For Those Who Are 100% US Stocks For Equity Allocation

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LeslieSmiley
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by LeslieSmiley »

i totally understand "Past performance is no guarantee of future results"

but

i invest based on "past performance is a reasonable indicator of future results" which is the reason why i invest in the stock market.

is it flawed? maybe

is it irrational? maybe

i am not smart enough to understand all the math and coefficient and such. i just look at the general overall historical data and made my decision.

all i know is that my mostly US-stock AA has been over-performing for decade or so, so if international begins to over-perform US in the near future for a significant amount of time, i am fine with that because chances are the over-performance of international would unlikely exceed all the gain that i have been getting in the last decade or so.
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UpsetRaptor
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by UpsetRaptor »

OP, you're clearly just baiting another US vs international debate.

If either US or ex-US experienced a lost decade, it's quite possible, some would argue even likely, that the other would too. A neutral question would be "Those who are 100% equities, regardless of US vs international allocation, are you prepared for a lost decade?"

Putting US in the title and discussing US vs international allocation is just baiting the debate, despite your bolded assertion otherwise.

I am glad that we're back to normal though, and off GME.
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midareff
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by midareff »

3funder wrote: Thu Jan 28, 2021 9:30 am First and foremost, please understand that I do not intend to start yet another "Should I invest in international stocks?" thread. Rather, I am asking a specific group of investors about a specific situation with which they may or may not be forced to contend at some point.

While I wholeheartedly agree that the US has the best investor protections and capitalism continues to work heavily in favor of those who have the funds to invest, I find myself questioning your strategy for one reason and one reason only.

While market highs are not incredibly unusual, neither are crashes. Some crashes are followed by significant rebounds, so let's assume that's not an issue for someone who is committed to remaining invested. Are you prepared, however, for the possibility that the market crashes and stays down for a decade (or longer) due to nothing more than high valuations? It seems to me that your equity allocation, in such a situation, would serve you poorly, unless you have a very long time horizon.

For this reason, and a few others, I split my equity allocation equally between US and international stocks.

Thoughts/reactions/criticisms?

Note: For what it's worth, I do not advocate a 100% international stock allocation either.
If you feel more comfortable investing that way than most certainly you should do so. OTOH, and without starting the US vs. International argument, I see about 42% or so of my S&P 500 investment's sales coming from international sources. To go further with that isn't the S&P 500 tied to the health, wealth and prosperity of the rest of the world? With 42% of sales from outside the US why do I actually have to own companies there to be diversified? I think I am diversified with the S&P 500's sales basis and am comfortable investing under the thesis of I worked here, saved here, retired here and spend almost all of our money here and don't need additional exposure other than that 42% of sales made by the rest of the world. You may find this interesting https://www.aei.org/carpe-diem/many-lar ... o-survive/

You asked; "Are you prepared, however, for the possibility that the market crashes and stays down for a decade (or longer) due to nothing more than high valuations? It seems to me that your equity allocation, in such a situation, would serve you poorly, unless you have a very long time horizon." I would think in such an environment, and we are talking about today's scenario, what better benefit do you think your bond fund's are yielding? Vanguard's Total Bond Admiral has an SEC of 1.10%, S&P 500 Admiral 1.50%, Total Stock Admiral 1.37%. I see bonds as your volatility hedge, not as a money maker since the days of the IT Treasuries yielding 5% are long gone and any way to get back to that will be very painful for and to today's bond investors. I consider a 35.05 Shiller P/E very risky, I consider an SEC of 1.10% on an effective duration of 6.7 years equally risky over a coming multi year period.

I don't agree with your assessment of how my equity allocation will serve me as anything other than speculative talk about the potential gains of International, a story we have been listening too almost forever. Over the last decade the Total US Fund outperformed the Total International Fund by 8.5% annually... US 13.67% vs. International 5.16% (data per M*). If you had $1M in equities you can figure the costs of your lost gains for yourself and they will be in the order of magnitude of staying extra years in the workplace.

Personally, at 73 and coming up on 9 years retired even my basically 50/50 conservative portfolio seems to have acquired more downside risk. While I am very Bogleish I do not believe you set something and never change it. Things change in life, we get older, we retire and due to the long running bull we can afford to now take less risk and secure more funds in shorter term bond funds as protection against interest rate increases and can afford to hold hold more cash and CDs as in "having won the game" and care less about market volatility.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by ohboy! »

rockstar wrote: Thu Jan 28, 2021 4:49 pm
freyj6 wrote: Thu Jan 28, 2021 4:41 pm I wonder how many people will hold to their 100% US allocation if international outperforms for 10 years.
I think, after a year or two of outperformance, more people will buy myself included. But right now, I'm not seeing it. I can get international exposure from US companies that sell products abroad. Last I checked Amazon operates outside of the US.
If they, and their counterparts, started paying more taxes in the US I’d feel more comfortable having a bigger allocation to US equities. I would never be 100% US though.
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UpsetRaptor
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by UpsetRaptor »

ohboy! wrote: Thu Feb 04, 2021 10:21 am
rockstar wrote: Thu Jan 28, 2021 4:49 pm
freyj6 wrote: Thu Jan 28, 2021 4:41 pm I wonder how many people will hold to their 100% US allocation if international outperforms for 10 years.
I think, after a year or two of outperformance, more people will buy myself included. But right now, I'm not seeing it. I can get international exposure from US companies that sell products abroad. Last I checked Amazon operates outside of the US.
If they, and their counterparts, started paying more taxes in the US I’d feel more comfortable having a bigger allocation to US equities. I would never be 100% US though.
Regardless of domicile, why would a company paying more tax warrant a higher comfort level with investing in it? Simply lowers earnings.
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3funder
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by 3funder »

UpsetRaptor wrote: Thu Feb 04, 2021 9:38 am OP, you're clearly just baiting another US vs international debate.

If either US or ex-US experienced a lost decade, it's quite possible, some would argue even likely, that the other would too. A neutral question would be "Those who are 100% equities, regardless of US vs international allocation, are you prepared for a lost decade?"

Putting US in the title and discussing US vs international allocation is just baiting the debate, despite your bolded assertion otherwise.

