Globally Diversified or Worsified?

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Astones
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Re: Globally Diversified or Worsified?

Post by Astones »

Fluctuations in the stock market can have time scales of the order of decades. The historical data we have at our disposal -or at least those that we can take seriously- are all within a time window of about a century. A century, while it might sound a long time interval on many other aspects, is a relatively short time to sample stock market movements.
Therefore, while we have no precedents of a single 30 years period of US stocks consistently underperforming, it is written absolutely nowhere that this can't happen in the close future, and it's actually a possibility that it's fair to consider even realistically.

Having no exposure to international stocks means being exposed to that kind of risk, and things don't happen until they happen.
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm
NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
So reactive decisions to stop or reduce new contributions to recently underperforming assets is probably not going to be as harmful as complete liquidations, but I think it is important to realize that typically the various backtests of steady portfolio plans assume either no new contributions, or new contributions according to plan. Therefore by violating those assumptions in the way you are contemplating, you are potentially risking overall worse performance than if you had stuck to your plan even when it looked like it wasn't the best plan in recent years.

And again, I do wonder what will happen if, say, 9 years from now, in 2030, it is ex-U.S. which has recently performed better, it seems like everyone here with a higher ex-U.S. allocation has done better than you, lots of people are arguing the "simple" plan is just global weighting, and so on. For your final 9 years before retirement, will you stick with your proposed plan to not buy ex-U.S., or not in large percentages? Or will you once again "take a fresh look at everything," reason you only have 9 years left to retirement to maximize your future SWR, and change to the "mainstream conventional financial planning advice" of 2030, which will be to hold a lot more ex-U.S. than you end up with in 2030?

I mean, if you can truly promise yourself that in 9 years, you will stick with this new plan even if by then it has been another 9 years of underperforming, then OK.

But if a realistic self-assessment is that in this scenario I am sketching, you would probably switch back yet again--you are setting yourself up poorly.

And if your answer is you just don't think that will happen the next 9 years, well, see my prior post.
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Re: Globally Diversified or Worsified?

Post by nisiprius »

arcticpineapplecorp. wrote: Sat May 15, 2021 3:20 pm
Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm But I have to wonder, do international stocks really add anything to long term returns?
they did in the past (increased returns without additional risk):

Image
Try plotting it without suppressing the zero, to judge the size and the importance of that effect.

Image
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Ferdinand2014
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Re: Globally Diversified or Worsified?

Post by Ferdinand2014 »

nisiprius wrote: Sat May 15, 2021 7:40 am In my opinion, this is the key question: Johnathon Livingston, you say
I personally don’t like the currency and political risk presented by international and I think no other major country comes close to the political and legal stability of the US or the US’s business friendly policies in taxation and regulation
yet
I’ve been pouring money into international stocks for well over a decade now.
This is a very serious question. Ideally, you would have literally written down your thoughts at the time you began pouring in that money. Why did you do it? Were your opinions about the United States different? Do you think the relative political stability and business-friendliness of the United States has changed?

If not, why are you changing course? Why now? John C. Bogle wrote "Time is your friend, impulse is your enemy." Are you acting on impulse? If not, then what?

Before doing anything in a hurry, I would begin by asking the fundamental question. Have international stocks made money for you in the time you've been holding them? Have you experienced a literal dollar loss, or are you just an "optimizer" who is dissatisfied holding a portfolio that is good enough but could have been improved in highsight?

Let's assume that "well over a decade" means fifteen years. This all is unfortunately highly dependent on starting point so you can "prove" anything you like, but the Vanguard Total International Stock Market Index Fund would have come close to doubling your money over that time period:

Source

Image

Yes, if you add Total US Stock to that chart, the underperformance of international relative to the US over these particular years is stunning. The point is that nevertheless, international stocks made money. (Yes, beat inflation, too).

Yes, of course, there's no doubt that in hindsight you would have done better not to have held a fund that did worse. But the question is: trying as hard as we can to avoid specific predictions of the relative performance of US and international between now and when you retire, is your present portfolio so bad that holding international counts as a major mistake that will make it difficult for you to meet your goals?

Here's another, even more relevant backtest. These are two 60/40 portfolios. In the first (blue line), the stock holdings are 100% US. In the second (red line), they are split 50/50 US and international. In this chart, the assumption is that we have invested $1,000 per month continuously over the whole time period. So we have put in a total of $12,000 x 15 = $144,000 over fifteen years.

Yes, the portfolio without international stocks did better. It's a backtest, we know this is a specific time period over which international lagged, there are other time periods when it would have done better. If we had a time machine we know what we'd do. And yes, of course, $1,123,250 is more than $948,127. It's the difference between 7.8X the money you put in and 6.6X. Low seven digits instead of high six. Two commas instead of one. But really, is multiplying your money 6.6X all that bad? Won't you get to retirement at that rate?

Source

Image

Maybe the US will continue to shine and international will say dim. Maybe international will shine and the US will stay dim. Is what you have good enough? If so, are you so sure that it is better to change course, that you don't want to leave well enough alone?
Excellent post. Thank you. A few thoughts for the poster.

1.) A high savings rate will be a tsunami that will drown out any ratio of U.S. vs International equity you choose to be comfortable with.
2.) The stock to fixed income ratio will be the lever that controls your risk.
3.) The plan you can stick with through thick and thin will likely outperform any idealized plan offered up that you cannot stick with.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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Re: Globally Diversified or Worsified?

Post by abuss368 »

Ferdinand2014 wrote: Sat May 15, 2021 6:50 pm
Excellent post. Thank you. A few thoughts for the poster.

1.) A high savings rate will be a tsunami that will drown out any ratio of U.S. vs International equity you choose to be comfortable with.
2.) The stock to fixed income ratio will be the lever that controls your risk.
3.) The plan you can stick with through thick and thin will likely outperform any idealized plan offered up that you cannot stick with.
In my opinion this was the best post on this thread! Well said and investors need to keep the big picture in mind.

Tony
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Re: Globally Diversified or Worsified?

Post by Tony Stark »

I am very happy with 3 fund portfolio with equities split 70% Total US 30% Total Intl. This is what Allan Roth recommends for the split and it seems reasonable to me.
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Re: Globally Diversified or Worsified?

Post by RJC »

nisiprius wrote: Sat May 15, 2021 6:41 pm
arcticpineapplecorp. wrote: Sat May 15, 2021 3:20 pm
Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm But I have to wonder, do international stocks really add anything to long term returns?
they did in the past (increased returns without additional risk):

Image
Try plotting it without suppressing the zero, to judge the size and the importance of that effect.

Image
This is eye-opening. Never looked at that chart from this perspective.
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Re: Globally Diversified or Worsified?

Post by SteadyOne »

nisiprius wrote: Fri May 14, 2021 8:41 pm
Triple digit golfer wrote: Fri May 14, 2021 8:35 pm ...A reliable, respected poster here recently said that the chart you pointed out is incorrect...

