old Japan in terms of self-sustaining, but it does not mean it cannot happen to some extent. Again, so are many other countries more capable these days than before.

The last I checked, many large foreign companies also stayed solvent. So what is the problem? They kept their worth, and by the COVID metric are to be invested into.

Currency risk is real; but some of that fluctuation seen is because the comparison is in nominal dollars, not real dollars. The dollar can devalue as well and is not immune to it either. Safe currencies devalue when safety is not wanted. It is part of the hypothesis of how US treasury bonds work in comparison to the market.

If one does not want to invest in un-free countries, then buy a few countries that do support freedom. Simple as that.

Yes, it is laughable that the US would lose the reserve currency status without a bad country event. But can that bad country event never happen?

Fees, fees, fees? Look at the fees of reasonable international stock funds and ETFs; the difference between them and US stock is rather small.

Past performance does not guarantee future returns. The US has done well; but should we think that this is indefinite? The burden of proof is actually on the side of the US-only investors to disprove the use of international in all factors, and not the global stock investors.

All that has been shown as evidence is a criteria of what countries to select, not that the US is the only one.
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Nathan Drake
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Re: S&P 500 International Exposure

Post by Nathan Drake »

Carousel wrote: Sat Sep 18, 2021 5:52 pm
Nathan Drake wrote: Sat Sep 18, 2021 12:48 pm And we have seen countless examples where investments in only a single country have had disastrous results despite: 1) those countries having a huge portion of their revenue from foreign sources, 2) the size of those countries being meaningful in relation to global GDP. Yes, US fits both 1) & 2), but that does not prevent the tail risk from showing up in a meaningful way. And the US does not need to have a bad acute event for the investment returns to be poor. It simply needs to underperform relative to the pricing expectations of the market.
Serious question: examples beyond Japan? Thanks!
Japan, Germany, England, and even the US (66-82)...plenty more. Of course, many of these countries have also had great returns depending on your time frame, and that's the point - you don't know when the risk will show up or how bad it will be. The point of diversification is to protect against this risk.
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Re: S&P 500 International Exposure

Post by Noobvestor »

The idea that US gives you 'international exposure' always seemed odd to me. Sure, the US does business with other countries, but it also has country-specific risks that will impact US companies in particular (e.g. changes in tax law, business law, political trends, etc...). So IMO the 500 index has no (or little, per Nis) actual international exposure in the meaningful senses of the word. It's a US index. It's right there in the definition. The only reason people seem to bring up this idea is to justify tilting toward US - i.e. to confirm a conclusion they already want to draw. Anyway. Buy the world. /2 cents
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Re: S&P 500 International Exposure

Post by UpperNwGuy »

"International exposure" is a meaningless phrase. Mutual funds own shares of companies. Owning shares of 500 large US companies does not mean you own shares of the other 3000 US companies or 7500 ex-US companies such as Samsung, Toyota, Novartis, Nestle, etc. Investing is not about countries. It's about companies.
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Re: S&P 500 International Exposure

Post by Beensabu »

Somethingwitty92912 wrote: Sat Sep 18, 2021 6:55 pm If your argument is “nananana mine is better!” I’ll pass.
My argument is simply that whatever international exposure is provided by the S&P 500 does nothing to mitigate the risk of pursuing a single country strategy.
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Da5id
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Re: S&P 500 International Exposure

Post by Da5id »

visualguy wrote: Sat Sep 18, 2021 5:04 pm
Da5id wrote: Sat Sep 18, 2021 4:45 pm
visualguy wrote: Sat Sep 18, 2021 4:13 pm
patrick wrote: Sat Sep 18, 2021 11:16 am And we certainly don't ignore the past performance you allude to. If we did, we couldn't accuse country-pickers of performance chasing.
You do realize that passive indexing is by itself inherently performance chasing, right? Yet we all still do it. Why? Because it worked well in the past, so double dose of performance chasing, actually.
What is your specific definition of performance chasing?
Increase holdings of what has done better, and decrease holdings of what has done worse. This is exactly what happens with passive indexing.
That is largely by letting it drift, no? Not by specifically purchasing *more* of the recent winners, particularly if you are buying and holding the index fund yourself. If you want to view buying and holding an index fund as performance chasing in the same vein of buying last years winning fund and dumping the previous years fund, well OK. You do you.
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Re: S&P 500 International Exposure

Post by TropikThunder »

Da5id wrote: Sat Sep 18, 2021 9:28 pm
visualguy wrote: Sat Sep 18, 2021 5:04 pm
Da5id wrote: Sat Sep 18, 2021 4:45 pm
visualguy wrote: Sat Sep 18, 2021 4:13 pm
patrick wrote: Sat Sep 18, 2021 11:16 am And we certainly don't ignore the past performance you allude to. If we did, we couldn't accuse country-pickers of performance chasing.
You do realize that passive indexing is by itself inherently performance chasing, right? Yet we all still do it. Why? Because it worked well in the past, so double dose of performance chasing, actually.
What is your specific definition of performance chasing?
Increase holdings of what has done better, and decrease holdings of what has done worse. This is exactly what happens with passive indexing.
That is largely by letting it drift, no? Not by specifically purchasing *more* of the recent winners, particularly if you are buying and holding the index fund yourself. If you want to view buying and holding an index fund as performance chasing in the same vein of buying last years winning fund and dumping the previous years fund, well OK. You do you.
+1. Buying a total market index fund and holding it is literally the opposite of market timing. An index fund doesn’t buy more APPL when APPL goes up in value, it passively tracks the changing market cap. Same for an individual, I don’t have to buy more VTSAX when it goes up. Market timing requires a transaction.
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Re: S&P 500 International Exposure

