Case for international

[justsomeguy2018]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

[hi_there]

If a disaster befalls US stocks, you can bet the rest of the world goes with it. In fact, we are likely to see capital flight from China, Brazil, or other markets that are seen as less risky in favor of US assets!

With that being said, it's hard to say it's bad to diversify across geographies to reflect total world market shares. You'll find that US equity market cap is in the 60% range.

The non-disaster causes of US underperformance are probably more realistic and important to consider. As a basic example, post-COVID rebound that favors non-tech sectors could mean US underperforms, since our stocks are so heavily weighted in FAANGs.

[carminered2019]

my 25% international is more for diversification.

[dru808]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

This is the only reason I allocate to international. I see it as a form of insurance. Can’t tell the future, but if I were to guess, an all US portfolio is likely to outperform. If US outperforms I’ll be fine. If catastrophe strikes, all US holders may be in a world of hurt.

[Noobvestor]

On top of valuations, which per Vangaurd's recent whitepaper favor international, I hold 50% in part to avoid US geographical, political and economic risks. While it's true that in a crisis all stocks tend to tank together, more or less, there are long periods over which different national markets win. The idea of having more than half of my wealth invested in any one country, the US or otherwise, is frankly a bit horrifying.

[MadHungarian]

I decided recently that at this point in my investing life, when i'm getting nearer to retirement, i'm more interested in diversification than in the highest possible returns. Thus i've increased my international% a bit, along with some other changes.

[austin757]

I'm strongly considering going 100% EDC in my Roth IRA for the international exposure.

[X528]

If a disaster befalls US stocks, you can bet the rest of the world goes with it. In fact, we are likely to see capital flight from China, Brazil, or other markets that are seen as less risky in favor of US assets!

With that being said, it's hard to say it's bad to diversify across geographies to reflect total world market shares. You'll find that US equity market cap is in the 60% range.

The non-disaster causes of US underperformance are probably more realistic and important to consider. As a basic example, post-COVID rebound that favors non-tech sectors could mean US underperforms, since our stocks are so heavily weighted in FAANGs.

Foreign stock markets can do better than the US:

https://www.firstlinks.com.au/wins-aust ... al-shares/

[csmath]

Not to derail the thread but does anyone else see that VXUS after hours (Vanguard Total International Stock ETF) just plummet 8% or am I looking at a glitch?

This is the first time I've ever even looked at VXUS after hours so...

Edit to add: Maybe this is typical and an issue with volume but I happened to notice it quoted next to the closing price today and it surprised me.

[Godot]

Not to derail the thread but does anyone else see that VXUS after hours (Vanguard Total International Stock ETF) just plummet 8% or am I looking at a glitch?

This is the first time I've ever even looked at VXUS after hours so...

This is what I see: "After hours 62.20 −0.070"

[jhsu802701]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

You're still too aggressive when it comes to US stocks and too conservative when it comes to international stocks. Except for Berkshire Hathaway (conservative blue chip), there's no reason to own US stocks at this time given the excessively high valuation multiples. It's more like 2000 or 2007 than 1974 or 1982.

International stocks are a MUCH better value, especially Japan and emerging markets. All those international stock markets are so much cheaper. The Big Mac Index shows nearly all currencies to be undervalued against the US dollar, and the few exceptions (like the Swiss franc) are selling for much smaller premiums than usual. It's like US stocks in the 1930s and 1940s.

[csmath]

Not to derail the thread but does anyone else see that VXUS after hours (Vanguard Total International Stock ETF) just plummet 8% or am I looking at a glitch?

This is the first time I've ever even looked at VXUS after hours so...

This is what I see: "After hours 62.20 −0.070"

Curious what the time stamp on that quote is?

I'm seeing these on three different sites:
$57.28 (-8.01%) Last Updated: Jan 12, 2021 5:05 p.m. EST
$57.28 (-7.54%) Jan 12 05:05 pm EST
$57.28 (-8.01%) 17:05:20 - Real-time Data

[lostdog]

Not to derail the thread but does anyone else see that VXUS after hours (Vanguard Total International Stock ETF) just plummet 8% or am I looking at a glitch?