I am glad that we're back to normal though, and off GME.
The last thing I want is for there to be another US vs international debate, as there are way too many threads that address it. My point is simply that US stocks are very expensive and that one of many different possibilities is that future returns are diminished due to the high valuations. That said, down the road, international stocks could become overvalued and US stocks would seem more promising. Recency bias is quite powerful.
Global stocks, US bonds, and time.
LeslieSmiley
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by LeslieSmiley »

3funder wrote: Thu Feb 04, 2021 12:17 pm
UpsetRaptor wrote: Thu Feb 04, 2021 9:38 am OP, you're clearly just baiting another US vs international debate.

If either US or ex-US experienced a lost decade, it's quite possible, some would argue even likely, that the other would too. A neutral question would be "Those who are 100% equities, regardless of US vs international allocation, are you prepared for a lost decade?"

Putting US in the title and discussing US vs international allocation is just baiting the debate, despite your bolded assertion otherwise.

I am glad that we're back to normal though, and off GME.
The last thing I want is for there to be another US vs international debate, as there are way too many threads that address it. My point is simply that US stocks are very expensive and that one of many different possibilities is that future returns are diminished due to the high valuations. That said, down the road, international stocks could become overvalued and US stocks would seem more promising. Recency bias is quite powerful.
just google "us stock market overvalued xxxx" (xxxx is where you put in the year e.g. "us stock market overvalue 2010" and then 2011 so on and so for.

you will see the same article every year...some samplings below

2010
Is The Stock Market Overvalued? Almost Every Important Measure Says Yes

2011
The Stock Market Is More Overvalued Than It's Been In A Decade

2012
Are U.S. Stock Markets Overvalued?
Experts warn that stocks could be in for a quick decline.

2013
Nobel Prize economist warns of U.S. stock market bubble

...
hoops777
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by hoops777 »

I understand buying US stocks that do business internationally is not the same as buying Chinese stocks,etc.
What I am curious about is if there is data that shows how much the returns of major US companies are effected
by their international business over time.
K.I.S.S........so easy to say so difficult to do.
dboeger1
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by dboeger1 »

hoops777 wrote: Thu Feb 04, 2021 2:28 pm I understand buying US stocks that do business internationally is not the same as buying Chinese stocks,etc.
What I am curious about is if there is data that shows how much the returns of major US companies are effected
by their international business over time.
I think this is the wrong way of looking at it, and is most definitely not the way people evaluate US investments. Diversifying across the entire market is not about reaching some target percentage of exposure to foreign earnings. That's like picking stocks based on whether the CEO is male or female, or buying more Ford instead of Chrysler because they both have exposure to the US car market. It's about diversifying away idiosyncratic company risks. It's trivial to pick out 2 US companies with foreign earnings and see that their total risk is not exactly the same. The same is true of foreign companies. Boeing does not guarantee you a fair slice of the global aviation market just because it has in the past, certainly not after their recent troubles. Neither does Airbus. Only holding Boeing, Airbus, and all of their partners and competitors does. There is absolutely no guarantee that a competitor to Apple won't (if it hasn't already) come out of another country that gobbles their lunch. I don't think it'll happen, but 10 years from now, we might look back in awe at how Samsung Galaxy S457 or whatever absolutely destroyed the iPhone business. I do think Airbus could crush Boeing, Ubisoft could crush EA, and Honda could crush Ford (at least in certain segments; of course, many companies pivot to new ideas over time, and I want to own all of those business too). I could be wrong on both points. The point is I don't know, and I'm not going to pretend like a fairly arbitrary difference such as country of origin is a sensible heuristic for predicting company value going forward. I don't even know if the US will still be a global superpower by the time I retire. And in my case specifically, I have family in foreign countries, and there are certainly foreign countries I wouldn't be opposed to living in for retirement, so I'm not going to assume dollar-denominated companies are the most ideal wealth generators for me.

In the end, a global TOTAL market fund, by nature of it being the TOTAL market, guarantees a fair share of returns. Tilting towards a particular country doesn't. You're more than welcome to make predictions and hold whatever portfolio you want, but you absolutely cannot guarantee that owning more Boeing is an equivalent substitute for owning Airbus, even if it has foreign earnings as of the time you say it. It's simply not true.
hoops777
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by hoops777 »

dboeger1 wrote: Thu Feb 04, 2021 2:57 pm
hoops777 wrote: Thu Feb 04, 2021 2:28 pm I understand buying US stocks that do business internationally is not the same as buying Chinese stocks,etc.
What I am curious about is if there is data that shows how much the returns of major US companies are effected
by their international business over time.
I think this is the wrong way of looking at it, and is most definitely not the way people evaluate US investments. Diversifying across the entire market is not about reaching some target percentage of exposure to foreign earnings. That's like picking stocks based on whether the CEO is male or female, or buying more Ford instead of Chrysler because they both have exposure to the US car market. It's about diversifying away idiosyncratic company risks. It's trivial to pick out 2 US companies with foreign earnings and see that their total risk is not exactly the same. The same is true of foreign companies. Boeing does not guarantee you a fair slice of the global aviation market just because it has in the past, certainly not after their recent troubles. Neither does Airbus. Only holding Boeing, Airbus, and all of their partners and competitors does. There is absolutely no guarantee that a competitor to Apple won't (if it hasn't already) come out of another country that gobbles their lunch. I don't think it'll happen, but 10 years from now, we might look back in awe at how Samsung Galaxy S457 or whatever absolutely destroyed the iPhone business. I do think Airbus could crush Boeing, Ubisoft could crush EA, and Honda could crush Ford (at least in certain segments; of course, many companies pivot to new ideas over time, and I want to own all of those business too). I could be wrong on both points. The point is I don't know, and I'm not going to pretend like a fairly arbitrary difference such as country of origin is a sensible heuristic for predicting company value going forward. I don't even know if the US will still be a global superpower by the time I retire. And in my case specifically, I have family in foreign countries, and there are certainly foreign countries I wouldn't be opposed to living in for retirement, so I'm not going to assume dollar-denominated companies are the most ideal wealth generators for me.