Post by visualguy »

TropikThunder wrote: Sun Sep 19, 2021 3:46 am
Da5id wrote: Sat Sep 18, 2021 9:28 pm
visualguy wrote: Sat Sep 18, 2021 5:04 pm
Da5id wrote: Sat Sep 18, 2021 4:45 pm
visualguy wrote: Sat Sep 18, 2021 4:13 pm

You do realize that passive indexing is by itself inherently performance chasing, right? Yet we all still do it. Why? Because it worked well in the past, so double dose of performance chasing, actually.
What is your specific definition of performance chasing?
Increase holdings of what has done better, and decrease holdings of what has done worse. This is exactly what happens with passive indexing.
That is largely by letting it drift, no? Not by specifically purchasing *more* of the recent winners, particularly if you are buying and holding the index fund yourself. If you want to view buying and holding an index fund as performance chasing in the same vein of buying last years winning fund and dumping the previous years fund, well OK. You do you.
+1. Buying a total market index fund and holding it is literally the opposite of market timing. An index fund doesn’t buy more APPL when APPL goes up in value, it passively tracks the changing market cap. Same for an individual, I don’t have to buy more VTSAX when it goes up. Market timing requires a transaction.
It's absolutely a performance-chasing strategy. For example, when I buy VT now, I buy Chinese stocks with 3.8% of my money, but it was 4.6% a few months ago. Why? China performed poorly recently, so now I'm chasing that poor performance. If and when Chinese stocks recover, and I buy VT, 4.6% or more of the money will be going again to Chinese stocks, now chasing the good performance. It's the same with individual companies over the years, say a higher and higher percentage going to Amazon over the last few years, and a lower and lower percentage going to American Airlines.

This performance-chasing strategy has worked reasonably-well over time, showing that performance chasing isn't bad, so I'm not saying that passive indexing is bad. I'm just recognizing it for what it is, which is a systematic way to chase performance.
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Re: S&P 500 International Exposure

Post by Da5id »

visualguy wrote: Sun Sep 19, 2021 7:59 am
TropikThunder wrote: Sun Sep 19, 2021 3:46 am
Da5id wrote: Sat Sep 18, 2021 9:28 pm
visualguy wrote: Sat Sep 18, 2021 5:04 pm
Da5id wrote: Sat Sep 18, 2021 4:45 pm

What is your specific definition of performance chasing?
Increase holdings of what has done better, and decrease holdings of what has done worse. This is exactly what happens with passive indexing.
That is largely by letting it drift, no? Not by specifically purchasing *more* of the recent winners, particularly if you are buying and holding the index fund yourself. If you want to view buying and holding an index fund as performance chasing in the same vein of buying last years winning fund and dumping the previous years fund, well OK. You do you.
+1. Buying a total market index fund and holding it is literally the opposite of market timing. An index fund doesn’t buy more APPL when APPL goes up in value, it passively tracks the changing market cap. Same for an individual, I don’t have to buy more VTSAX when it goes up. Market timing requires a transaction.
It's absolutely a performance-chasing strategy. For example, when I buy VT now, I buy Chinese stocks with 3.8% of my money, but it was 4.6% a few months ago. Why? China performed poorly recently, so now I'm chasing that poor performance. If and when Chinese stocks recover, and I buy VT, 4.6% or more of the money will be going again to Chinese stocks, now chasing the good performance. It's the same with individual companies over the years, say a higher and higher percentage going to Amazon over the last few years, and a lower and lower percentage going to American Airlines.

This performance-chasing strategy has worked reasonably-well over time, showing that performance chasing isn't bad, so I'm not saying that passive indexing is bad. I'm just recognizing it for what it is, which is a systematic way to chase performance.
Meh. Just totally meh.

If you want to *call* this performance chasing, you do you. However most people don't use it in that sense at all. Reading the first description that comes up in my search https://obliviousinvestor.com/performan ... -avoid-it/ doesn't seem to encompass "buying a cap weighted index fund and holding it forever". You appear to be stretching to make some kind of point, but really it is a huge stretch IMO.
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

secondopinion wrote: Sat Sep 18, 2021 7:55 pm
Somethingwitty92912 wrote: Sat Sep 18, 2021 7:13 am
mkpainter wrote: Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.

Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.

I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.

In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.

So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
You don't need any international.

You will have a simpler portfolio with less fees by using S&P500 only. Here's some arguments you will get.

"something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

By adding in another countries market you also add in, Fees of that fund, Currency risks for despots and destabilized economies. I'll give one example to avoid the no politics talk. Chinas the second largest economy in the world. It also manipulates its currency, and enslaves its citizenry, and controls private markets. There are a lot of critiques you could have for the states. However, here people are free to follow their destiny free to start a business.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)

Happy researching. Full disclosure: I am 90/10 S&P500/cash.

My opinion, should you wish to dip a toe in to international... 10% no more, but really a lot less.
To fees, it is far cheaper now to hold international than it was a long time ago. For all intent and purposes, it is not a factor really anymore. You can even buy a Canadian-only stock ETF for 0.09% ER (I think that is FLCA); there are a few other countries that also have this be the case. Go with a general global stock ETF and it is even less.