This is the first time I've ever even looked at VXUS after hours so...

This is what I see: "After hours 62.20 −0.070"

Curious what the time stamp on that quote is?

I'm seeing these on three different sites:
$57.28 (-8.01%) Last Updated: Jan 12, 2021 5:05 p.m. EST
$57.28 (-7.54%) Jan 12 05:05 pm EST
$57.28 (-8.01%) 17:05:20 - Real-time Data

I'm seeing it too but another site has it at $62.20.

[csmath]

Not to derail the thread but does anyone else see that VXUS after hours (Vanguard Total International Stock ETF) just plummet 8% or am I looking at a glitch?

This is the first time I've ever even looked at VXUS after hours so...

This is what I see: "After hours 62.20 −0.070"

Curious what the time stamp on that quote is?

I'm seeing these on three different sites:
$57.28 (-8.01%) Last Updated: Jan 12, 2021 5:05 p.m. EST
$57.28 (-7.54%) Jan 12 05:05 pm EST
$57.28 (-8.01%) 17:05:20 - Real-time Data

I'm seeing it too but another site has it at $62.20.

I'm guessing it is an artifact of low volume and delayed update to pricing on the sites I just happened to check first. I just clicked on a few google results randomly. I'm extremely ignorant about after hour trading.

[HenrySouthernCal]

Not to derail the thread but does anyone else see that VXUS after hours (Vanguard Total International Stock ETF) just plummet 8% or am I looking at a glitch?

This is the first time I've ever even looked at VXUS after hours so...

This is what I see: "After hours 62.20 −0.070"

Curious what the time stamp on that quote is?

I'm seeing these on three different sites:
$57.28 (-8.01%) Last Updated: Jan 12, 2021 5:05 p.m. EST
$57.28 (-7.54%) Jan 12 05:05 pm EST
$57.28 (-8.01%) 17:05:20 - Real-time Data

I'm seeing it too but another site has it at $62.20.

I am seeing it 58.28 down 8.01% as of 5:05 PM.
Nothing to worry. It is normal for afterhours trading on less liquid asset. ETF afterhours don't have many brokers participating in the pricing. It could be just someone put a sell in market price order, a sole broker just took advantage on the pricing as no competing bid.

[JBTX]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

You are thinking about it correctly, but a 20% international allocation is not in line with what you have articulated (too low)

[JBTX]

If a disaster befalls US stocks, you can bet the rest of the world goes with it. In fact, we are likely to see capital flight from China, Brazil, or other markets that are seen as less risky in favor of US assets!

With that being said, it's hard to say it's bad to diversify across geographies to reflect total world market shares. You'll find that US equity market cap is in the 60% range.

The non-disaster causes of US underperformance are probably more realistic and important to consider. As a basic example, post-COVID rebound that favors non-tech sectors could mean US underperforms, since our stocks are so heavily weighted in FAANGs.

If this year has shown anything, it has shown that US exceptionalism is not always the case. The out size impact of covid on the US. The quite unusual political situation leading up to recent events. Ironically these had no lasting impact on US market performance, but it shows we are unique in the world and that could come in the form of future US underperformance.

I suspect if things tanked/crashed, etc, the rest of the world would too, but it is possible that the US could lag the world in market recovery.

[Doc]

I have a strong tilt to U.S. but ...

my 25% international is more for diversification.

My 25 cents.

1) Total international holds emerging markets. If I hold total international at market weights I would not even see the effect of a 10% outperformance of EM and I would lose sleep watching the news. So no emerging markets.

2) Given 1) the default option might be total foreign developed. But both domestic and foreign large cap are dominated by international companies so the only diversification you get is currency differences which often get hedged away. So no foreign developed.