In the end, a global TOTAL market fund, by nature of it being the TOTAL market, guarantees a fair share of returns. Tilting towards a particular country doesn't. You're more than welcome to make predictions and hold whatever portfolio you want, but you absolutely cannot guarantee that owning more Boeing is an equivalent substitute for owning Airbus, even if it has foreign earnings as of the time you say it. It's simply not true.
I appreciate your answer but not exactly what I was asking.
K.I.S.S........so easy to say so difficult to do.
rockstar
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by rockstar »

ohboy! wrote: Thu Feb 04, 2021 10:21 am
rockstar wrote: Thu Jan 28, 2021 4:49 pm
freyj6 wrote: Thu Jan 28, 2021 4:41 pm I wonder how many people will hold to their 100% US allocation if international outperforms for 10 years.
I think, after a year or two of outperformance, more people will buy myself included. But right now, I'm not seeing it. I can get international exposure from US companies that sell products abroad. Last I checked Amazon operates outside of the US.
If they, and their counterparts, started paying more taxes in the US I’d feel more comfortable having a bigger allocation to US equities. I would never be 100% US though.
I don't invest based on any morality. I invest to make money.
ohboy!
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by ohboy! »

rockstar wrote: Thu Feb 04, 2021 5:37 pm
ohboy! wrote: Thu Feb 04, 2021 10:21 am
rockstar wrote: Thu Jan 28, 2021 4:49 pm
freyj6 wrote: Thu Jan 28, 2021 4:41 pm I wonder how many people will hold to their 100% US allocation if international outperforms for 10 years.
I think, after a year or two of outperformance, more people will buy myself included. But right now, I'm not seeing it. I can get international exposure from US companies that sell products abroad. Last I checked Amazon operates outside of the US.
If they, and their counterparts, started paying more taxes in the US I’d feel more comfortable having a bigger allocation to US equities. I would never be 100% US though.
I don't invest based on any morality. I invest to make money.
Have you heard of Doge coin?
rockstar
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by rockstar »

ohboy! wrote: Thu Feb 04, 2021 6:11 pm
rockstar wrote: Thu Feb 04, 2021 5:37 pm
ohboy! wrote: Thu Feb 04, 2021 10:21 am
rockstar wrote: Thu Jan 28, 2021 4:49 pm
freyj6 wrote: Thu Jan 28, 2021 4:41 pm I wonder how many people will hold to their 100% US allocation if international outperforms for 10 years.
I think, after a year or two of outperformance, more people will buy myself included. But right now, I'm not seeing it. I can get international exposure from US companies that sell products abroad. Last I checked Amazon operates outside of the US.
If they, and their counterparts, started paying more taxes in the US I’d feel more comfortable having a bigger allocation to US equities. I would never be 100% US though.
I don't invest based on any morality. I invest to make money.
Have you heard of Doge coin?
That's a joke. Makes sense that Musk would write about it.
ohboy!
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by ohboy! »

rockstar wrote: Thu Feb 04, 2021 6:17 pm
ohboy! wrote: Thu Feb 04, 2021 6:11 pm
rockstar wrote: Thu Feb 04, 2021 5:37 pm
ohboy! wrote: Thu Feb 04, 2021 10:21 am
rockstar wrote: Thu Jan 28, 2021 4:49 pm

I think, after a year or two of outperformance, more people will buy myself included. But right now, I'm not seeing it. I can get international exposure from US companies that sell products abroad. Last I checked Amazon operates outside of the US.
If they, and their counterparts, started paying more taxes in the US I’d feel more comfortable having a bigger allocation to US equities. I would never be 100% US though.
I don't invest based on any morality. I invest to make money.
Have you heard of Doge coin?
That's a joke. Makes sense that Musk would write about it.
Tesla valuation is a joke too, but you can cash in on it. Or hold it in your index fund. Most US equity valuations are a joke at this point. The market lives 40 years in the future. There just is nowhere else to put money. I suppose other countries don't base their retirements as much on equities so perhaps International will continue to underperform. Who knows. I still think tax money staying here, and being paid proportionally, would be bullish for US equities. But perhaps that's borderline political.
rockstar
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by rockstar »

ohboy! wrote: Thu Feb 04, 2021 10:43 pm
rockstar wrote: Thu Feb 04, 2021 6:17 pm
ohboy! wrote: Thu Feb 04, 2021 6:11 pm
rockstar wrote: Thu Feb 04, 2021 5:37 pm
ohboy! wrote: Thu Feb 04, 2021 10:21 am
If they, and their counterparts, started paying more taxes in the US I’d feel more comfortable having a bigger allocation to US equities. I would never be 100% US though.
I don't invest based on any morality. I invest to make money.
Have you heard of Doge coin?
That's a joke. Makes sense that Musk would write about it.
Tesla valuation is a joke too, but you can cash in on it. Or hold it in your index fund. Most US equity valuations are a joke at this point. The market lives 40 years in the future. There just is nowhere else to put money. I suppose other countries don't base their retirements as much on equities so perhaps International will continue to underperform. Who knows. I still think tax money staying here, and being paid proportionally, would be bullish for US equities. But perhaps that's borderline political.
Might make more sense to move international to take advantage of public healthcare and improved employee benefits.
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Stef
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Stef »

dboeger1 wrote: Thu Feb 04, 2021 2:57 pm I think this is the wrong way of looking at it, and is most definitely not the way people evaluate US investments. Diversifying across the entire market is not about reaching some target percentage of exposure to foreign earnings. That's like picking stocks based on whether the CEO is male or female, or buying more Ford instead of Chrysler because they both have exposure to the US car market. It's about diversifying away idiosyncratic company risks. It's trivial to pick out 2 US companies with foreign earnings and see that their total risk is not exactly the same. The same is true of foreign companies. Boeing does not guarantee you a fair slice of the global aviation market just because it has in the past, certainly not after their recent troubles. Neither does Airbus. Only holding Boeing, Airbus, and all of their partners and competitors does. There is absolutely no guarantee that a competitor to Apple won't (if it hasn't already) come out of another country that gobbles their lunch. I don't think it'll happen, but 10 years from now, we might look back in awe at how Samsung Galaxy S457 or whatever absolutely destroyed the iPhone business. I do think Airbus could crush Boeing, Ubisoft could crush EA, and Honda could crush Ford (at least in certain segments; of course, many companies pivot to new ideas over time, and I want to own all of those business too). I could be wrong on both points. The point is I don't know, and I'm not going to pretend like a fairly arbitrary difference such as country of origin is a sensible heuristic for predicting company value going forward. I don't even know if the US will still be a global superpower by the time I retire. And in my case specifically, I have family in foreign countries, and there are certainly foreign countries I wouldn't be opposed to living in for retirement, so I'm not going to assume dollar-denominated companies are the most ideal wealth generators for me.