Can anybody verify one way or another?
Incorrect in what sense? It's an accurate reproduction of the book page. This is my source. It's on page 136 and I can actually view the page with Amazon "Look Inside the Book" by searching on the word "Australasia." There wasn't any errata sheet and there hasn't been an updated edition. I don't personally have access to the actual data sets cited.

I missed or don't remember the comment, if you'll link to it I'll take a look at it. What did the poster cite as their source? Was the poster the author of the book?

On checking, I see that when I posted that page image in 2018, the author of the book sent me a PM stating
Taleb famously and correctly stated that only fools judge a strategy by the outcome without considering what alternative universes might have shown up... IMO you took exactly the wrong message from that table.
To me, that is a clear re-assertion by the book author that the actual data in the table is accurate, but that he objects to the use I made of it.
LOL: what other message one would get from that table, except that numbers are identical?
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Re: Globally Diversified or Worsified?

Post by SteadyOne »

RJC wrote: Sat May 15, 2021 7:27 pm
nisiprius wrote: Sat May 15, 2021 6:41 pm
arcticpineapplecorp. wrote: Sat May 15, 2021 3:20 pm
Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm But I have to wonder, do international stocks really add anything to long term returns?
they did in the past (increased returns without additional risk):

Image
Try plotting it without suppressing the zero, to judge the size and the importance of that effect.

Image
This is eye-opening. Never looked at that chart from this perspective.
Rounding error

If one plots this with bond vs stock allocation, it will clearly show how much more powerful that effect is than percent international vs. US stocks.
Last edited by SteadyOne on Sat May 15, 2021 7:46 pm, edited 2 times in total.
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Triple digit golfer
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

SteadyOne wrote: Sat May 15, 2021 7:33 pm
nisiprius wrote: Fri May 14, 2021 8:41 pm
Triple digit golfer wrote: Fri May 14, 2021 8:35 pm ...A reliable, respected poster here recently said that the chart you pointed out is incorrect...

Can anybody verify one way or another?
Incorrect in what sense? It's an accurate reproduction of the book page. This is my source. It's on page 136 and I can actually view the page with Amazon "Look Inside the Book" by searching on the word "Australasia." There wasn't any errata sheet and there hasn't been an updated edition. I don't personally have access to the actual data sets cited.

I missed or don't remember the comment, if you'll link to it I'll take a look at it. What did the poster cite as their source? Was the poster the author of the book?

On checking, I see that when I posted that page image in 2018, the author of the book sent me a PM stating
Taleb famously and correctly stated that only fools judge a strategy by the outcome without considering what alternative universes might have shown up... IMO you took exactly the wrong message from that table.
To me, that is a clear re-assertion by the book author that the actual data in the table is accurate, but that he objects to the use I made of it.
LOL: what other message one would get from that table, except that numbers are identical?
Vineviz said that the numbers are inaccurate. Again, I'm not making the claim. I can't prove one way or the other.
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Re: Globally Diversified or Worsified?

Post by SteadyOne »

Triple digit golfer wrote: Sat May 15, 2021 7:37 pm
SteadyOne wrote: Sat May 15, 2021 7:33 pm
nisiprius wrote: Fri May 14, 2021 8:41 pm
Triple digit golfer wrote: Fri May 14, 2021 8:35 pm ...A reliable, respected poster here recently said that the chart you pointed out is incorrect...

Can anybody verify one way or another?
Incorrect in what sense? It's an accurate reproduction of the book page. This is my source. It's on page 136 and I can actually view the page with Amazon "Look Inside the Book" by searching on the word "Australasia." There wasn't any errata sheet and there hasn't been an updated edition. I don't personally have access to the actual data sets cited.

I missed or don't remember the comment, if you'll link to it I'll take a look at it. What did the poster cite as their source? Was the poster the author of the book?

On checking, I see that when I posted that page image in 2018, the author of the book sent me a PM stating
Taleb famously and correctly stated that only fools judge a strategy by the outcome without considering what alternative universes might have shown up... IMO you took exactly the wrong message from that table.
To me, that is a clear re-assertion by the book author that the actual data in the table is accurate, but that he objects to the use I made of it.
LOL: what other message one would get from that table, except that numbers are identical?
Vineviz said that the numbers are inaccurate. Again, I'm not making the claim. I can't prove one way or the other.
Then what are the correct numbers? Does Vineviz have those?
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court
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Re: Globally Diversified or Worsified?

Post by Johnathon Livingston »

NiceUnparticularMan wrote: Sat May 15, 2021 6:32 pm
Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm
NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
So reactive decisions to stop or reduce new contributions to recently underperforming assets is probably not going to be as harmful as complete liquidations, but I think it is important to realize that typically the various backtests of steady portfolio plans assume either no new contributions, or new contributions according to plan. Therefore by violating those assumptions in the way you are contemplating, you are potentially risking overall worse performance than if you had stuck to your plan even when it looked like it wasn't the best plan in recent years.

And again, I do wonder what will happen if, say, 9 years from now, in 2030, it is ex-U.S. which has recently performed better, it seems like everyone here with a higher ex-U.S. allocation has done better than you, lots of people are arguing the "simple" plan is just global weighting, and so on. For your final 9 years before retirement, will you stick with your proposed plan to not buy ex-U.S., or not in large percentages? Or will you once again "take a fresh look at everything," reason you only have 9 years left to retirement to maximize your future SWR, and change to the "mainstream conventional financial planning advice" of 2030, which will be to hold a lot more ex-U.S. than you end up with in 2030?

I mean, if you can truly promise yourself that in 9 years, you will stick with this new plan even if by then it has been another 9 years of underperforming, then OK.

But if a realistic self-assessment is that in this scenario I am sketching, you would probably switch back yet again--you are setting yourself up poorly.

And if your answer is you just don't think that will happen the next 9 years, well, see my prior post.
Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

SteadyOne wrote: Sat May 15, 2021 7:40 pm
Triple digit golfer wrote: Sat May 15, 2021 7:37 pm
SteadyOne wrote: Sat May 15, 2021 7:33 pm
nisiprius wrote: Fri May 14, 2021 8:41 pm
Triple digit golfer wrote: Fri May 14, 2021 8:35 pm ...A reliable, respected poster here recently said that the chart you pointed out is incorrect...

Can anybody verify one way or another?
Incorrect in what sense? It's an accurate reproduction of the book page. This is my source. It's on page 136 and I can actually view the page with Amazon "Look Inside the Book" by searching on the word "Australasia." There wasn't any errata sheet and there hasn't been an updated edition. I don't personally have access to the actual data sets cited.

I missed or don't remember the comment, if you'll link to it I'll take a look at it. What did the poster cite as their source? Was the poster the author of the book?