3) Given 1) and 2) I chose a foreign small value ETF and a foreign active fund with an ER of 1.26%. OMG. (The active fund was a mid-cap value when I first bought it and it was the closest thing I could get to a foreign small value at the time.)

My foreign holding are 25 percent of total equity. (AKA 25 cents )

[sperry8]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

It's not only earnings outperformance that can result in foreign equities going up more than US. If we are in a new down cycle for the USD - that will juice returns for US based investors in unhedged foreign equities.

https://www.thebalance.com/how-currenci ... ts-1978999

Many think that the decade of a strong (relatively speaking) USD is ending (or ended) and this means tailwinds for international and emerging markets. If true it should also result in hard scarce assets having tailwinds as well.

[Valuethinker]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

Historically, by Vanguard's estimates, minimum volatility/ max return has come from holding anywhere between 20 to 40% of equity portfolio in international equities.

The bowl is shallow though, meaning that anywhere along that curve has had quite similar effects.

Hold what you are comfortable with, and can be comfortable with even if international underperforms for another 5 years, say. You might be right to hold international, eventually, but that can take a long time to prove out.

[Valuethinker]

I have a strong tilt to U.S. but ...

my 25% international is more for diversification.

My 25 cents.

1) Total international holds emerging markets. If I hold total international at market weights I would not even see the effect of a 10% outperformance of EM and I would lose sleep watching the news. So no emerging markets.

2) Given 1) the default option might be total foreign developed. But both domestic and foreign large cap are dominated by international companies so the only diversification you get is currency differences which often get hedged away. So no foreign developed.

3) Given 1) and 2) I chose a foreign small value ETF and a foreign active fund with an ER of 1.26%. OMG. (The active fund was a mid-cap value when I first bought it and it was the closest thing I could get to a foreign small value at the time.)

My foreign holding are 25 percent of total equity. (AKA 25 cents )

Doc

Are you able to share the name of those 2 funds?

Apologies if that is too private.

I hold the global equity index, but in some pensions I hold a World: UK 50:50 fund (it's what is offered in the indexed space). The Vanguard (Europe) fund happens to track a global index (FT) which includes China and other EM.

I also hold about 21% in global value, thus reducing my tilt towards large US & Chinese internet stocks. Vanguard is closing that ETF in February, so to the extent I stay with Vanguard I no longer have that option.

I also hold an Emerging Market dividend index fund which is way value-y. Price to book below 1. Russian nickel miners and banks. Only 30% China v 60% ish in the indices.

I also hold a Japanese Smaller Companies ETF (which has done quite well) and a Far East ex Japan Small Cap fund. I was going to sell that one, but the PE is reasonable (12-13x) and it was entirely full of companies I had never heard of, which I took to be a very good sign. If it had a tilt, it was away from China and towards Taiwan.

In fact both ETFs have almost no company I have ever heard of, which I took to be an excellent sign (given reasonable valuation parameters).

[Doc]

Are you able to share the name of those 2 funds?

The active large cap foreign fund is Artisan International Value Investor ARTKX. It is currently large value but as an active fund its style drifts a lot.

The foreign small value is currently Schwab Fundamental Intl Sm Co ETF FNDC but I have used Schwab International Small-Cap Equity ETF in the past.

[Noobvestor]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

Historically, by Vanguard's estimates, minimum volatility/ max return has come from holding anywhere between 20 to 40% of equity portfolio in international equities.

Not sure about returns, but volatility reduction spans from 0% to around 75%. Source: https://advisors.vanguard.com/insights/ ... linvesting

[FelixTheCat]

Bogle and Buffett did not endorse international. I'm going with their advice.

[Nathan Drake]

Bogle and Buffett did not endorse international. I'm going with their advice.

Buffett owns plenty of international

[justsomeguy2018]

...there's no reason to own US stocks at this time given the excessively high valuation multiples.

While this may turn out to be true, this seems like a market-timing type comment. Do you follow the Boglehead philiosophy?

Is your suggestion to sell all my U.S. equity and buy international?

[ApeAttack]

my 25% international is more for diversification.