To stagflation, it can happen to anybody. The current US is better than old Japan in terms of self-sustaining, but it does not mean it cannot happen to some extent. Again, so are many other countries more capable these days than before.

The last I checked, many large foreign companies also stayed solvent. So what is the problem? They kept their worth, and by the COVID metric are to be invested into.

Currency risk is real; but some of that fluctuation seen is because the comparison is in nominal dollars, not real dollars. The dollar can devalue as well and is not immune to it either. Safe currencies devalue when safety is not wanted. It is part of the hypothesis of how US treasury bonds work in comparison to the market.

If one does not want to invest in un-free countries, then buy a few countries that do support freedom. Simple as that.

Yes, it is laughable that the US would lose the reserve currency status without a bad country event. But can that bad country event never happen?

Fees, fees, fees? Look at the fees of reasonable international stock funds and ETFs; the difference between them and US stock is rather small.

Past performance does not guarantee future returns. The US has done well; but should we think that this is indefinite? The burden of proof is actually on the side of the US-only investors to disprove the use of international in all factors, and not the global stock investors.

All that has been shown as evidence is a criteria of what countries to select, not that the US is the only one.
Canada is your comparison? Really, talk about low hanging fruit, it may as well be the states an vice versa.

0.09 over the course of investing life is something like 120k naw I’ll pass an keep it simple.

Stagflation cannot happen here because of the reserve currency status, I shouldn’t say cannot but let’s say if it were to you’d have a lot more to worry about than the balance of your portfolio. So I should say it won’t for everyone’s best interest.

I don’t care about the solvency of forgien company’s. I dont spend money In Their currency, buy their products, or participate in their markets. Also, the debt a lot of those foreign countries and business is owed back to the states. I do however, wish them a prosperity.

Yes, thank you for admitting currency risk is real, and then going on trying to defend it.

I am all about international fair trade to support other countries that support freedom, however my interest lay with my neighbors town and country, so that’s where my dollars go.

No the United States won’t lose a reserve currency status the idea of “well that COULD happen.” Is nonsense. You’d see wars on a scale beyond WW2 that’s not a world any of us want to see.

Past performance does not guarantee future return. However, this conversation has long since past the concepts efficient market theory and how to properly value a business. I am trying to avoid the politics rule here. To the point that sentiment doesn’t hold water. (There are greater forces and things at risk that are beyond discussion.)

I feel as through I have sufficient answered the burden of proof. If you reread i believe you will find the truer meaning. Economics is not all dollars and cents. Sometimes it’s dollars and sense.

If you disagree I understand. I have a feeling we both will end up at the finish line in either case one slightly ahead or behind the other *shrug*
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

Beensabu wrote: Sat Sep 18, 2021 8:55 pm
Somethingwitty92912 wrote: Sat Sep 18, 2021 6:55 pm If your argument is “nananana mine is better!” I’ll pass.
My argument is simply that whatever international exposure is provided by the S&P 500 does nothing to mitigate the risk of pursuing a single country strategy.
The country in question holds the world reserve currency. I’ll take that risk. Especially at the significantly high return. It’s well worth the risk premium.
Whitecap
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Re: S&P 500 International Exposure

Post by Whitecap »

Taylor Larimore wrote: Sat Sep 18, 2021 6:42 pm
mkpainter wrote: Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.

Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.

I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.

In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.

So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Bogleheads:

I made a post about this subject. It was written 12 years ago but I feel the same today. You can read it here:

How Much International Stock? A suggestion.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “Your exposure to mutual funds investing in foreign stocks should not exceed 20% of your equity portfolio.”

Taylor,
As always, you cut to the chase and give the answer. I’m thankful for all that you contribute to this group. Your research in this matter helped me greatly.
Warm regards,
Whitecap
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burritoLover
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Re: S&P 500 International Exposure

Post by burritoLover »

Somethingwitty92912 wrote: Sun Sep 19, 2021 8:31 am "something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
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Re: S&P 500 International Exposure

Post by lostdog »

burritoLover wrote: Sun Sep 19, 2021 8:56 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 8:31 am "something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
+1

Cognitive dissonance and taking Jack too seriously when it some to US vs ex-US is a hard nut to crack. It's tough being human when it comes to investing. Jack even said that he could be wrong.
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Somethingwitty92912
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

lostdog wrote: Sun Sep 19, 2021 9:02 am
burritoLover wrote: Sun Sep 19, 2021 8:56 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 8:31 am "something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
+1

Cognitive dissonance and taking Jack too seriously when it some to US vs ex-US is a hard nut to crack. It's tough being human when it comes to investing. Jack even said that he could be wrong.
-1 provide counter points that outweighs what I am saying. With evidence preferably, but I’d take even rational sounding arguments that can’t be proven, so long as they act to push this conversation along and it’s something that wasn’t answered in this post.

Otherwise this is the international is needed for no reason echo chamber.
Nathan Drake
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Re: S&P 500 International Exposure

Post by Nathan Drake »

Somethingwitty92912 wrote: Sun Sep 19, 2021 9:30 am
lostdog wrote: Sun Sep 19, 2021 9:02 am
burritoLover wrote: Sun Sep 19, 2021 8:56 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 8:31 am "something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
+1

Cognitive dissonance and taking Jack too seriously when it some to US vs ex-US is a hard nut to crack. It's tough being human when it comes to investing. Jack even said that he could be wrong.
-1 provide counter points that outweighs what I am saying. With evidence preferably, but I’d take even rational sounding arguments that can’t be proven, so long as they act to push this conversation along and it’s something that wasn’t answered in this post.