On checking, I see that when I posted that page image in 2018, the author of the book sent me a PM stating
Taleb famously and correctly stated that only fools judge a strategy by the outcome without considering what alternative universes might have shown up... IMO you took exactly the wrong message from that table.
To me, that is a clear re-assertion by the book author that the actual data in the table is accurate, but that he objects to the use I made of it.
LOL: what other message one would get from that table, except that numbers are identical?
Vineviz said that the numbers are inaccurate. Again, I'm not making the claim. I can't prove one way or the other.
Then what are the correct numbers? Does Vineviz have those?
I have no idea. Have you asked him?
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Re: Globally Diversified or Worsified?

Post by warner25 »

Triple digit golfer wrote: Sat May 15, 2021 2:24 pm Gotta love it. The two common arguments in favor of excluding international are hero worship and past performance.
While I admit to tilting towards the US in my own portfolio (at only 1/3 international), I love your posts and I think you are right throughout this thread; there seems to be no logically consistent argument for US-only investing. My own tilt is truly in the name of simplicity across accounts, and sticking with what I started with, and an agreement with nisiprius that it probably doesn't matter much.
nisiprius wrote: Sat May 15, 2021 7:16 am The elephant in the room is the endpoint problem. The general picture of US-international is pretty obvious. If the time period goes back long enough to include World War II, the whole behavior is completely dominated by that single historic event. The US shows outperformance in any time period that includes World War II, and even more if World War I is included. I am just cynical enough to think that this is why international booster like to use "the last fifty years" as a time period.
Serious question, with no agenda here: What do you think about the oldest US datasets only starting in 1871? Does that just conveniently exclude the US Civil War, like this exclusion of World War II when talking about Europe and Japan?
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

warner25 wrote: Sat May 15, 2021 7:58 pm
Triple digit golfer wrote: Sat May 15, 2021 2:24 pm Gotta love it. The two common arguments in favor of excluding international are hero worship and past performance.
While I admit to tilting towards the US in my own portfolio (at only 1/3 international), I love your posts and I think you are right throughout this thread; there seems to be no logically consistent argument for US-only investing. My own tilt is truly in the name of simplicity across accounts, and sticking with what I started with, and an agreement with nisiprius that it probably doesn't matter much.
nisiprius wrote: Sat May 15, 2021 7:16 am The elephant in the room is the endpoint problem. The general picture of US-international is pretty obvious. If the time period goes back long enough to include World War II, the whole behavior is completely dominated by that single historic event. The US shows outperformance in any time period that includes World War II, and even more if World War I is included. I am just cynical enough to think that this is why international booster like to use "the last fifty years" as a time period.
Serious question, with no agenda here: What do you think about the oldest US datasets only starting in 1871? Does that just conveniently exclude the US Civil War, like this exclusion of World War II when talking about Europe and Japan?
Very good points.

In my opinion, 1/3 is fine and definitely reasonable. Anything greater than about 25% and up to 50% has historically offered the best diversification benefit.
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Re: Globally Diversified or Worsified?

Post by nisiprius »

SteadyOne wrote: Sat May 15, 2021 7:40 pm Then what are the correct numbers? Does Vineviz have those?
Vineviz posted what he says are the correct numbers here.
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Re: Globally Diversified or Worsified?

Post by vineviz »

SteadyOne wrote: Sat May 15, 2021 7:40 pm Then what are the correct numbers? Does Vineviz have those?
Let me reiterate that looking at CAGR and volatility based on monthly or annual return data is NOT a reasonable way to evaluate the relative diversification levels of two portfolios.

But for the 1975 to 2009 period used in the table posted earlier I get an annualized return of 10.63% and std dev of 10.25% for the US portfolio. The US + EAFE portfolio had a return of 10.81% and volatility of 9.75%.
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

Johnathon Livingston wrote: Sat May 15, 2021 7:51 pm
NiceUnparticularMan wrote: Sat May 15, 2021 6:32 pm
Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm
NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
So reactive decisions to stop or reduce new contributions to recently underperforming assets is probably not going to be as harmful as complete liquidations, but I think it is important to realize that typically the various backtests of steady portfolio plans assume either no new contributions, or new contributions according to plan. Therefore by violating those assumptions in the way you are contemplating, you are potentially risking overall worse performance than if you had stuck to your plan even when it looked like it wasn't the best plan in recent years.

And again, I do wonder what will happen if, say, 9 years from now, in 2030, it is ex-U.S. which has recently performed better, it seems like everyone here with a higher ex-U.S. allocation has done better than you, lots of people are arguing the "simple" plan is just global weighting, and so on. For your final 9 years before retirement, will you stick with your proposed plan to not buy ex-U.S., or not in large percentages? Or will you once again "take a fresh look at everything," reason you only have 9 years left to retirement to maximize your future SWR, and change to the "mainstream conventional financial planning advice" of 2030, which will be to hold a lot more ex-U.S. than you end up with in 2030?

I mean, if you can truly promise yourself that in 9 years, you will stick with this new plan even if by then it has been another 9 years of underperforming, then OK.

But if a realistic self-assessment is that in this scenario I am sketching, you would probably switch back yet again--you are setting yourself up poorly.

And if your answer is you just don't think that will happen the next 9 years, well, see my prior post.
Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
Well, if you don't believe every few years deciding to change your allocation to favor whichever stocks classes have recently performed relatively well is a bad plan, that instead it is actually a good plan, then OK. I suspect if you tested that plan, it might score poorly historically.

Same with fixed income. Increasing or decreasing planned allocations to fixed income in light of its recent performance typically produces very poor results.

I don't believe that is what Vanguard has done with international, nor is that what I think they do with things like their Target date funds. They do in fact have forward looking models which inform those decisions, but they are not simply shifting to whatever has done best most recently.
Last edited by NiceUnparticularMan on Sat May 15, 2021 8:20 pm, edited 1 time in total.
RJC
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Re: Globally Diversified or Worsified?

Post by RJC »

vineviz wrote: Sat May 15, 2021 8:09 pm
SteadyOne wrote: Sat May 15, 2021 7:40 pm Then what are the correct numbers? Does Vineviz have those?
Let me reiterate that looking at CAGR and volatility based on monthly or annual return data is NOT a reasonable way to evaluate the relative diversification levels of two portfolios.

But for the 1975 to 2009 period used in the table posted earlier I get an annualized return of 10.63% and std dev of 10.25% for the US portfolio. The US + EAFE portfolio had a return of 10.81% and volatility of 9.75%.
0.18% over 34 years? Is that a substantial difference?
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burritoLover
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Re: Globally Diversified or Worsified?

Post by burritoLover »

Active managers must be killing it in this super inefficient market where the U.S. has a lot less risk with much greater expected return.
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Re: Globally Diversified or Worsified?