In the end, a global TOTAL market fund, by nature of it being the TOTAL market, guarantees a fair share of returns. Tilting towards a particular country doesn't. You're more than welcome to make predictions and hold whatever portfolio you want, but you absolutely cannot guarantee that owning more Boeing is an equivalent substitute for owning Airbus, even if it has foreign earnings as of the time you say it. It's simply not true.
I have to save this quote because I can't read those "US companies have enough international exposure" arguments anymore.

Related to the OP. I'm not sure but hasn't correlation between US and international stocks increased over the last 2-3 decades? Thus also decreasing the diversification benefits?
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by AliasDictusTyrant »

3funder wrote: Thu Jan 28, 2021 9:30 am While market highs are not incredibly unusual, neither are crashes. Some crashes are followed by significant rebounds, so let's assume that's not an issue for someone who is committed to remaining invested. Are you prepared, however, for the possibility that the market crashes and stays down for a decade (or longer) due to nothing more than high valuations? It seems to me that your equity allocation, in such a situation, would serve you poorly, unless you have a very long time horizon.
If you are worried about a crash then hedge a crash. I would not buy International stocks for that purpose. International stocks don't provide much of a hedge against a US stock crash. Also, the top parts of the US stock market are de facto international investments -- any company that talks about forex risk in their quarterly reports is basically an international company at this point.

I have substantial European investments and work at the top levels of some listed European companies. As a class, they are structurally weaker than their US counterparts, where I also have a lot of exposure. And this gap is getting worse. A couple decades ago, most international companies were not significantly exposed to global competition which hid these disparities. Now business is no longer local almost anywhere. In that world, US companies are very strong and everyone recognizes it. If you are going to make a broad market bet, you'll want to overweight the US.

My European investments, by and large, are not listed companies. I would not buy an index of listed European companies. All the best investments are among the non-listed companies.

Asia is a different situation, as is the developing world.

Adding "international exposure" has very different implications than it did 20 years ago.

And if I did not have exceptional access to good investments in Europe, I'd be 100% US. The risk these days is being in poor companies, not companies from a particular country.
Always passive
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Always passive »

It seems to me that the strategy of investing geographically is very quickly becoming part of the past. The fact that the only thing swiss about Nestle is that it is based in Switzerland. Nestle could move its base anywhere in the world and it would make little difference to its financial performance. I think that looking at investing according to other factors should be more effective, however, the investing options, funds/ETFs, are still forcing the investor to decide geographically. iShares in Ireland has many global ETFs that are not available in the US: small and large caps, quality, etc. I wonder why?
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Alchemist »

3funder wrote: Thu Jan 28, 2021 9:30 am Thoughts/reactions/criticisms?
Well first of all, any equity investor must build their portfolio with the possibility of long term market declines in mind. Additionally, since total international index funds have been available to U.S. investors (1996) they have actually underperformed total U.S. bond market while having deeper drawdowns and more volatility than U.S. total stock market.

With that said, the quick reasons I am a 100% U.S. stock investor are:

1) Emerging markets carry too much risk of total wipe out due to lack of credible institutions and the overall index is too dominated by China. Investing in a market controlled by an authoritarian government actively engaged in genocide and repression while expecting your rights as a foreign investor to be respected is not what I consider to be a brilliant investment idea.

2) Developed international markets, as a whole, have negative demographic trends with shrinking working age populations. Or in essence, the rest of developed Asia and the Eurozone is following the Japan path of demographic decline. They, like Japan, will remain fine places to live. But with fewer workers and consumers available each year, their economic growth will slow or even halt altogether.

Japan’s working age population (WAP) began shrinking in 1994, since then the iShares Japan ETF (EWJ) has returned less than 3% CAGR to a U.S. based investor. The EU’s WAP has now been shrinking for at least 7 years and will accelerate its decline throughout the 2020’s as will South Korea’s and Taiwan’s. Also as a fun fact, China’s WAP began shrinking around 2014 or 2015 depending on which source you look at with a steep drop coming in the middle of the 2020’s. You can probably guess which domestic policy is responsible for that demographic cliff....

There are exceptions to this trend in the developed world, but their economies are either too small (New Zealand, Australia, Canada) or have other issues (UK with Brexit) that keep me away though admittedly curious.

The U.S. WAP will continue to grow throughout the coming decades according to UN, IMF, and U.S. census projections. I expect slower than historical but still quite positive growth from the U.S. with stagnation for most of the developed world.

Most people point to globalization as a reason to continue to invest in developed international markets. Surely their multinational companies will do fine with more business in the emerging world? Well they probably will, but you are buying thousands of companies in something like VTIAX. If there existed a ‘multi-national megacap index fund’ I might actually be interested in that. But the lesson of Japan is that a shrinking domestic demography portends lower equity returns as the overall economic stagnation pulls down stock index returns regardless of how successful Toyota or Nintendo are.

If demographic trends reverse in Europe or Developed Asia I will change my portfolio. Until then I will put my investment dollars in the large developed market with a growing number of young people in it.
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Forester
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Forester »

Working age population matters... or it doesn't because revenue source is important... only the US respects capitalism... US attempts to confiscate TikTok (largest post-Facebook social network) from China.

This is all goofy ad hoc reasoning. Everything lagged except megacap tech. The median S&P 500 company didn't grow earnings any more than its developed market counterparts outside the USA. I don't think it matters if one diversifies megacap US stocks with US small value or global ex-US. A US megacap / US small value portfolio could be a smoother ride than global market cap.

The people I don't understand are the ones who just own VTI US TSM, and just own US govt bonds, then they become agitated over others owning some small cap. Because bonds are one attempt at diversification and a factor fund or ex-US fund is another.
Amateur Self-Taught Senior Macro Strategist
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burritoLover
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by burritoLover »

For the love of god, just pick something and stick with it for decades - doesn't matter if it's 0 % international, market weight or somewhere in-between. Making changes because one is outperforming the other or is expected to is what is going to bite you in the butt.
rascott
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by rascott »

My healthy dose of US SCV provides me enough diversification to be generally content.