I've read countless threads on international vs US, and often see opinions ranging from 0% to market cap for international. I honestly have no clue what will do better over the next 20+ years, but I selected 20% international as a reasonable compromise. Although it almost certainly won't turn out to be optimal, it still should get me to my goal of retiring comfortably.

[freyj6]

https://www.starcapital.de/en/research/ ... -valuation

This might be interesting for those with 0% international allocation. Countries rated by current valuations.

[esteen]

my 25% international is more for diversification.

+1

Also I've read enough about the rise and fall of historical world powers to be wary of the very-long-term (next 50-100yrs) dominance of US stocks.

[jhsu802701]

...there's no reason to own US stocks at this time given the excessively high valuation multiples.

While this may turn out to be true, this seems like a market-timing type comment. Do you follow the Boglehead philiosophy?

Is your suggestion to sell all my U.S. equity and buy international?

Yes, I believe that investors should sell US stocks and buy international stocks. I agree with parts of the Boglehead philosophy but not all of it. Higher valuations mean more risk and less potential reward. Lower valuations mean less risk and more potential reward. Given that international stock ETFs (and most underlying currencies) are MUCH cheaper than US stock ETFs, I believe in owning the former instead of the latter.

[Triple digit golfer]

...there's no reason to own US stocks at this time given the excessively high valuation multiples.

While this may turn out to be true, this seems like a market-timing type comment. Do you follow the Boglehead philiosophy?

Is your suggestion to sell all my U.S. equity and buy international?

Yes, I believe that investors should sell US stocks and buy international stocks. I agree with parts of the Boglehead philosophy but not all of it. Higher valuations mean more risk and less potential reward. Lower valuations mean less risk and more potential reward. Given that international stock ETFs (and most underlying currencies) are MUCH cheaper than US stock ETFs, I believe in owning the former instead of the latter.

Do you own any U.S. stocks or only international? What is your AA in general and when have you changed it?

[jhsu802701]

Do you own any U.S. stocks or only international?

My only US stock is Berkshire Hathaway. The rest of my equities are in the form of international stock ETFs.

[jibantik]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

Nope, you have it backwards.

Holding market weight does not need to have a case made for it. It is THE speculation-free portfolio. Moving away from the null position requires a case to be made. So really, the question is, what is your case for moving away from international equities and overweighting US equities? If you don't have one, then you should hold market weight.

[ReformedSpender]

VXUS just made a fresh 52 week high today. Here's to many more

[Da5id]

There is no need to own US stocks. Many international companies have significant US sales, giving you plenty of exposure to the US market*

* see Poe's law if in doubt

[Triple digit golfer]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

Nope, you have it backwards.

Holding market weight does not need to have a case made for it. It is THE speculation-free portfolio. Moving away from the null position requires a case to be made. So really, the question is, what is your case for moving away from international equities and overweighting US equities? If you don't have one, then you should hold market weight.

I hold about 70% U.S. and 30% international.

My reason for the U.S. tilt is that I fear if U.S. significantly outperforms, everybody around me who only invests in U.S. will get rich and I'll be broke.

If others who use target funds with 40% international get rich because international outperforms, then I won't be too far behind, at least.

I never claim this is logical. It just works for me. 70/30 is what I'm most comfortable with and what I'll stay the course with, and that's why it's the best split for me.

[jibantik]

...

...
Holding market weight does not need to have a case made for it. It is THE speculation-free portfolio. Moving away from the null position requires a case to be made. So really, the question is, what is your case for moving away from international equities and overweighting US equities? If you don't have one, then you should hold market weight.

I hold about 70% U.S. and 30% international.

My reason for the U.S. tilt is that I fear if U.S. significantly outperforms, everybody around me who only invests in U.S. will get rich and I'll be broke.

If others who use target funds with 40% international get rich because international outperforms, then I won't be too far behind, at least.

I never claim this is logical. It just works for me. 70/30 is what I'm most comfortable with and what I'll stay the course with, and that's why it's the best split for me.