Post by anon_investor »

RJC wrote: Sat May 15, 2021 8:18 pm
vineviz wrote: Sat May 15, 2021 8:09 pm
SteadyOne wrote: Sat May 15, 2021 7:40 pm Then what are the correct numbers? Does Vineviz have those?
Let me reiterate that looking at CAGR and volatility based on monthly or annual return data is NOT a reasonable way to evaluate the relative diversification levels of two portfolios.

But for the 1975 to 2009 period used in the table posted earlier I get an annualized return of 10.63% and std dev of 10.25% for the US portfolio. The US + EAFE portfolio had a return of 10.81% and volatility of 9.75%.
0.18% over 34 years? Is that a substantial difference?
Wait until you see the numbers when you add in 2010-2021...
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Johnathon Livingston
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Re: Globally Diversified or Worsified?

Post by Johnathon Livingston »

NiceUnparticularMan wrote: Sat May 15, 2021 8:11 pm
Johnathon Livingston wrote: Sat May 15, 2021 7:51 pm
NiceUnparticularMan wrote: Sat May 15, 2021 6:32 pm
Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm
NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
So reactive decisions to stop or reduce new contributions to recently underperforming assets is probably not going to be as harmful as complete liquidations, but I think it is important to realize that typically the various backtests of steady portfolio plans assume either no new contributions, or new contributions according to plan. Therefore by violating those assumptions in the way you are contemplating, you are potentially risking overall worse performance than if you had stuck to your plan even when it looked like it wasn't the best plan in recent years.

And again, I do wonder what will happen if, say, 9 years from now, in 2030, it is ex-U.S. which has recently performed better, it seems like everyone here with a higher ex-U.S. allocation has done better than you, lots of people are arguing the "simple" plan is just global weighting, and so on. For your final 9 years before retirement, will you stick with your proposed plan to not buy ex-U.S., or not in large percentages? Or will you once again "take a fresh look at everything," reason you only have 9 years left to retirement to maximize your future SWR, and change to the "mainstream conventional financial planning advice" of 2030, which will be to hold a lot more ex-U.S. than you end up with in 2030?

I mean, if you can truly promise yourself that in 9 years, you will stick with this new plan even if by then it has been another 9 years of underperforming, then OK.

But if a realistic self-assessment is that in this scenario I am sketching, you would probably switch back yet again--you are setting yourself up poorly.

And if your answer is you just don't think that will happen the next 9 years, well, see my prior post.
Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
Well, if you don't believe every few years deciding to change your allocation to favor whichever country's stocks have recently performed relatively well is a bad plan, that instead it is actually a good plan, then OK. I suspect if you tested that plan, it would score poorly historically.

Same with fixed income. Increasing or decreasing planned allocations to fixed income in light of its recent performance typically produces very poor results.

I don't believe that is what Vanguard has done with international, nor is that what I think they do with things like their Target date funds. They do in fact have forward looking models which inform those decisions, but they are not simply shifting to whatever has done best most recently.
The assessment of international equities might not hinge on recent performance as you suggest but on a significant increase in correlation with US equities from when someone began investing in them. The original basis for investing in international is that they perform roughly the same as US and weren’t that correlated. That’s not true anymore. With that increase in correlation one may decide that the political turmoil seen with China and in Europe and the population bottleneck in Japan warrants changes to their allocation to international equities. They may also conclude that these considerations make taking on currency risk that can interfere with capturing the investment risk they took not worth it. If your model of investing requires a person to ignore changing conditions in the world that did not exist years ago when the person made an allocation, then ok but your model might not perform well since allocation is one of the most important considerations and your model is defined by inflexibility. These are all forward looking considerations. Also, the poor performance of international equities despite their price to earnings ratio over the last decade is also concerning. Some may argue that this could show a lack of confidence in international equities because of the political uncertainty in the world. To each his own
Last edited by Johnathon Livingston on Sat May 15, 2021 8:31 pm, edited 1 time in total.
SteadyOne
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Re: Globally Diversified or Worsified?

Post by SteadyOne »

RJC wrote: Sat May 15, 2021 8:18 pm
vineviz wrote: Sat May 15, 2021 8:09 pm
SteadyOne wrote: Sat May 15, 2021 7:40 pm Then what are the correct numbers? Does Vineviz have those?
Let me reiterate that looking at CAGR and volatility based on monthly or annual return data is NOT a reasonable way to evaluate the relative diversification levels of two portfolios.

But for the 1975 to 2009 period used in the table posted earlier I get an annualized return of 10.63% and std dev of 10.25% for the US portfolio. The US + EAFE portfolio had a return of 10.81% and volatility of 9.75%.
0.18% over 34 years? Is that a substantial difference?
It might not be statistically significant difference. Though I am not a statistician. However, I do not see a material difference between those numbers. It is slightly better for what it worth.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

Johnathon Livingston wrote: Sat May 15, 2021 8:25 pm
NiceUnparticularMan wrote: Sat May 15, 2021 8:11 pm
Johnathon Livingston wrote: Sat May 15, 2021 7:51 pm
NiceUnparticularMan wrote: Sat May 15, 2021 6:32 pm
Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm

People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
So reactive decisions to stop or reduce new contributions to recently underperforming assets is probably not going to be as harmful as complete liquidations, but I think it is important to realize that typically the various backtests of steady portfolio plans assume either no new contributions, or new contributions according to plan. Therefore by violating those assumptions in the way you are contemplating, you are potentially risking overall worse performance than if you had stuck to your plan even when it looked like it wasn't the best plan in recent years.

And again, I do wonder what will happen if, say, 9 years from now, in 2030, it is ex-U.S. which has recently performed better, it seems like everyone here with a higher ex-U.S. allocation has done better than you, lots of people are arguing the "simple" plan is just global weighting, and so on. For your final 9 years before retirement, will you stick with your proposed plan to not buy ex-U.S., or not in large percentages? Or will you once again "take a fresh look at everything," reason you only have 9 years left to retirement to maximize your future SWR, and change to the "mainstream conventional financial planning advice" of 2030, which will be to hold a lot more ex-U.S. than you end up with in 2030?

I mean, if you can truly promise yourself that in 9 years, you will stick with this new plan even if by then it has been another 9 years of underperforming, then OK.

But if a realistic self-assessment is that in this scenario I am sketching, you would probably switch back yet again--you are setting yourself up poorly.

And if your answer is you just don't think that will happen the next 9 years, well, see my prior post.
Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
Well, if you don't believe every few years deciding to change your allocation to favor whichever country's stocks have recently performed relatively well is a bad plan, that instead it is actually a good plan, then OK. I suspect if you tested that plan, it would score poorly historically.

Same with fixed income. Increasing or decreasing planned allocations to fixed income in light of its recent performance typically produces very poor results.

