S&P 500 International Exposure
S&P 500 International Exposure
Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Re: S&P 500 International Exposure
You don't need it. Some want to own stocks traded on non-US stock markets for various reasons - there are many threads about this. Many here don't invest in foreign stock markets, and even the author of some of those books you mentioned (about 3-funds) stopped investing in ex-US a while back, although he still recommends 20%.
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Re: S&P 500 International Exposure
If you want to be truely diversified then you need to own VT which is the world index.
When you dont own VT and only own vtsax then you are ignoring 40% of the world market.
Just in 2009 xUS was 60% and Us was 40%. It flipped on its head in 11 years.
When you dont own VT and only own vtsax then you are ignoring 40% of the world market.
Just in 2009 xUS was 60% and Us was 40%. It flipped on its head in 11 years.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
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Re: S&P 500 International Exposure
The argument that the US provides enough international exposure is not correct; despite the considerable amount of foreign sales.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Just because quite a bit of US revenue may come from foreign sales, it does not mean that it is sufficient exposure to actually match what the foreign companies are doing or even the representative of sales in that country (or even the US). Take a look at any country and you will see a difference in which sectors the country specializes in versus the US; after all, they get sales from the US as well. One gets only what the US specializes in by investing only in the US -- not the specialities of the other countries.
See how many things say "Made in [elsewhere]" or are from elsewhere, and you will see what I mean. How many have bought a Swiss computer? But most have bought from Nestle before.
In short, the US is not representative of the world.
Last edited by secondopinion on Fri Sep 17, 2021 5:41 pm, edited 2 times in total.
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Re: S&P 500 International Exposure
Here we go again: international or not.
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Re: S&P 500 International Exposure
You don’t need any international at all. The famous last words of a Japanese investor in the late 80s
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: S&P 500 International Exposure
Since you want an answer that satisfies you, have you considered that you might have a confirmation bias and you are interpreting new evidence as confirmation of your existing beliefs? If you are willing to accept a source of information other than Jack Bogle there are many other credible sources such as Vanguard itself who present the case for diversification with international holdings.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
This link is to a 2021 Vanguard paper.
https://personal.vanguard.com/pdf/ISGGE ... Online.pdf
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Re: S&P 500 International Exposure
US vs International is a currency and sector bet as much as it is a geographic bet. I don’t have the numbers in front of me, but there are significant differences in sector weighting between total US and total Int’l (US is higher in Tech, Int’l is higher in Financial etc).
From another post I made:
- 7 of the 10 biggest heavy equipment manufacturers
- 6 of the 10 biggest power tool manufacturers
- All of the 10 biggest mining companies
- 6 of the 10 biggest banks
- 8 of the 10 biggest carmakers
- 6 of the 10 biggest pharmaceutical companies
etc, etc, etc
Are all international.
Re: S&P 500 International Exposure
All true, but it's hard for me to ignore the fact that from 1993 - 2019 the US Markets are up 720% and the International markets only 230%. I just saw these numbers last week for the first time. I forget where I found them but they're from a Jack Bogle interview. So even though the US is not representative of the world, it seems we have a larger share of it.secondopinion wrote: ↑Fri Sep 17, 2021 5:01 pm
The argument that the US provides enough international exposure is not correct; despite the considerable amount of foreign sales.
Just because quite a bit of US revenue may come from foreign sales, it does not mean that it is sufficient exposure to actually match what the foreign companies are doing or even the representative of sales in that country (or even the US). Take a look at any country and you will see a difference in which sectors the country specializes in versus the US; after all, they get sales from the US as well. One gets only what the US specializes in by investing only in the US -- not the specialities of the other countries.
See how many things say "Made in [elsewhere]" or are from elsewhere, and you will see what I mean. How many have bought a Swiss computer? But most have bought from Nestle before.
In short, the US is not representative of the world.