50% TSM, 25% US SCV, 25% Intl (Total Intl + Intl SC) is my rough target, but I'm still sitting at more like 55/30/15 right now.....and in no rush to alter that.

A lot of points have long been made that the Intl index more closely resembles a Value fund.... dominated by "valuey" type industries.

A few comments above about China. Obviously a major global player, but I have serious doubts that an individual US investor is ever going to be able to reliably capture returns from there via public equity markets.
zwzhang
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by zwzhang »

Alchemist wrote: Fri Feb 05, 2021 2:22 am If demographic trends reverse in Europe or Developed Asia I will change my portfolio. Until then I will put my investment dollars in the large developed market with a growing number of young people in it.
Agree :beer
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UpsetRaptor
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by UpsetRaptor »

3funder wrote: Thu Feb 04, 2021 12:17 pm Recency bias is quite powerful.
The problem with the "recency bias" argument against US stocks is that the US stock market has actually outperformed for centuries. According to the Dimson-Marsh data, US outperformance was ~2% in the 20th century, and with that long of a timeframe changing the endpoint several years in any direction matters very little. And 200 years ago, the US was not even a top 10 economy.

That certainly doesn't guarantee anything about the future of course. But I mean, it's not "recency bias" either, unless your scale of time is millennium.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by JBTX »

vineviz wrote: Thu Jan 28, 2021 12:46 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am
Munir wrote: Thu Jan 28, 2021 11:23 am Has there been a period or event whereby US equities crashed for a significant period of time while the international markets did not? Does diversification to international markets, which looks good on paper, really matter?
Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.

https://earlyretirementnow.com/2017/08/ ... ification/
Karsten has presented a useless approach the topic of diversification.

First, looking at the assets like its a horse race (i.e. 100% US versus 100% ex-US) has nothing to do with diversification.

Second, virtually no one cares about ONLY about maximizing return. Most investment goals are related some form of delayed consumption.

Third, no one cares (or should care) how equity diversification impacts one year returns. Nobody with a one year investment horizon should be 100% invested in stocks. And since volatility does not scale linearly with time horizon, it's important to measure volatility at the time horizon that matters to the investors.

One way to deal with these three problems is to look at the impact of combining the assets (since we're talking about diversification) using a metric that is relevant to the investor's actual goals over a time period that is relevant to investors (e.g a 30-year retirement). Let's take a look at the SWR for a 100% US stocks portfolio versus the SWR for a diversified blend of US stocks and international stocks.

Image

Here we can see that, using returns from 1961 to 2020, every single retirement cohort that would have had a SWR under 7% if invested only in US stocks would have seen an increase in sustainable withdrawals if invested in a mix of US stocks and international stocks.

Put another way, in cases when the US-only SWR was above average then the diversified portfolio reduced the SWR by 47 bps. In cases when the US-only SWR was below average then the diversified portfolio increased the SWR by 90 bps. Diversification only slightly reduced the average SWR (about 3% reduction) but significantly reduced the dispersion of outcomes (about 10% improvement).
Thank you for posting this. I’m not surprised at the result and it is intuitive but this is the first time I’ve actually seen it posted.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Visitor76 »

Count me in the 100% equities group: 70% US equities (Growth and Mid-Cap funds) 30% International.

As I still have a pretty long time horizon before I will need the funds, I am willing to ride the market roller coaster until I achieve my FI number. Them move to more stable vehicle and begin cashflow.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Anon9001 »

Alchemist wrote: Fri Feb 05, 2021 2:22 am
This is a very poor excuse for avoiding Ex-US securities considering that Domicile of Security does not mean it gets 100% of it's revenues from the domicile ie Infosys,Nestle,Unilver. I could think of getting better excuses like the local multinationals of the S&P 500 are already giving foreign revenue exposure and there is no dividend withholding taxes with local securities so why bother? That is primarily why I choose to under-weight foreign securities because Indian stock market is already giving 30%ish foreign revenue exposure so why should I have have huge weightage in foreign securities which have DWT penalty and higher capital gains tax.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by cjcerny »

Just don't see the need for the extra diversification. US stock market is plenty diversified. Plus, you pick up the extra investment expense, extra taxes, and currency risk when you invest beyond the US. If I lived a country with a small economy, I would definitely do most of my investing internationally, but don't see a need to do that when living in the States.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by birdog »

3funder wrote: Thu Jan 28, 2021 9:30 am First and foremost, please understand that I do not intend to start yet another "Should I invest in international stocks?" thread. Rather, I am asking a specific group of investors about a specific situation with which they may or may not be forced to contend at some point.

While I wholeheartedly agree that the US has the best investor protections and capitalism continues to work heavily in favor of those who have the funds to invest, I find myself questioning your strategy for one reason and one reason only.

While market highs are not incredibly unusual, neither are crashes. Some crashes are followed by significant rebounds, so let's assume that's not an issue for someone who is committed to remaining invested. Are you prepared, however, for the possibility that the market crashes and stays down for a decade (or longer) due to nothing more than high valuations? It seems to me that your equity allocation, in such a situation, would serve you poorly, unless you have a very long time horizon.

For this reason, and a few others, I split my equity allocation equally between US and international stocks.

Thoughts/reactions/criticisms?

Note: For what it's worth, I do not advocate a 100% international stock allocation either.
Have you checked the correlation between US and international? It’s between 97 and 99% continually. If we crash, they crash. ...and usually worse.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Triple digit golfer »

To me it's not about diversification or correlations or any of that technical stuff, nor is it about anything that could be graphed.

For me it's about excluding thousands of companies just because they're headquartered in a different country. I don't want to do that.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by 3funder »

LeslieSmiley wrote: Thu Feb 04, 2021 1:08 pm
3funder wrote: Thu Feb 04, 2021 12:17 pm
UpsetRaptor wrote: Thu Feb 04, 2021 9:38 am OP, you're clearly just baiting another US vs international debate.

If either US or ex-US experienced a lost decade, it's quite possible, some would argue even likely, that the other would too. A neutral question would be "Those who are 100% equities, regardless of US vs international allocation, are you prepared for a lost decade?"

Putting US in the title and discussing US vs international allocation is just baiting the debate, despite your bolded assertion otherwise.