I don't believe that is what Vanguard has done with international, nor is that what I think they do with things like their Target date funds. They do in fact have forward looking models which inform those decisions, but they are not simply shifting to whatever has done best most recently.
The assessment of international equities might not hinge on recent performance as you suggest but on significant increase in correlation with US equities from when I began investing in them. The original basis for investing in international is that they perform roughly the same as US and weren’t that correlated. That’s not true anymore. Without that increase in correlation one may decide that the political turmoil seen with China and I’m Europe along with the population bottleneck occurring in Japan warrants changes to their allocation to international equities. They may also conclude that these considerations make taking on currency risk that can interfere with capturing the investment risk they took not worth it. If your model of investing requires a person to ignore changing conditions in the world that did not exist years ago when the person made an allocation, then ok but your model might not perform well since allocation is one of the most important considerations and your model is defined by inflexibility. To each his own
So again, I would tend to find such reasoning at least more credible if ex-U.S. stocks had recently outperformed U.S. stocks, but an investor had independently come to the conclusion that reducing their allocation to ex-U.S. stocks made sense for those reasons.

But again, if you are dead sure you would feel the same way if ex-U.S. stocks had recently outperformed U.S. stocks, and dead sure you won't start considering other arguments if over the next several years ex-U.S. stocks outperform U.S. stocks, at which point you will once again encounter many people here who have done better than you over those years, telling you seemingly plausible reasons to allocate more to ex-U.S. stocks like them . . . OK.

I just worry whenever I see investors doing what sure looks a lot like establishing a history of performance chasing, even if they claim to have other reasons.
Triple digit golfer
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

vineviz wrote: Sat May 15, 2021 8:09 pm
SteadyOne wrote: Sat May 15, 2021 7:40 pm Then what are the correct numbers? Does Vineviz have those?
Let me reiterate that looking at CAGR and volatility based on monthly or annual return data is NOT a reasonable way to evaluate the relative diversification levels of two portfolios.

But for the 1975 to 2009 period used in the table posted earlier I get an annualized return of 10.63% and std dev of 10.25% for the US portfolio. The US + EAFE portfolio had a return of 10.81% and volatility of 9.75%.
Those numbers are pretty close. Isn't it possible or that probable that there are just slight differences that cause the difference? Timing of rebalancing, contributions, slight difference in start or end points, difference in timing and reinvestment of dividends, and so on?

How can you be so sure that they're inaccurate?
JamesDean44
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Re: Globally Diversified or Worsified?

Post by JamesDean44 »

burritoLover wrote: Sat May 15, 2021 8:23 pm Active managers must be killing it in this super inefficient market where the U.S. has a lot less risk with much greater expected return.
Well done.
Fidelity1977
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Re: Globally Diversified or Worsified?

Post by Fidelity1977 »

The perfect strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with.

If US only lets you sleep well at night and not waiver in times of distress then do not let anyone tell you differently. Listen to your gut and know that Buffett and Bogle agree with you.
JamesDean44
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Re: Globally Diversified or Worsified?

Post by JamesDean44 »

nisiprius wrote: Sat May 15, 2021 6:41 pm
arcticpineapplecorp. wrote: Sat May 15, 2021 3:20 pm
Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm But I have to wonder, do international stocks really add anything to long term returns?
they did in the past (increased returns without additional risk):

Image
Try plotting it without suppressing the zero, to judge the size and the importance of that effect.

Image
Both graphs are useful perspectives. But it is also useful to keep in mind that "past performance is no guarantee of future results" and that "diversification is the only free lunch in investing." Home country bias may have a potentially devastating impact on a portfolio and is an uncompensated risk. That uncompensated risk has shown up in the past. And it is certainly possible for that risk to show up for US investors in the future.
Da5id
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Re: Globally Diversified or Worsified?

Post by Da5id »

JamesDean44 wrote: Sat May 15, 2021 9:53 pm Both graphs are useful perspectives. But it is also useful to keep in mind that "past performance is no guarantee of future results" and that "diversification is the only free lunch in investing." Home country bias may have a potentially devastating impact on a portfolio and is an uncompensated risk. That uncompensated risk has shown up in the past. And it is certainly possible for that risk to show up for US investors in the future.
Absolutely, Totally, and in all other ways inconceivable that the risk will show up for US investors!

Yeah, I liked seeing both graphs. The excess return is much less impressive in the zoom out, the volatility effect is pretty solid in both. Of course that was in 2008.
tibbitts
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Re: Globally Diversified or Worsified?

Post by tibbitts »

Johnathon Livingston wrote: Sat May 15, 2021 7:51 pm Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
Actually I believe people should consider themselves more or less constrained by allocation decisions made relatively early in their investing career. Vanguard has taken a lot of heat for their changes, particularly in how they've applied them to existing investors. If they wanted to spin off a new version of fund that's one thing, or if they must transition, then maybe by 1% annually or something. But absolutely the way they've abruptly changed allocations seems irresponsible. The fact is you'll always be "discovering" new things, but too often it seems like you discover them at precisely the wrong time.
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Re: Globally Diversified or Worsified?

Post by Da5id »

tibbitts wrote: Sat May 15, 2021 10:10 pm
Johnathon Livingston wrote: Sat May 15, 2021 7:51 pm Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
Actually I believe people should consider themselves more or less constrained by allocation decisions made relatively early in their investing career. Vanguard has taken a lot of heat for their changes, particularly in how they've applied them to existing investors. If they wanted to spin off a new version of fund that's one thing, or if they must transition, then maybe by 1% annually or something. But absolutely the way they've abruptly changed allocations seems irresponsible. The fact is you'll always be "discovering" new things, but too often it seems like you discover them at precisely the wrong time.
I don't think people should be constrained by early decisions. They may learn things (about themselves, or about investing). I just think people should be very cautious about changing allocations in response to underperformance of an asset class. Particularly one like the US/international division, where there has been a history of each side outperforming for a number of years in a row. If you allocate between international and US it is good to know that fact in advance. Same with SCV investors.

I also agree that Vanguard changing their allocation is not very friendly to investors. While I agree with their change, if one had a LifeStrategy funds in taxable and one were happy with the 20% and unhappy with the 40% it might be expensive (in terms of capital gains taxes) to change out of it. Though of the reasons to personally not use LIfeStrategy this isn't high on my list.
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Re: Globally Diversified or Worsified?

Post by Beensabu »

Johnathon Livingston wrote:People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
Johnathon Livingston wrote:Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
Johnathon Livingston wrote:The assessment of international equities might not hinge on recent performance as you suggest but on significant increase in correlation with US equities from when I began investing in them. The original basis for investing in international is that they perform roughly the same as US and weren’t that correlated. That’s not true anymore. Without that increase in correlation one may decide that the political turmoil seen with China and I’m Europe along with the population bottleneck occurring in Japan warrants changes to their allocation to international equities. They may also conclude that these considerations make taking on currency risk that can interfere with capturing the investment risk they took not worth it. If your model of investing requires a person to ignore changing conditions in the world that did not exist years ago when the person made an allocation, then ok but your model might not perform well since allocation is one of the most important considerations and your model is defined by inflexibility. To each his own
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tibbitts
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Re: Globally Diversified or Worsified?