Re: S&P 500 International Exposure
Too funny and too true. I was just telling someone about the NIKKEI this past Monday.Nathan Drake wrote: ↑Fri Sep 17, 2021 5:53 pm You don’t need any international at all. The famous last words of a Japanese investor in the late 80s
Re: S&P 500 International Exposure
No, I'm open to change. It was just a few short years ago I read The Little Book of Common Sense Investing. That completely uprooted any bias I might have previously had, and it changed how I thought about investing. I'm always willing to read new source material, and do so weekly, so thank you for the link.stan1 wrote: ↑Fri Sep 17, 2021 6:03 pm
Since you want an answer that satisfies you, have you considered that you might have a confirmation bias and you are interpreting new evidence as confirmation of your existing beliefs? If you are willing to accept a source of information other than Jack Bogle there are many other credible sources such as Vanguard itself who present the case for diversification with international holdings.
This link is to a 2021 Vanguard paper.
https://personal.vanguard.com/pdf/ISGGE ... Online.pdf
Re: S&P 500 International Exposure
+1Nathan Drake wrote: ↑Fri Sep 17, 2021 5:53 pm You don’t need any international at all. The famous last words of a Japanese investor in the late 80s
Did NIKKEI finally break even after 30 years?
Re: S&P 500 International Exposure
US vs International is a currency and sector bet as much as it is a geographic bet. I don’t have the numbers in front of me, but there are significant differences in sector weighting between total US and total Int’l (US is higher in Tech, Int’l is higher in Financial etc).
From another post I made:
- 7 of the 10 biggest heavy equipment manufacturers
- 6 of the 10 biggest power tool manufacturers
- All of the 10 biggest mining companies
- 6 of the 10 biggest banks
- 8 of the 10 biggest carmakers
- 6 of the 10 biggest pharmaceutical companies
etc, etc, etc
Are all international.
[/quote]
Thank you, this is something I don't recall ever seeing before, let alone thinking about. I appreciate that!
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Re: S&P 500 International Exposure
Why pick an arbitrary amount? Instead, hold stocks in world market capitalization proportion. Roughly 60% U.S. and 40% international.
International stocks have U.S. exposure, too. So if you're looking for international exposure in U.S. stocks, you should also look for U.S. exposure in international stocks.
Hold them all, the entire market, not just one country.
Re: S&P 500 International Exposure
Has anyone considered a glide path to global market weight for international as they near retirement? Just like stocks, if your goal is to reduce volatility, maybe that is an option?
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Re: S&P 500 International Exposure
You don't need any international.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
You will have a simpler portfolio with less fees by using S&P500 only. Here's some arguments you will get.
"something something what about Japan." this is false equivalence. Yeah, you COULD have stagflation like Japan. However, the states by itself has enough of its own natural resources, workers, IP, businesses ect... to self sustain. Japan couldn't have even come close to what the states are today.
The next one is "But you are not full diversified!" This is kind of a misconception. I think Charlie Munger called diversification -- diWORSEification. You need something to separate the wheat from the chaff. You don't want to be propping up business that are barely holding on. For me the S&P500 sets the standard of proof that your company can prove its value. Just look at the amount of businesses that toppled as soon as covid hit! they couldn't take a quarter sitting on the side lines. If that's the way your business runs I don't want to own its shares.
By adding in another countries market you also add in, Fees of that fund, Currency risks for despots and destabilized economies. I'll give one example to avoid the no politics talk. Chinas the second largest economy in the world. It also manipulates its currency, and enslaves its citizenry, and controls private markets. There are a lot of critiques you could have for the states. However, here people are free to follow their destiny free to start a business.
The idea that the States having the reserve currency status removed and it not resulting in political instability and war is laughable.
Then people will say, "But other people besides Bogle said international is necessary" I think vanguard even put out such a article. Guess what else Vanguard does? Sells you your shares. An by buying another different fund, you will be spending more money on more Fees. They are a good company. An as a good company they are a profit first company.
Speaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international.