Otherwise this is the international is needed for no reason echo chamber.
If the market is pricing in the US market as “less risky” through higher valuations (lower discount rate), then you will not see the outperformance the US enjoyed in years prior.

If you have a need for returns higher than 2-3% real, the US market may not be able to provide them unless mean reversion occurs, but that mean reversion would come with a painful short term underperformance.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

Nathan Drake wrote: Sun Sep 19, 2021 9:36 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 9:30 am
lostdog wrote: Sun Sep 19, 2021 9:02 am
burritoLover wrote: Sun Sep 19, 2021 8:56 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 8:31 am "something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
+1

Cognitive dissonance and taking Jack too seriously when it some to US vs ex-US is a hard nut to crack. It's tough being human when it comes to investing. Jack even said that he could be wrong.
-1 provide counter points that outweighs what I am saying. With evidence preferably, but I’d take even rational sounding arguments that can’t be proven, so long as they act to push this conversation along and it’s something that wasn’t answered in this post.

Otherwise this is the international is needed for no reason echo chamber.
If the market is pricing in the US market as “less risky” through higher valuations (lower discount rate), then you will not see the outperformance the US enjoyed in years prior.

If you have a need for returns higher than 2-3% real, the US market may not be able to provide them unless mean reversion occurs, but that mean reversion would come with a painful short term underperformance.
This is true… when taking about businesses, not countries.
Da5id
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Re: S&P 500 International Exposure

Post by Da5id »

Somethingwitty92912 wrote: Sun Sep 19, 2021 9:39 am
Nathan Drake wrote: Sun Sep 19, 2021 9:36 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 9:30 am
lostdog wrote: Sun Sep 19, 2021 9:02 am
burritoLover wrote: Sun Sep 19, 2021 8:56 am
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
+1

Cognitive dissonance and taking Jack too seriously when it some to US vs ex-US is a hard nut to crack. It's tough being human when it comes to investing. Jack even said that he could be wrong.
-1 provide counter points that outweighs what I am saying. With evidence preferably, but I’d take even rational sounding arguments that can’t be proven, so long as they act to push this conversation along and it’s something that wasn’t answered in this post.

Otherwise this is the international is needed for no reason echo chamber.
If the market is pricing in the US market as “less risky” through higher valuations (lower discount rate), then you will not see the outperformance the US enjoyed in years prior.

If you have a need for returns higher than 2-3% real, the US market may not be able to provide them unless mean reversion occurs, but that mean reversion would come with a painful short term underperformance.
This is true… when taking about businesses, not countries.
So one might say that US stocks have "hit a permanently high plateau"...
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JoMoney
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Re: S&P 500 International Exposure

Post by JoMoney »

burritoLover wrote: Sun Sep 19, 2021 8:56 am...
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
Laughing all the way to the bank :mrgreen:
A U.S. investor who felt ex.-US "diversification" was necessary would have payed something close to -.50% just in foreign tax withholding ('Gross Return' Index over 'Net Return') and closer to -.80% with other fees and expenses involved for an actual fund.
Image


And what did this "diversification" get them? At a 50/50 S&P500/EX-US mix the portfolio had a higher standard deviation and was still .96 correlated with the broad US market.
PV Link (Annually Rebalanced)

And "rebalancing" was constantly shoveling their higher returning asset into the lower returning, "cutting the flowers and watering the weeds", the 50/50 annually rebalanced portfolio over this period had a CAGR of 11.93% , monthly rebalancing had 11.87% CAGR, whereas if the portfolio was bought then never rebalanced had a 12.67% CAGR over the same period.

I'm not saying someone who has an "international" allocation shouldn't rebalance. Maintaining a constant-mix profile for the different "risk" (and tax) profiles of the assets is important, otherwise the balance could get out of line to a level one wasn't comfortable with, but the results of not rebalancing does poke holes in the idea of a "free lunch" for diversification or of a "rebalancing bonus."

Hilarious. :D
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Somethingwitty92912
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

Da5id wrote: Sun Sep 19, 2021 9:43 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 9:39 am
Nathan Drake wrote: Sun Sep 19, 2021 9:36 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 9:30 am
lostdog wrote: Sun Sep 19, 2021 9:02 am

+1

Cognitive dissonance and taking Jack too seriously when it some to US vs ex-US is a hard nut to crack. It's tough being human when it comes to investing. Jack even said that he could be wrong.
-1 provide counter points that outweighs what I am saying. With evidence preferably, but I’d take even rational sounding arguments that can’t be proven, so long as they act to push this conversation along and it’s something that wasn’t answered in this post.

Otherwise this is the international is needed for no reason echo chamber.
If the market is pricing in the US market as “less risky” through higher valuations (lower discount rate), then you will not see the outperformance the US enjoyed in years prior.

If you have a need for returns higher than 2-3% real, the US market may not be able to provide them unless mean reversion occurs, but that mean reversion would come with a painful short term underperformance.
This is true… when taking about businesses, not countries.
So one might say that US stocks have "hit a permanently high plateau"...
If one would say that, one would provide reasoning for such a statement?