Post by tibbitts »

Da5id wrote: Sat May 15, 2021 10:18 pm
tibbitts wrote: Sat May 15, 2021 10:10 pm
Johnathon Livingston wrote: Sat May 15, 2021 7:51 pm Assessing allocations to assets and sub assets can be part of a plan. For example, Vanguard increased its allocation to international equities in its target date funds from 20% to 30% to 40% based on periodic assessments of its plan. People also assess allocations to fixed income. Your plan might be to not be bound for life by an allocation you made at one time.
Actually I believe people should consider themselves more or less constrained by allocation decisions made relatively early in their investing career. Vanguard has taken a lot of heat for their changes, particularly in how they've applied them to existing investors. If they wanted to spin off a new version of fund that's one thing, or if they must transition, then maybe by 1% annually or something. But absolutely the way they've abruptly changed allocations seems irresponsible. The fact is you'll always be "discovering" new things, but too often it seems like you discover them at precisely the wrong time.
I don't think people should be constrained by early decisions. They may learn things (about themselves, or about investing). I just think people should be very cautious about changing allocations in response to underperformance of an asset class. Particularly one like the US/international division, where there has been a history of each side outperforming for a number of years in a row. If you allocate between international and US it is good to know that fact in advance. Same with SCV investors.

I also agree that Vanguard changing their allocation is not very friendly to investors. While I agree with their change, if one had a LifeStrategy funds in taxable and one were happy with the 20% and unhappy with the 40% it might be expensive (in terms of capital gains taxes) to change out of it. Though of the reasons to personally not use LIfeStrategy this isn't high on my list.
There are some exceptions certainly for changing allocations: for example, an asset class can become available inexpensively for the first time. I was mostly referring to changes for performance reasons. Everybody knows that when they sign up for SCV or whatever path they choose, it may take their entire lifetime or longer to pan out. Well, intellectually they know that, but when a strategy doesn't pan out after years and years, it's tempting to doubt the original strategy. And that's usually the worst time to abandon it.
slicendice
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Re: Globally Diversified or Worsified?

Post by slicendice »

I seem to recall a chart showing the US and international taking turns out performing each other every 6 to 10 years for several consecutive years at a time, this oscillation in winning indices has occurred for a long time and the OP wants to effectively double down on US after a decade of US out-performance. Sounds like a great sell low, buy high strategy to me. Also, you don't own the whole haystack if you omit international equities from your portfolio, which seems to go against one of the central tenets of this forum. Finally, while I'm pretty sure the S&P500 in 2021 isn't the Nikkei in 1989, nobody knows this with certainty, hence it seems wise to avoid the concentrated bet a US-only portfolio represents.
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

Fidelity1977 wrote: Sat May 15, 2021 9:43 pm The perfect strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with.

If US only lets you sleep well at night and not waiver in times of distress then do not let anyone tell you differently. Listen to your gut and know that Buffett and Bogle agree with you.
Sure, but how do you know such a thing? Particularly now?

Again, imagine it has been a decade of U.S.-only portfolios lagging global portfolios, and lots and lots of people here are talking about how the simple portfolio they find it easy to live with is a global portfolio, and that they would be nervous if U.S.-only, and just look at how U.S.-only has underperformed for a decade, and how much money U.S.-only investors lost as a result . . .

Will all the people whose "guts" are currently happy with U.S.-only, after a period of relatively good U.S. stock performance, actually feel as content with U.S.-only in that scenario?

Unfortunately, I don't see a lot of proponents of U.S.-only investing seriously considering that possibility. What I more see is such people simply denying that is a realistic possibility, arguing in one way or another that they believe U.S.-only will likely continue to outperform going forward. And that is setting yourself up for waivering, if your expectation proves wrong.
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midareff
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Re: Globally Diversified or Worsified?

Post by midareff »

Triple digit golfer wrote: Sat May 15, 2021 6:02 pm
midareff wrote: Sat May 15, 2021 5:38 pm
Triple digit golfer wrote: Sat May 15, 2021 3:32 pm
midareff wrote: Sat May 15, 2021 3:15 pm
Triple digit golfer wrote: Sat May 15, 2021 2:43 pm

U.S. TSM holds small growth stocks, which have underperformed all other styles. Why do you hold them?

I think the smartest investor holds equities of all styles sizes, sectors, and countries.
That's the great thing about opinions Triple Digit, we are all issued one at birth. I hold TSM because I consider it adequately diversified. Apparently you do not so I ask you why do you hold small growth stocks, which have under-performed all other styles? or are you just an under-performance kind of guy? Can't get down to double digit?
I hold all equities at roughly market weights. I have no idea what will under or over perform. You seem to be able to tell the future.
You seem to have an interest in trying to determine what I can or can't do. My view of the future is as accurate as yours. In case you don't already know it, trying to determine what I know about the future is a waste of your time. You could be watching a movie, listening to an album or reading a book on investing... or out exercising.
You're very snippy. I think you need to take a nap while I watch a movie or work out.
Methinks you would be better off out practicing for double digits amigo. I will admit it does take a real ......... (you fill in the blank) to hang in there getting sub-optimal results year after year because you just know one year you will be right.
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Re: Globally Diversified or Worsified?

Post by lostdog »

NiceUnparticularMan wrote: Sun May 16, 2021 8:05 am
Fidelity1977 wrote: Sat May 15, 2021 9:43 pm The perfect strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with.

If US only lets you sleep well at night and not waiver in times of distress then do not let anyone tell you differently. Listen to your gut and know that Buffett and Bogle agree with you.
Sure, but how do you know such a thing? Particularly now?

Again, imagine it has been a decade of U.S.-only portfolios lagging global portfolios, and lots and lots of people here are talking about how the simple portfolio they find it easy to live with is a global portfolio, and that they would be nervous if U.S.-only, and just look at how U.S.-only has underperformed for a decade, and how much money U.S.-only investors lost as a result . . .

Will all the people whose "guts" are currently happy with U.S.-only, after a period of relatively good U.S. stock performance, actually feel as content with U.S.-only in that scenario?

Unfortunately, I don't see a lot of proponents of U.S.-only investing seriously considering that possibility. What I more see is such people simply denying that is a realistic possibility, arguing in one way or another that they believe U.S.-only will likely continue to outperform going forward. And that is setting yourself up for waivering, if your expectation proves wrong.
They'll disappear from the forum or switch back to ex-US and not admit it or not post about it. Similar behavioral tendencies from cashing out.
Last edited by lostdog on Sun May 16, 2021 8:22 am, edited 1 time in total.
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anon_investor
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Re: Globally Diversified or Worsified?