It doesn't need to be logical. It's your portfolio and your choice to do what is comfortable for you.

I do think it's important that people be informed of potential biases to be aware of when deciding whether to move away from market weight and I'd certainly prefer if more people on this site recommended market weight as the starting (and likely ending position) for an equity portfolio because I have yet to see a convincing argument for speculation.

[secondopinion]

I have a strong tilt to U.S. but have slowly oriented more % to International over recent months. Not because I necessarily think International will outperform U.S. in the future, but I've become leery of any number of possible disasters that could wreck havoc with an all U.S. portfolio. So I do it for the diversification benefit mostly.

Is this the right way to think of it?

I think I am maybe 80/20 u.s./intl, give or take.

I hold international not because of the worst case, but because they do not always move together in general (reducing a little risk). It has little to do with who will do better in a given circumstance; certainly one kind of stock will do better, but how can we know in advance?

Not sure about returns, but volatility reduction spans from 0% to around 75%. Source: https://advisors.vanguard.com/insights/ ... linvesting

I have 30% international even before seeing this chart; it seems to support the decision.

Holding market weight does not need to have a case made for it. It is THE speculation-free portfolio.

Market-weight may be "speculation-free" if you take the definition of stocks as the criteria for inclusion, but risk tolerance is probably going to decide something else for the portfolio. We do not market-weight across assets (stocks versus bonds versus some other asset); risk tolerance is the determining factor here. The origin of the stock does matter in a risk-sense, and that must be considered.

Risk managing is never speculation-free, but properly managing risk is responsible.

[walks a lot]

Decades ago, when I started investing, I decided on a hefty allocation to international stocks, around 30%. My reasoning was:

1. Something like 95% of the world population is outside the US. How can I ignore 95% of the world population?

2. There are top notch companies scattered all over the world. Some will say you don't need international stocks because US companies have foreign exposure. A fair point. But, the flip side is also true, international companies are not limited to their home country. They also have foreign exposure, including US exposure (examples are BP, Toyota, Honda).

3. These foreign countries are filled with smart, capable people, who want to improve their lot in life. And there are so many of them (see point 1 above).

So I congratulated myself for being so clever, sat back, and waited for the money to roll in.

Still waiting....

It wasn't a complete catastrophe. International outperformed some years. But not that many. And it's not like international made nothing over the decades, especially if you include dividends.

If I gave up and went 100% US now, I can just see the year 2030 headline: "International stocks trounce US stocks for past decade".

Currently at 60% US, 40% International. I'll just keep waiting....

[jibantik]

Decades ago, when I started investing, I decided on a hefty allocation to international stocks, around 30%. My reasoning was:

1. Something like 95% of the world population is outside the US. How can I ignore 95% of the world population?

2. There are top notch companies scattered all over the world. Some will say you don't need international stocks because US companies have foreign exposure. A fair point. But, the flip side is also true, international companies are not limited to their home country. They also have foreign exposure, including US exposure (examples are BP, Toyota, Honda).

3. These foreign countries are filled with smart, capable people, who want to improve their lot in life. And there are so many of them (see point 1 above).

So I congratulated myself for being so clever, sat back, and waited for the money to roll in.

Still waiting....

It wasn't a complete catastrophe. International outperformed some years. But not that many. And it's not like international made nothing over the decades, especially if you include dividends.

If I gave up and went 100% US now, I can just see the year 2030 headline: "International stocks trounce US stocks for past decade".

Currently at 60% US, 40% International. I'll just keep waiting....

Good job staying the course. When you have a diversified portfolio, having some subset of the portfolio outperform another subset of the portfolio is working as intended. If you invested in 100% US equities, do you think some subsets of that will not outperform other subsets? Would you then move to that subset and only have large cap US, for example. Nah, you did the right thing. STAY THE COURSE.

[ParlayBogle]

Past 3 months VXUS is up 15.4%, VTI only up 11.8%. Let's go!!!!