If you believe that, what actions are you taking personally? Selling all your shares getting ready for the drop?
lostdog
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Re: S&P 500 International Exposure

Post by lostdog »

JoMoney wrote: Sun Sep 19, 2021 9:45 am
burritoLover wrote: Sun Sep 19, 2021 8:56 am...
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
Laughing all the way to the bank :mrgreen:
A U.S. investor who felt ex.-US "diversification" was necessary would have payed something close to -.50% just in foreign tax withholding ('Gross Return' Index over 'Net Return') and closer to -.80% with other fees and expenses involved for an actual fund.
Image


And what did this "diversification" get them? At a 50/50 S&P500/EX-US mix the portfolio had a higher standard deviation and was still .96 correlated with the broad US market.
PV Link (Annually Rebalanced)

And "rebalancing" was constantly shoveling their higher returning asset into the lower returning, "cutting the flowers and watering the weeds", the 50/50 annually rebalanced portfolio over this period had a CAGR of 11.93% , monthly rebalancing had 11.87% CAGR, whereas if the portfolio was bought then never rebalanced had a 12.67% CAGR over the same period.

I'm not saying someone who has an "international" allocation shouldn't rebalance. Maintaining a constant-mix profile for the different "risk" (and tax) profiles of the assets is important, otherwise the balance could get out of line to a level one wasn't comfortable with, but the results of not rebalancing does poke holes in the idea of a "free lunch" for diversification or of a "rebalancing bonus."

Hilarious. :D
In the minds of diversified investors who "get it", your gamble/bet worked out. You can rationalize your bet/gamble all you want.
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JoMoney
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Re: S&P 500 International Exposure

Post by JoMoney »

lostdog wrote: Sun Sep 19, 2021 9:55 am...
In the minds of diversified investors who "get it", your gamble/bet worked out. You can rationalize your bet/gamble all you want.
Sure, the correlations and potential "diversification benefit" might have gone another direction, my point is that if you're gambling on getting some "bonus" from rebalancing uncorrelated assets that too is a "bet" that's just as likely to fail (it did).

The additional costs and foreign tax withholding, regardless of relative performance, is persistent, predictable, and disclosed by the fund in advance as a known factor. As are the additional risks of international, both the numerable risks explained in the prospectus, and the higher volatility of international portfolio.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: S&P 500 International Exposure

Post by vitaflo »

mkpainter wrote: Sat Sep 18, 2021 6:33 am
secondopinion wrote: Fri Sep 17, 2021 5:01 pm
The argument that the US provides enough international exposure is not correct; despite the considerable amount of foreign sales.

Just because quite a bit of US revenue may come from foreign sales, it does not mean that it is sufficient exposure to actually match what the foreign companies are doing or even the representative of sales in that country (or even the US). Take a look at any country and you will see a difference in which sectors the country specializes in versus the US; after all, they get sales from the US as well. One gets only what the US specializes in by investing only in the US -- not the specialities of the other countries.

See how many things say "Made in [elsewhere]" or are from elsewhere, and you will see what I mean. How many have bought a Swiss computer? But most have bought from Nestle before.

In short, the US is not representative of the world.
All true, but it's hard for me to ignore the fact that from 1993 - 2019 the US Markets are up 720% and the International markets only 230%. I just saw these numbers last week for the first time. I forget where I found them but they're from a Jack Bogle interview. So even though the US is not representative of the world, it seems we have a larger share of it.
In the past 5 years the SP500 is up 100%, but FAANG stocks are up 250%. Why are you not only in FAANG stocks? The rest of the SP500 is dragging you down.

It's easy to pick and choose the best performers. It kind of misses the point. In any case, what will make the most difference is working on your sweat equity (get a raise or promotion) not your stock equity. If you spend your time on the former, for the later it won't matter whether you're in international or not.
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Re: S&P 500 International Exposure

Post by Da5id »

Somethingwitty92912 wrote: Sun Sep 19, 2021 9:53 am
Da5id wrote: Sun Sep 19, 2021 9:43 am
So one might say that US stocks have "hit a permanently high plateau"...
If one would say that, one would provide reasoning for such a statement?

If you believe that, what actions are you taking personally? Selling all your shares getting ready for the drop?
Nah, at this point I don't adjust my holdings in response to, well, pretty much anything I read here or elsewhere. I have changed them in the past due to changed life circumstances (including over the past year), and who knows that could happen again.

I also don't make predictions about "drops". I have a modest belief that US stocks are probably relatively overpriced compared to international, but I don't act on such beliefs as I can't know. And even if they are in fact actually "overpriced" (may not be for all I know) that may be fixed by them going up more slowly for a while rather than "dropping". I find the near religious fervor and certainty given to beliefs on this topic kind of off putting personally. I used to comment a bit more in these threads, but realized I don't believe people's positions change much and I don't think most of us are open to changing out minds on this subject. And I'm OK with that, I don't need others to invest like I do, and don't care if they approve of my investing choices. Nor should they care if I approve of theirs. And I think in the end one's US/International split probably makes relatively little difference in terms of meeting ones goals. Savings rate and %equities are much more pivotal despite all the heat and light this topic brings (though "why should I own any bonds" is approaching it recently).