Post by anon_investor »

NiceUnparticularMan wrote: Sun May 16, 2021 8:05 am
Fidelity1977 wrote: Sat May 15, 2021 9:43 pm The perfect strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with.

If US only lets you sleep well at night and not waiver in times of distress then do not let anyone tell you differently. Listen to your gut and know that Buffett and Bogle agree with you.
Sure, but how do you know such a thing? Particularly now?

Again, imagine it has been a decade of U.S.-only portfolios lagging global portfolios, and lots and lots of people here are talking about how the simple portfolio they find it easy to live with is a global portfolio, and that they would be nervous if U.S.-only, and just look at how U.S.-only has underperformed for a decade, and how much money U.S.-only investors lost as a result . . .

Will all the people whose "guts" are currently happy with U.S.-only, after a period of relatively good U.S. stock performance, actually feel as content with U.S.-only in that scenario?

Unfortunately, I don't see a lot of proponents of U.S.-only investing seriously considering that possibility. What I more see is such people simply denying that is a realistic possibility, arguing in one way or another that they believe U.S.-only will likely continue to outperform going forward. And that is setting yourself up for waivering, if your expectation proves wrong.
International proponents keep pointing out 2000-2009 as a period of US under performance. Plenty of US only investors stayed US only through that period. Was there a big push for international right before 2000, or was the push after that 2000-2009 run?
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Re: Globally Diversified or Worsified?

Post by Da5id »

NiceUnparticularMan wrote: Sun May 16, 2021 8:05 am
Fidelity1977 wrote: Sat May 15, 2021 9:43 pm The perfect strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with.

If US only lets you sleep well at night and not waiver in times of distress then do not let anyone tell you differently. Listen to your gut and know that Buffett and Bogle agree with you.
Sure, but how do you know such a thing? Particularly now?

Again, imagine it has been a decade of U.S.-only portfolios lagging global portfolios, and lots and lots of people here are talking about how the simple portfolio they find it easy to live with is a global portfolio, and that they would be nervous if U.S.-only, and just look at how U.S.-only has underperformed for a decade, and how much money U.S.-only investors lost as a result . . .

Will all the people whose "guts" are currently happy with U.S.-only, after a period of relatively good U.S. stock performance, actually feel as content with U.S.-only in that scenario?

Unfortunately, I don't see a lot of proponents of U.S.-only investing seriously considering that possibility. What I more see is such people simply denying that is a realistic possibility, arguing in one way or another that they believe U.S.-only will likely continue to outperform going forward. And that is setting yourself up for waivering, if your expectation proves wrong.
Totally agree. The "sleep well at night" thing often feels like a euphemism for "let's me rationalize what I want to do anyway". That is particularly the case in this context. In making the %equities vs %bond decision, I feel the SWAN factor is much more plausible. Unable to emotionally deal with a 30-40% equities fall is a reason that people who might have a higher percentage of equities would choose to dial it down. In the international vs US equities context, it is kind of odd. And as you say, it implies that when international next overperforms for say a 10 year period (which it probably will in most investors lifetime based on history, though who knows when) the person who can't sleep well at night owning international during a period of US outperformance presumably will also toss and turn when the worm turns if they are all in on US.
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Johnathon Livingston
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Re: Globally Diversified or Worsified?

Post by Johnathon Livingston »

Thank you to everyone for your comments and this discussion. It has given me a lot to think about. I do question myself and whether I’m backing into an answer because of bias for the US and maybe I am falling prey to performance chasing. Or maybe I’m just now really thinking for myself when it comes to investing. I’ve done well with my investments as compared to the average investor ironically because I had zero interest in investing and just “set it and forgot it.” It would be ironic now to do poorly because I’m paying more attention to it. I think it’s not uncommon to wake up and find yourself pushing 50 and start reality checking where you are in life and where you’re going. You just don’t want that to become a mid-life crisis! I started investing in the “lost decade” of the 2000s followed by a decade long bull run for the US and a poor performance by international equities. It seems like there’s always a fly in the ointment to look out for. But that seems to argue for diversification. Until I feel 100% confident about the decision I’m staying the course. I think the uncertainty of the time we’re in at the moment and seeing US price to earnings ratios so high for so long driven by technology growth stocks makes me not want to make any bold moves at this time. I get shivers having flashbacks to the 2000s. I believe in buying the haystack. I think that the lesson for me is you have to define what the haystack is and go with it. I never liked the international haystack but now I have a freaking truckload of that hay and probably shouldn’t sell it cheap. At the end of the day it’s just as likely to not matter as it is to matter if it’s a global haystack or a US haystack, so arguing about it becomes a fool’s errand at some point. Thanks again!
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Re: Globally Diversified or Worsified?

Post by Johm221122 »

anon_investor wrote: Sun May 16, 2021 8:22 am
NiceUnparticularMan wrote: Sun May 16, 2021 8:05 am
Fidelity1977 wrote: Sat May 15, 2021 9:43 pm The perfect strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with.

If US only lets you sleep well at night and not waiver in times of distress then do not let anyone tell you differently. Listen to your gut and know that Buffett and Bogle agree with you.
Sure, but how do you know such a thing? Particularly now?

Again, imagine it has been a decade of U.S.-only portfolios lagging global portfolios, and lots and lots of people here are talking about how the simple portfolio they find it easy to live with is a global portfolio, and that they would be nervous if U.S.-only, and just look at how U.S.-only has underperformed for a decade, and how much money U.S.-only investors lost as a result . . .

Will all the people whose "guts" are currently happy with U.S.-only, after a period of relatively good U.S. stock performance, actually feel as content with U.S.-only in that scenario?

Unfortunately, I don't see a lot of proponents of U.S.-only investing seriously considering that possibility. What I more see is such people simply denying that is a realistic possibility, arguing in one way or another that they believe U.S.-only will likely continue to outperform going forward. And that is setting yourself up for waivering, if your expectation proves wrong.
International proponents keep pointing out 2000-2009 as a period of US under performance. Plenty of US only investors stayed US only through that period. Was there a big push for international right before 2000, or was the push after that 2000-2009 run?
I started investing in 1999 and international exposure was definitely pushed then by what I observed
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Re: Globally Diversified or Worsified?

Post by bertilak »

I hold both domestic (S&P500, Vanguard VFIAX) and international (Vanguard VTIAX). My plan is to NOT rebalance between the two. Let them fight it out and whichever proves to be the best will increase its share naturally. Right now they are about 66/33 (US/International).

This is how they would behave if they were both in the same, cap-weighted fund, except I weighted their starting points differently. In other words I made a bigger bet on US.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

anon_investor wrote: Sun May 16, 2021 8:22 am
NiceUnparticularMan wrote: Sun May 16, 2021 8:05 am
Fidelity1977 wrote: Sat May 15, 2021 9:43 pm The perfect strategy you can't stick with is obviously vastly inferior to the very good strategy you can stick with.