I am glad that we're back to normal though, and off GME.
The last thing I want is for there to be another US vs international debate, as there are way too many threads that address it. My point is simply that US stocks are very expensive and that one of many different possibilities is that future returns are diminished due to the high valuations. That said, down the road, international stocks could become overvalued and US stocks would seem more promising. Recency bias is quite powerful.
just google "us stock market overvalued xxxx" (xxxx is where you put in the year e.g. "us stock market overvalue 2010" and then 2011 so on and so for.

you will see the same article every year...some samplings below

2010
Is The Stock Market Overvalued? Almost Every Important Measure Says Yes

2011
The Stock Market Is More Overvalued Than It's Been In A Decade

2012
Are U.S. Stock Markets Overvalued?
Experts warn that stocks could be in for a quick decline.

2013
Nobel Prize economist warns of U.S. stock market bubble

...
Correct; however, at some point, it does become a race to the top. No one knows when the market will crash, but surely it isn't difficult to determine the relationship of the market's current valuations to its long-term averages.
Global stocks, US bonds, and time.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Triple digit golfer »

3funder wrote: Fri Feb 05, 2021 12:15 pm
LeslieSmiley wrote: Thu Feb 04, 2021 1:08 pm
3funder wrote: Thu Feb 04, 2021 12:17 pm
UpsetRaptor wrote: Thu Feb 04, 2021 9:38 am OP, you're clearly just baiting another US vs international debate.

If either US or ex-US experienced a lost decade, it's quite possible, some would argue even likely, that the other would too. A neutral question would be "Those who are 100% equities, regardless of US vs international allocation, are you prepared for a lost decade?"

Putting US in the title and discussing US vs international allocation is just baiting the debate, despite your bolded assertion otherwise.

I am glad that we're back to normal though, and off GME.
The last thing I want is for there to be another US vs international debate, as there are way too many threads that address it. My point is simply that US stocks are very expensive and that one of many different possibilities is that future returns are diminished due to the high valuations. That said, down the road, international stocks could become overvalued and US stocks would seem more promising. Recency bias is quite powerful.
just google "us stock market overvalued xxxx" (xxxx is where you put in the year e.g. "us stock market overvalue 2010" and then 2011 so on and so for.

you will see the same article every year...some samplings below

2010
Is The Stock Market Overvalued? Almost Every Important Measure Says Yes

2011
The Stock Market Is More Overvalued Than It's Been In A Decade

2012
Are U.S. Stock Markets Overvalued?
Experts warn that stocks could be in for a quick decline.

2013
Nobel Prize economist warns of U.S. stock market bubble

...
Correct; however, at some point, it does become a race to the top. No one knows when the market will crash, but surely it isn't difficult to determine the relationship of the market's current valuations to its long-term averages.
What if long-term averages are not indicative of future long-term averages?
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by 3funder »

Triple digit golfer wrote: Fri Feb 05, 2021 12:16 pm
3funder wrote: Fri Feb 05, 2021 12:15 pm
LeslieSmiley wrote: Thu Feb 04, 2021 1:08 pm
3funder wrote: Thu Feb 04, 2021 12:17 pm
UpsetRaptor wrote: Thu Feb 04, 2021 9:38 am OP, you're clearly just baiting another US vs international debate.

If either US or ex-US experienced a lost decade, it's quite possible, some would argue even likely, that the other would too. A neutral question would be "Those who are 100% equities, regardless of US vs international allocation, are you prepared for a lost decade?"

Putting US in the title and discussing US vs international allocation is just baiting the debate, despite your bolded assertion otherwise.

I am glad that we're back to normal though, and off GME.
The last thing I want is for there to be another US vs international debate, as there are way too many threads that address it. My point is simply that US stocks are very expensive and that one of many different possibilities is that future returns are diminished due to the high valuations. That said, down the road, international stocks could become overvalued and US stocks would seem more promising. Recency bias is quite powerful.
just google "us stock market overvalued xxxx" (xxxx is where you put in the year e.g. "us stock market overvalue 2010" and then 2011 so on and so for.

you will see the same article every year...some samplings below

2010
Is The Stock Market Overvalued? Almost Every Important Measure Says Yes

2011
The Stock Market Is More Overvalued Than It's Been In A Decade

2012
Are U.S. Stock Markets Overvalued?
Experts warn that stocks could be in for a quick decline.

2013
Nobel Prize economist warns of U.S. stock market bubble

...
Correct; however, at some point, it does become a race to the top. No one knows when the market will crash, but surely it isn't difficult to determine the relationship of the market's current valuations to its long-term averages.
What if long-term averages are not indicative of future long-term averages?
And that's why I have to accept the possibility that I could be wrong, as do we all.
Global stocks, US bonds, and time.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by AliasDictusTyrant »

birdog wrote: Fri Feb 05, 2021 11:30 am Have you checked the correlation between US and international? It’s between 97 and 99% continually. If we crash, they crash. ...and usually worse.
The underlying cause of this is that US has an anomalously closed economy among the developed world. It lives in its own economic bubble, and is less dependent on international trade than other countries to sustain its economy. This insulates the US from foreign countries crashing much more than the reverse because other countries' economies are more sensitive to changes in trade between countries. Due to its scale, even though the US has a much more closed economy than other countries, the fraction that is open is still massive in absolute trade terms and other countries have a critical dependency on it.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by DanFFA »

Personally, I think at the end of the day you either customize your favorite allocation combination among a select few low-cost allocations or you choose a single one to do it for you based on indexes. I don't believe there is enough basis to argue off of and at the end of the day, this becomes more of a philosophical discussion where the blind attempts to lead the blind. We can't even predict what the weather will be like a decade from now, let alone what stocks will be doing exactly! Meanwhile, forecasting the climate is easier than predicting the weather even two weeks out since that's done based on averages (like backtesting). Unfortunately, that leads the way for portfolios such as the Golden Butterfly which tend to be criticized for over-optimization and overly emphasizing specific time periods of the stock market where the climate changed significantly. At the end of the day, we're all taking bets we find ourselves to be most comfortable with based on what knowledge we have accumulated over time while constantly questioning those very beliefs to find the holes in them when used during the current day. As more data accumulates we accumulate a better understanding of next week's financial climate just as a weather forecaster does with next week's weather predictions. Despite this, errors are always made.
Here's my question others far smarter than I may move forward with: based on our data and knowledge, what is the average of international stocks outperforming in the future? Is that truly VT?
UpsetRaptor wrote: Thu Feb 04, 2021 9:38 am <cut>
...I am glad that we're back to normal though, and off GME.
In fairness to Redditors, their two biggest hypes of that wave of trading were GME and BB. BB is almost international equity allocation :)
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by GoneOnTilt »