Since you like questions, would you describe your position as "I am 100% certain that the US equities will outperform international over my investing lifetime going forward"? Because that is how it comes across to me. For me, I have no idea if the US or international equities will outperform over any particular period going forward. Which is one of the reasons I own both.
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Re: S&P 500 International Exposure

Post by burritoLover »

JoMoney wrote: Sun Sep 19, 2021 9:45 am
burritoLover wrote: Sun Sep 19, 2021 8:56 am...
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
Laughing all the way to the bank :mrgreen:
A U.S. investor who felt ex.-US "diversification" was necessary would have payed something close to -.50% just in foreign tax withholding ('Gross Return' Index over 'Net Return') and closer to -.80% with other fees and expenses involved for an actual fund.
Not with the foreign tax withholding credit - more like 15 bps. Maybe more if you don't practice good asset location strategies. Sounds like a good trade-off to me - add 7,000+ stocks that aren't in my U.S. portfolio for roughly 0.2% a year. Oh wait! I forgot, we already know the U.S. will outperform international for infinity and beyond and with less risk somehow. So, yeah, not worth it - my bad. :oops:
And what did this "diversification" get them? At a 50/50 S&P500/EX-US mix the portfolio had a higher standard deviation and was still .96 correlated with the broad US market.
Yay another 10-ish year backtest (completely useless). You do realize that throughout the history of returns, the U.S. has higher volatility than an ex-US portfolio?
I'm not saying someone who has an "international" allocation shouldn't rebalance. Maintaining a constant-mix profile for the different "risk" (and tax) profiles of the assets is important, otherwise the balance could get out of line to a level one wasn't comfortable with, but the results of not rebalancing does poke holes in the idea of a "free lunch" for diversification or of a "rebalancing bonus."

Hilarious. :D
Yeah it's hilarious that you think you can draw conclusions from a 13-year backtest which includes one of the U.S.'s biggest bull runs over international.
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Re: S&P 500 International Exposure

Post by JoMoney »

burritoLover wrote: Sun Sep 19, 2021 10:20 am...
Not with the foreign tax withholding credit - more like 15 bps. Maybe more if you don't practice good asset location strategies. Sounds like a good trade-off to me - add 7,000+ stocks that aren't in my U.S. portfolio for roughly 0.2% a year.
Only if you hold it in a taxable account, no tax credit available if it's held in a retirement account, and in a taxable account the ex.US stocks are less likely to get any "qualified" treatment and will have higher tax impacts on the investors U.S. taxes.
burritoLover wrote: Sun Sep 19, 2021 10:20 am... You do realize that throughout the history of returns, the U.S. has higher volatility than an ex-US portfolio? ...
No, that's not true. Maybe if you're looking at some narrow small-cap segment of the U.S. market, but a broad-US stock index has very consistently had lower standard deviation than a broad ex.US index, even if you only look a "developed market" index like the MSCI EAFE throughout it's existence had higher standard deviation then the S&P 500. The primary selling point story for international to U.S. investors was a belief that despite the higher volatility, if the businesses/stocks had similar returns as U.S. there would be some non-correlated benefit to rebalance between them.
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Re: S&P 500 International Exposure

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The discussion is getting a bit contentious. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
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Re: S&P 500 International Exposure

Post by burritoLover »

JoMoney wrote: Sun Sep 19, 2021 10:39 am
burritoLover wrote: Sun Sep 19, 2021 10:20 am...
Not with the foreign tax withholding credit - more like 15 bps. Maybe more if you don't practice good asset location strategies. Sounds like a good trade-off to me - add 7,000+ stocks that aren't in my U.S. portfolio for roughly 0.2% a year.
Only if you hold it in a taxable account, no tax credit available if it's held in a retirement account, and in a taxable account the ex.US stocks are less likely to get any "qualified" treatment and will have higher tax impacts on the investors U.S. taxes.
That's why smart tax location strategies can be important. VXUS is also over 70% qualified dividends. So 50 bps is exaggerating things a bit.
burritoLover wrote: Sun Sep 19, 2021 10:20 am... You do realize that throughout the history of returns, the U.S. has higher volatility than an ex-US portfolio? ...
No, that's not true. Maybe if you're looking at some narrow small-cap segment of the U.S. market, but a broad-US stock index has very consistently had lower standard deviation than a broad ex.US index, even if you only look a "developed market" index like the MSCI EAFE throughout it's existence had higher standard deviation then the S&P 500. The primary selling point story for international to U.S. investors was a belief that despite the higher volatility, if the businesses/stocks had similar returns as U.S. there would be some non-correlated benefit to rebalance between them.
I'm talking about all historical data, not 1986+ that you are limited to in portfolio visualizer. Again, you are stuck on the recent past and assuming that it will be a mirror copy in the future. I don't know what is going to happen - so I hedge my bets with a broadly diversified portfolio. If you want to be concentrated entirely in your home country - cool - but don't go trying to rationalize it by claiming that the U.S. has higher expected returns than the entirety of ex-US with less risk. That concept has been bandied about with questionable investments in the past - how well do you think that worked out in the long-run?
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Re: S&P 500 International Exposure

Post by rob »

Lots of people here talk/rail about market indexing then take a huge bet against market weighting and do US only.... It's paid off well over the last decade or two but strategy <> outcome.
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Re: S&P 500 International Exposure

Post by Taylor Larimore »

LadyGeek wrote: Sun Sep 19, 2021 10:56 am The discussion is getting a bit contentious. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
Bogleheads:

In my opinion, like LadyGeek, respectful discussions can be helpful but It is useless to argue about something that cannot be proven.

Best wishes.
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

Da5id wrote: Sun Sep 19, 2021 10:09 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 9:53 am
Da5id wrote: Sun Sep 19, 2021 9:43 am
So one might say that US stocks have "hit a permanently high plateau"...
If one would say that, one would provide reasoning for such a statement?

If you believe that, what actions are you taking personally? Selling all your shares getting ready for the drop?
Nah, at this point I don't adjust my holdings in response to, well, pretty much anything I read here or elsewhere. I have changed them in the past due to changed life circumstances (including over the past year), and who knows that could happen again.