If US only lets you sleep well at night and not waiver in times of distress then do not let anyone tell you differently. Listen to your gut and know that Buffett and Bogle agree with you.
Sure, but how do you know such a thing? Particularly now?

Again, imagine it has been a decade of U.S.-only portfolios lagging global portfolios, and lots and lots of people here are talking about how the simple portfolio they find it easy to live with is a global portfolio, and that they would be nervous if U.S.-only, and just look at how U.S.-only has underperformed for a decade, and how much money U.S.-only investors lost as a result . . .

Will all the people whose "guts" are currently happy with U.S.-only, after a period of relatively good U.S. stock performance, actually feel as content with U.S.-only in that scenario?

Unfortunately, I don't see a lot of proponents of U.S.-only investing seriously considering that possibility. What I more see is such people simply denying that is a realistic possibility, arguing in one way or another that they believe U.S.-only will likely continue to outperform going forward. And that is setting yourself up for waivering, if your expectation proves wrong.
International proponents keep pointing out 2000-2009 as a period of US under performance. Plenty of US only investors stayed US only through that period. Was there a big push for international right before 2000, or was the push after that 2000-2009 run?
I completely agree a bunch of people likely got into global investing in that period,. The OP is apparently one such person. And now if some are getting out, that is all a story in poor market timing.

My point therefore is not that global investing is somehow more likely to help people stay the course than US-only investing. My point is staying the course is very hard, because there is no one portfolio approach that will always be the best, and therefore everyone is going to go through periods where others are doing better. And if investors cannot resist the temptation to "reevaluate" their portfolio strategy whenever they feel the pressure of others doing better, they will de facto end up performance chasing.

This is a hard problem to solve! It sounds so reasonable in the moment, and even if some folks here will advocate staying the course, others will argue for whatever happens to be the best recent approach, and it is just all too easy to go with that group to alleviate the psychological pressure of recent underperformance.
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

Johnathon Livingston wrote: Sun May 16, 2021 8:29 am Thank you to everyone for your comments and this discussion. It has given me a lot to think about. I do question myself and whether I’m backing into an answer because of bias for the US and maybe I am falling prey to performance chasing. Or maybe I’m just now really thinking for myself when it comes to investing. I’ve done well with my investments as compared to the average investor ironically because I had zero interest in investing and just “set it and forgot it.” It would be ironic now to do poorly because I’m paying more attention to it. I think it’s not uncommon to wake up and find yourself pushing 50 and start reality checking where you are in life and where you’re going. You just don’t want that to become a mid-life crisis! I started investing in the “lost decade” of the 2000s followed by a decade long bull run for the US and a poor performance by international equities. It seems like there’s always a fly in the ointment to look out for. But that seems to argue for diversification. Until I feel 100% confident about the decision I’m staying the course. I think the uncertainty of the time we’re in at the moment and seeing US price to earnings ratios so high for so long driven by technology growth stocks makes me not want to make any bold moves at this time. I get shivers having flashbacks to the 2000s. I believe in buying the haystack. I think that the lesson for me is you have to define what the haystack is and go with it. I never liked the international haystack but now I have a freaking truckload of that hay and probably shouldn’t sell it cheap. At the end of the day it’s just as likely to not matter as it is to matter if it’s a global haystack or a US haystack, so arguing about it becomes a fool’s errand at some point. Thanks again!
My two cents is you have landed in a wise spot.

And if it helps at all, I do think if you generally follow good savings advice and any reasonable investment plan, likely you will have enough hay in the end to really feel like these issues recede in importance.
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Re: Globally Diversified or Worsified?

Post by vineviz »

Johm221122 wrote: Sun May 16, 2021 8:30 am
anon_investor wrote: Sun May 16, 2021 8:22 am International proponents keep pointing out 2000-2009 as a period of US under performance. Plenty of US only investors stayed US only through that period. Was there a big push for international right before 2000, or was the push after that 2000-2009 run?
I started investing in 1999 and international exposure was definitely pushed then by what I observed
Here's a full page advertisement from Business Week in 1979.

Image
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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anon_investor
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Re: Globally Diversified or Worsified?

Post by anon_investor »

vineviz wrote: Sun May 16, 2021 12:06 pm
Johm221122 wrote: Sun May 16, 2021 8:30 am
anon_investor wrote: Sun May 16, 2021 8:22 am International proponents keep pointing out 2000-2009 as a period of US under performance. Plenty of US only investors stayed US only through that period. Was there a big push for international right before 2000, or was the push after that 2000-2009 run?
I started investing in 1999 and international exposure was definitely pushed then by what I observed
Here's a full page advertisement from Business Week in 1979.

Image
Was this right in the middle of when int'l was out performing?
NiceUnparticularMan
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

anon_investor wrote: Sun May 16, 2021 12:09 pm
vineviz wrote: Sun May 16, 2021 12:06 pm
Johm221122 wrote: Sun May 16, 2021 8:30 am
anon_investor wrote: Sun May 16, 2021 8:22 am International proponents keep pointing out 2000-2009 as a period of US under performance. Plenty of US only investors stayed US only through that period. Was there a big push for international right before 2000, or was the push after that 2000-2009 run?
I started investing in 1999 and international exposure was definitely pushed then by what I observed
Here's a full page advertisement from Business Week in 1979.

Image
Was this right in the middle of when int'l was out performing?
I believe for most of the 1970s, including the late 1970s, ex-US did in fact outperform US.
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vineviz
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Re: Globally Diversified or Worsified?

Post by vineviz »

NiceUnparticularMan wrote: Sun May 16, 2021 12:14 pm
anon_investor wrote: Sun May 16, 2021 12:09 pm Was this right in the middle of when int'l was out performing?
I believe for most of the 1970s, including the late 1970s, ex-US did in fact outperform US.
And for the decade AFTER this ad ran as well.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Triple digit golfer
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

vineviz wrote: Sun May 16, 2021 12:36 pm
NiceUnparticularMan wrote: Sun May 16, 2021 12:14 pm
anon_investor wrote: Sun May 16, 2021 12:09 pm Was this right in the middle of when int'l was out performing?
I believe for most of the 1970s, including the late 1970s, ex-US did in fact outperform US.
And for the decade AFTER this ad ran as well.
Wait just a minute! You mean there have been long periods when international equities have outperformed U.S. equities? Who knew?!
BabaWawa
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Re: Globally Diversified or Worsified?

Post by BabaWawa »

Actin wrote: Sat May 15, 2021 9:33 am Two points

1) International investing is market timing

2) What Vanguard believes and recommends has no value. They have an abyssal track record.
That's ridiculous. I've had the same allocation to ex-US for over 20 years. I guess you'll tell me that rebalancing is market timing since I'm buying more shares when prices are down.
Last edited by BabaWawa on Sun May 16, 2021 12:59 pm, edited 1 time in total.
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