I own 500 of the biggest and best companies on the planet. They happen to be based here in the US. I like that. And it’s good enough for me.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by TheoLeo »

I think the risk of having to live through a second nikkei scenario can be mitigated by not completely ignoring valuations. Right now the equity risk premium of US stocks is maybe 4-5 %. That really isn't too bad. If it ever goes down to 2 % or lower I would start worrying.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by acegolfer »

QuestioningWanderer wrote: Thu Jan 28, 2021 4:20 pm If you are a true indexer, why would you fall prey to home country bias?
What is a "true indexer"? If true indexer = market cap weighted, then you should hold more US bonds (50T) than US stocks (40T market cap).
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by jsprag »

willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I always take a different lesson from the scatterplot of U.S. vs. World ex-U.S. returns:

Image

Also, is it just me or does anyone find the y-axis label of "Global Return" to be misleading?
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Triple digit golfer »

jsprag wrote: Sat Feb 06, 2021 2:36 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I always take a different lesson from the scatterplot of U.S. vs. World ex-U.S. returns:

Image

Also, is it just me or does anyone find the y-axis label of "Global Return" to be misleading?
Agreed with both points you made.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by willthrill81 »

jsprag wrote: Sat Feb 06, 2021 2:36 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I always take a different lesson from the scatterplot of U.S. vs. World ex-U.S. returns:

...

Also, is it just me or does anyone find the y-axis label of "Global Return" to be misleading?
Yes, as is often the case, there are many different interpretations of the same data. And yes, ex-U.S. returns should be used rather than global, which includes U.S. vineviz rightly pointed out also that single year returns shouldn't be the primary concern as U.S. or ex-U.S. have outperformed the other for significantly longer periods of time, which is obscured when only looking at the annual returns of both.

Personally, I'm very thankful that my strategy allows me to be agnostic about this issue. It would give me a lot of heartburn otherwise.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Marseille07 »

willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I thought the point of diversification isn't to dodge correlation, but to invest in ex-US companies like Toyota, SAP etc etc.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by willthrill81 »

Marseille07 wrote: Sat Feb 06, 2021 3:07 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I thought the point of diversification isn't to dodge correlation, but to invest in ex-US companies like Toyota, SAP etc etc.
After you own 100 stocks or so, the idiosyncratic risk of individual stocks is mostly gone. Whether you have 300 or 3,000 stocks isn't important. The point of ex-U.S. investing is primarily to reduce country risk. But it also introduces other risks, such as currency risk, the countries you are investing in possibly having even more 'country risk' than the U.S., and the risk stemming from ex-U.S. stock not being directly impacted by the same inflation that impacts the dollars you will eventually spend from your portfolio. Tyler described this issue in this post on his site awhile back.

I'm neither for nor against ex-U.S. stock. It's a very sticky wicket, IMHO, and I think that there are substantial problems on all sides.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Marseille07 »

willthrill81 wrote: Sat Feb 06, 2021 3:19 pm
Marseille07 wrote: Sat Feb 06, 2021 3:07 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I thought the point of diversification isn't to dodge correlation, but to invest in ex-US companies like Toyota, SAP etc etc.
After you own 100 stocks or so, the idiosyncratic risk of individual stocks is mostly gone. Whether you have 300 or 3,000 stocks isn't important. The point of ex-U.S. investing is primarily to reduce country risk. But it also introduces other risks, such as currency risk, the countries you are investing in possibly having even more 'country risk' than the U.S., and the risk stemming from ex-U.S. stock not being directly impacted by the same inflation that impacts the dollars you will eventually spend from your portfolio. Tyler described this issue in this post on his site awhile back.

I'm neither for nor against ex-U.S. stock. It's a very sticky wicket, IMHO, and I think that there are substantial problems on all sides.
Those are good points you and Tyler make, thank you.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by anon_investor »

I say VFIAX or VTSAX and chill for a few decades. For the past couple of decades I have put the money I do not need any time soon mostly into S&P500 or Total Stock Market index funds. I do this when the market is up, when the market is down or the market is flat. I have never sold, except to tax loss harvest or to rollover an account (and immediately reinvest). This has worked for me. The 2000 to 2010 decade international out performed. The 2010 to 2020 decade US out performed. You win some you lose some. I just keep investing. Long term I have faith it will work out. My equity/fixed income allocation is more important.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Alchemist »

Forester wrote: Fri Feb 05, 2021 3:25 am Working age population matters... or it doesn't because revenue source is important... only the US respects capitalism... US attempts to confiscate TikTok (largest post-Facebook social network) from China.
Facebook and all Google services are banned outright in China....turnabout is fair play.
Forester wrote:This is all goofy ad hoc reasoning. Everything lagged except megacap tech. The median S&P 500 company didn't grow earnings any more than its developed market counterparts outside the USA. I don't think it matters if one diversifies megacap US stocks with US small value or global ex-US. A US megacap / US small value portfolio could be a smoother ride than global market cap.
U.S. companies have simply grown their earnings more as a group. And the smoothest equity ride has been to simply own dumb, simple, and cheap U.S. beta.
Morningstar Interview wrote:Foreign stocks grew their EPS, earnings per share, by about 4% per year. The number for U.S. stocks was a little over 10%, I think around 10.3%, 10.4%. So, that's where you see that extra 6.5% gap that I was referencing before. It was really at the end of the day U.S. companies were just growing their earnings and their fundamentals much more stronger than the overseas companies were.
Source: https://www.morningstar.com/articles/96 ... ave-lagged
Anon9001 wrote: Fri Feb 05, 2021 9:01 am This is a very poor excuse for avoiding Ex-US securities considering that Domicile of Security does not mean it gets 100% of it's revenues from the domicile ie Infosys,Nestle,Unilver. I could think of getting better excuses like the local multinationals of the S&P 500 are already giving foreign revenue exposure and there is no dividend withholding taxes with local securities so why bother? That is primarily why I choose to under-weight foreign securities because Indian stock market is already giving 30%ish foreign revenue exposure so why should I have have huge weightage in foreign securities which have DWT penalty and higher capital gains tax.
I didn't realize that on bogleheads.org one needs an 'excuse' to invest like John Bogle :confused

Anyway...revenue source does matter. If a U.S. company gets 30% revenue from international markets it still gets 70% from domestic sources. Which company will have an easier time growing their earnings, one with 70% of its revenue in the EU with declining numbers of consumers/workers or one in with 70% of its revenue in the U.S. with an expanding number of consumers workers? Which one will have a stronger base from which to expand into promising emerging markets like India? This is before we discuss the likely effects demographics will have on comparative tax rates.