I also don't make predictions about "drops". I have a modest belief that US stocks are probably relatively overpriced compared to international, but I don't act on such beliefs as I can't know. And even if they are in fact actually "overpriced" (may not be for all I know) that may be fixed by them going up more slowly for a while rather than "dropping". I find the near religious fervor and certainty given to beliefs on this topic kind of off putting personally. I used to comment a bit more in these threads, but realized I don't believe people's positions change much and I don't think most of us are open to changing out minds on this subject. And I'm OK with that, I don't need others to invest like I do, and don't care if they approve of my investing choices. Nor should they care if I approve of theirs. And I think in the end one's US/International split probably makes relatively little difference in terms of meeting ones goals. Savings rate and %equities are much more pivotal despite all the heat and light this topic brings (though "why should I own any bonds" is approaching it recently).

Since you like questions, would you describe your position as "I am 100% certain that the US equities will outperform international over my investing lifetime going forward"? Because that is how it comes across to me. For me, I have no idea if the US or international equities will outperform over any particular period going forward. Which is one of the reasons I own both.
I find that the earth orbiting the star at 10,000 miles per hour a bit off putting, however it doesn’t make it any less true.

I don’t know what will happen I can’t predict the future anymore than anyone else. So no, I am not 100% certain of anything, however I sure hope it does for all our sakes.
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Re: S&P 500 International Exposure

Post by Somethingwitty92912 »

burritoLover wrote: Sun Sep 19, 2021 8:56 am
Somethingwitty92912 wrote: Sun Sep 19, 2021 8:31 am "something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)
The rationalizations for an all-US portfolio are always hilarious. Keep them coming! :D
Those seem a lot like facts not rationalizations. If you are going to respond how about providing actionable references, logical insight and not just witty retorts.
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Re: S&P 500 International Exposure

Post by abuss368 »

visualguy wrote: Fri Sep 17, 2021 4:19 pm
mkpainter wrote: Fri Sep 17, 2021 4:07 pm So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
You don't need it. Some want to own stocks traded on non-US stock markets for various reasons - there are many threads about this. Many here don't invest in foreign stock markets, and even the author of some of those books you mentioned (about 3-funds) stopped investing in ex-US a while back, although he still recommends 20%.
Hi visualguy -

I believe you may be referring to Taylor and his excellent book “The Bogleheads Guide to the Three Fund Portfolio”. If I recall, Taylor had a take a RMD from a small IRA balance that included Total International. He closed the account thereafter.

Taylor, likes both the Two Fund and Three Fund Portfolio, but has a slight preference for the Three Fund Portfolio as he has discussed the risks of Japan in the late 1980’s and 1990’s.

Hopefully Taylor will see this post and provide his thoughts!

🚀
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Re: S&P 500 International Exposure

Post by abuss368 »

Carousel wrote: Sat Sep 18, 2021 5:52 pm
Nathan Drake wrote: Sat Sep 18, 2021 12:48 pm And we have seen countless examples where investments in only a single country have had disastrous results despite: 1) those countries having a huge portion of their revenue from foreign sources, 2) the size of those countries being meaningful in relation to global GDP. Yes, US fits both 1) & 2), but that does not prevent the tail risk from showing up in a meaningful way. And the US does not need to have a bad acute event for the investment returns to be poor. It simply needs to underperform relative to the pricing expectations of the market.
Serious question: examples beyond Japan? Thanks!
I have expressed this as well over the years. There are no other examples that I can recall. Certainly not to imply it couldn’t happen again somewhere.

Many Bogleheads want to mitigate and reduce that possible exposure by maximizing diversification.

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Re: S&P 500 International Exposure

Post by Da5id »

Somethingwitty92912 wrote: Sun Sep 19, 2021 11:30 am I find that the earth orbiting the star at 10,000 miles per hour a bit off putting, however it doesn’t make it any less true.
This seems like a non-sequitur to me. The earth's orbital speed is a measurable/testable fact (~67,000 mph I think, not 10K?). Whether or not one should hold some international stocks is a belief about the relative performance or diversification benefits of US vs international going forward. As you say below, not a fact one can know in advance.

What I said I find off-putting is not 100% US investing. That is fine. It is excessive fervor or certainty on the subject. I'm not fond of fervor or certainty in the other direction either, though there is perhaps a bit less of it here. That is in good part because I feel like the predictive quality of the historical data is not great, and the extent to which knowledge about the qualities of the US vs international markets are priced into stock valuations is unclear. Feels way too muddy for people to express such certainty for my taste.
Somethingwitty92912 wrote: Sun Sep 19, 2021 11:30 am I don’t know what will happen I can’t predict the future anymore than anyone else. So no, I am not 100% certain of anything, however I sure hope it does for all our sakes.
Fair enough. However I think we as a country and I as an individual can do just fine if the US does or doesn't outperform the international stock market for the remainder of my lifetime (I'm in my 50s). My reaction to the uncertainty is to own some of each asset. Your reaction is different, it is to hope you are right about the future. And you may well be right, I'll be fine in that circumstance too. Not like I'm owning 100% international or such.
Last edited by Da5id on Sun Sep 19, 2021 11:50 am, edited 1 time in total.
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Re: S&P 500 International Exposure

Post by secondopinion »

Somethingwitty92912 wrote: Sun Sep 19, 2021 8:31 am
secondopinion wrote: Sat Sep 18, 2021 7:55 pm
Somethingwitty92912 wrote: Sat Sep 18, 2021 7:13 am
mkpainter wrote: Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.

Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.

I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.

In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.

So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
You don't need any international.

You will have a simpler portfolio with less fees by using S&P500 only. Here's some arguments you will get.

"something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.

The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.

By adding in another countries market you also add in, Fees of that fund, Currency risks for despots and destabilized economies. I'll give one example to avoid the no politics talk. Chinas the second largest economy in the world. It also manipulates its currency, and enslaves its citizenry, and controls private markets. There are a lot of critiques you could have for the states. However, here people are free to follow their destiny free to start a business.

The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.

Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.

Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international. ;)

Happy researching. Full disclosure: I am 90/10 S&P500/cash.

My opinion, should you wish to dip a toe in to international... 10% no more, but really a lot less.
To fees, it is far cheaper now to hold international than it was a long time ago. For all intent and purposes, it is not a factor really anymore. You can even buy a Canadian-only stock ETF for 0.09% ER (I think that is FLCA); there are a few other countries that also have this be the case. Go with a general global stock ETF and it is even less.

To stagflation, it can happen to anybody. The current US is better than old Japan in terms of self-sustaining, but it does not mean it cannot happen to some extent. Again, so are many other countries more capable these days than before.

The last I checked, many large foreign companies also stayed solvent. So what is the problem? They kept their worth, and by the COVID metric are to be invested into.

Currency risk is real; but some of that fluctuation seen is because the comparison is in nominal dollars, not real dollars. The dollar can devalue as well and is not immune to it either. Safe currencies devalue when safety is not wanted. It is part of the hypothesis of how US treasury bonds work in comparison to the market.

If one does not want to invest in un-free countries, then buy a few countries that do support freedom. Simple as that.

Yes, it is laughable that the US would lose the reserve currency status without a bad country event. But can that bad country event never happen?

Fees, fees, fees? Look at the fees of reasonable international stock funds and ETFs; the difference between them and US stock is rather small.

Past performance does not guarantee future returns. The US has done well; but should we think that this is indefinite? The burden of proof is actually on the side of the US-only investors to disprove the use of international in all factors, and not the global stock investors.

All that has been shown as evidence is a criteria of what countries to select, not that the US is the only one.
Canada is your comparison? Really, talk about low hanging fruit, it may as well be the states an vice versa.

0.09 over the course of investing life is something like 120k naw I’ll pass an keep it simple.

Stagflation cannot happen here because of the reserve currency status, I shouldn’t say cannot but let’s say if it were to you’d have a lot more to worry about than the balance of your portfolio. So I should say it won’t for everyone’s best interest.

I don’t care about the solvency of forgien company’s. I dont spend money In Their currency, buy their products, or participate in their markets. Also, the debt a lot of those foreign countries and business is owed back to the states. I do however, wish them a prosperity.

Yes, thank you for admitting currency risk is real, and then going on trying to defend it.

I am all about international fair trade to support other countries that support freedom, however my interest lay with my neighbors town and country, so that’s where my dollars go.

No the United States won’t lose a reserve currency status the idea of “well that COULD happen.” Is nonsense. You’d see wars on a scale beyond WW2 that’s not a world any of us want to see.

Past performance does not guarantee future return. However, this conversation has long since past the concepts efficient market theory and how to properly value a business. I am trying to avoid the politics rule here. To the point that sentiment doesn’t hold water. (There are greater forces and things at risk that are beyond discussion.)

I feel as through I have sufficient answered the burden of proof. If you reread i believe you will find the truer meaning. Economics is not all dollars and cents. Sometimes it’s dollars and sense.

If you disagree I understand. I have a feeling we both will end up at the finish line in either case one slightly ahead or behind the other *shrug*
I can understand those who choose US-only, but I am not going to agree with them that the US will not change. I have enough common sense that one must really think through things, and I am not convinced that international is all bad.

I will rest my case since I think we are at an impasse.
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Re: S&P 500 International Exposure

Post by burritoLover »

abuss368 wrote: Sun Sep 19, 2021 11:47 am
Carousel wrote: Sat Sep 18, 2021 5:52 pm
Nathan Drake wrote: Sat Sep 18, 2021 12:48 pm And we have seen countless examples where investments in only a single country have had disastrous results despite: 1) those countries having a huge portion of their revenue from foreign sources, 2) the size of those countries being meaningful in relation to global GDP. Yes, US fits both 1) & 2), but that does not prevent the tail risk from showing up in a meaningful way. And the US does not need to have a bad acute event for the investment returns to be poor. It simply needs to underperform relative to the pricing expectations of the market.
Serious question: examples beyond Japan? Thanks!
I have expressed this as well over the years. There are no other examples that I can recall. Certainly not to imply it couldn’t happen again somewhere.

Many Bogleheads want to mitigate and reduce that possible exposure by maximizing diversification.

🚀
Tony
There’s 90 years of modern U.S. stock data. Even less for ex-US. How many 30 year periods like Japan do you think can occur in that relatively short time frame? The fact that it happened once should be enough to realize that it isn’t an impossibility for any country.
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Re: S&P 500 International Exposure

Post by nedsaid »

mkpainter wrote: Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.

Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.

I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.

In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.

So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Look to Japan for the answer. Seeing that Japan has a very export driven economy, Japanese companies derived a lot of their revenue from overseas, particularly the United States. This "International exposure" didn't save the Japanese Stock Market from a 30 year bear market.
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