Demographics are not the only factor affecting economic growth. But like geography, it is a factor that will set the boundaries of the possible.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by dmcmahon »

Munir wrote: Thu Jan 28, 2021 11:23 am Has there been a period or event whereby US equities crashed for a significant period of time while the international markets did not? Does diversification to international markets, which looks good on paper, really matter?
That’s really the question eh? The OP hypothesizes a US market valuation crash. It’s hard to imagine this isn’t triggered by something that doesn’t also take down all ex-US markets too. But the answer to your question is yes, it happened after the 2000 tech crash and the US had a lost decade. Then international has had a lost decade, which may or may not be ending. People have been predicting international outperformance year after year and yet it never seems to happen. On another thread someone put up a really long term chart going back decades, and what it showed was that yes, there are periods or even the occasional single year when international outperforms the US, but if you look at the degree of outperformance over a long enough time period, you realize that you’re accepting lower overall returns while taking on higher risk, all for an iffy rebalancing benefit that itself is diminishing as correlations have been rising. I still have minimal international positions in various trusts I manage, and the vestige of my once-impressive international allocation in my tax-advantaged accounts, but I have come to regard it as an iffy substitute for bonds - that is, as an investment designed to produce an income and zilch for growth. JMHO.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Nathan Drake »

willthrill81 wrote: Sat Feb 06, 2021 3:19 pm
Marseille07 wrote: Sat Feb 06, 2021 3:07 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I thought the point of diversification isn't to dodge correlation, but to invest in ex-US companies like Toyota, SAP etc etc.
After you own 100 stocks or so, the idiosyncratic risk of individual stocks is mostly gone. Whether you have 300 or 3,000 stocks isn't important. The point of ex-U.S. investing is primarily to reduce country risk. But it also introduces other risks, such as currency risk, the countries you are investing in possibly having even more 'country risk' than the U.S., and the risk stemming from ex-U.S. stock not being directly impacted by the same inflation that impacts the dollars you will eventually spend from your portfolio. Tyler described this issue in this post on his site awhile back.

I'm neither for nor against ex-U.S. stock. It's a very sticky wicket, IMHO, and I think that there are substantial problems on all sides.
Currency exposure isn't a risk, it's diversification. It's like saying investing in more stocks increases risk.

I'm generally a fan of Karsten's work, but his arguments against exUS don't hold very much weight. Using 1 year returns isn't really the issue. Correlation isn't really the issue.

He should know that the sequence of returns risk is everything when it comes to retirement. A dead (or negative) decade or more in retirement can be catastrophic. That type of scenario has happened countless times to individual countries. From the data I have seen, it's extremely rare for a global portfolio.
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by willthrill81 »

Nathan Drake wrote: Sun Feb 07, 2021 1:06 pm
willthrill81 wrote: Sat Feb 06, 2021 3:19 pm
Marseille07 wrote: Sat Feb 06, 2021 3:07 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I thought the point of diversification isn't to dodge correlation, but to invest in ex-US companies like Toyota, SAP etc etc.
After you own 100 stocks or so, the idiosyncratic risk of individual stocks is mostly gone. Whether you have 300 or 3,000 stocks isn't important. The point of ex-U.S. investing is primarily to reduce country risk. But it also introduces other risks, such as currency risk, the countries you are investing in possibly having even more 'country risk' than the U.S., and the risk stemming from ex-U.S. stock not being directly impacted by the same inflation that impacts the dollars you will eventually spend from your portfolio. Tyler described this issue in this post on his site awhile back.

I'm neither for nor against ex-U.S. stock. It's a very sticky wicket, IMHO, and I think that there are substantial problems on all sides.
Currency exposure isn't a risk, it's diversification.
Currency risk is the possibility of losing money due to unfavorable moves in exchange rates.
https://www.investopedia.com/terms/c/cu ... ncy%20risk.
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Nathan Drake
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Re: For Those Who Are 100% US Stocks For Equity Allocation

Post by Nathan Drake »

willthrill81 wrote: Sun Feb 07, 2021 1:10 pm
Nathan Drake wrote: Sun Feb 07, 2021 1:06 pm
willthrill81 wrote: Sat Feb 06, 2021 3:19 pm
Marseille07 wrote: Sat Feb 06, 2021 3:07 pm
willthrill81 wrote: Thu Jan 28, 2021 11:30 am Over the last 50+ years, U.S. and ex-U.S. stocks have pretty much fallen in tandem. Karsten from Early Retirement Now created the chart below. This is why many of us question how valuable the diversification of ex-U.S. stocks really is, especially when compared to the alternatives.
I thought the point of diversification isn't to dodge correlation, but to invest in ex-US companies like Toyota, SAP etc etc.
After you own 100 stocks or so, the idiosyncratic risk of individual stocks is mostly gone. Whether you have 300 or 3,000 stocks isn't important. The point of ex-U.S. investing is primarily to reduce country risk. But it also introduces other risks, such as currency risk, the countries you are investing in possibly having even more 'country risk' than the U.S., and the risk stemming from ex-U.S. stock not being directly impacted by the same inflation that impacts the dollars you will eventually spend from your portfolio. Tyler described this issue in this post on his site awhile back.

I'm neither for nor against ex-U.S. stock. It's a very sticky wicket, IMHO, and I think that there are substantial problems on all sides.
Currency exposure isn't a risk, it's diversification.
Currency risk is the possibility of losing money due to unfavorable moves in exchange rates.
https://www.investopedia.com/terms/c/cu ... ncy%20risk.
That doesn't invalidate my point. What about the possibility of losing purchasing power due to unfavorable moves in exchange rates because you are highly concentrated in domestic stocks?

In the long term, currency diversification is a feature, not a bug.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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