Happy researching. Full disclosure: I am 90/10 S&P500/cash.
My opinion, should you wish to dip a toe in to international... 10% no more, but really a lot less.
Last edited by Somethingwitty92912 on Sat Sep 18, 2021 7:15 am, edited 1 time in total.
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Re: S&P 500 International Exposure
You need one because Bogle was wrong. You have problems that can happen in a single country due to geographic related events or disastrous political decisions.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
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Re: S&P 500 International Exposure
The U.S is not representative of the world, however for many people it's representative enough to not feel the need for international. In the 80's and 90's a different story. But with internet and globalization things have changed.secondopinion wrote: ↑Fri Sep 17, 2021 5:01 pmThe argument that the US provides enough international exposure is not correct; despite the considerable amount of foreign sales.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Just because quite a bit of US revenue may come from foreign sales, it does not mean that it is sufficient exposure to actually match what the foreign companies are doing or even the representative of sales in that country (or even the US). Take a look at any country and you will see a difference in which sectors the country specializes in versus the US; after all, they get sales from the US as well. One gets only what the US specializes in by investing only in the US -- not the specialities of the other countries.
See how many things say "Made in [elsewhere]" or are from elsewhere, and you will see what I mean. How many have bought a Swiss computer? But most have bought from Nestle before.
In short, the US is not representative of the world.
We are also not a little closed off island with limited resources called Japan. We are the melting pot of talent, resources, agriculture/land called the U.S.A. International people always say "well look at Japan for example that could happen to the U.S" Well VXUS number 1 holder is Japan, 15%. Have they broke even after 30 years? And 9% of it is China. If there's money to be made in China you can bet the government is going to funnel it their way.
Re: S&P 500 International Exposure
This is, despite the framing, just another "US vs International" thread. Really.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
If you feel like you'd make the same argument after International outperforms the US for a 10 year period, stick with all US. International based on history will probably outperform for 10 years at one or more points in your investing lifetime. You seem like you are asking for people to give you permission to go 100% US, you have it. It is your money and your choice. A fair bit of your argument above involves "Bogle said". If works for you, go to it. I do wonder if we will see as many of these threads after the next 10 year international outperformance, I'd rather guess not personally.
I find the story of Japanese equities prior to their fall (on top of the business world, the envy of all including US companies that tried to emulate Japanese business practices, a powerful exporter, lots of "Foreign Revenue Exposure") relevant, but others don't because reasons. I think that the flip of the argument -- that international companies give you "plenty of US exposure" -- is as compelling as your argument because the US is a huge importer of goods. Or on the other hand that that argument is probably equally illogical. And I think that very well known arguments about US advantages (innovation, reserve currency, etc) could be priced into US stock valuations, though who can tell?
Or heck maybe that is all wrong and US will provide better performance forever, or in the long run it will even out and doesn't matter much. Personally I have 60% US, 40% int'l. I'll do OK if US outperforms. I'll do OK (but a bit less well) if international outperforms. Either way I'm content. I like having some equity risks, known in advance or not, diversified away. I have no need to go all in and make big bets in either direction, and don't get angsty about which is currently "winning".
Those who go 100% US and argue for it with such fervor and conviction have a much stronger belief in their ability to predict the future than I. And in any case I think that the decision of %equities vs fixed income is probably much more crucial to investors meeting their goals despite the heat int'l vs US gets.
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Re: S&P 500 International Exposure
It's a globalized world and a lot of the big companies are multinationals. In the perpetual debate about the importance of international stock investing, "US multinationals effectively give you international exposure anyway" is one of the perpetual talking points.
You won't find any definitive answer.
Point #1: economies are not the same thing as stock markets. Emerging markets boosters like to tout the economic growth rate of emerging markets countries, but the relationship between GDP growth and stock performance is loose and unreliable. In this case, it's the other way around: even if a US index fund gives you exposure to the global economy, that isn't necessarily the same as exposure to the global stock market.
Point #2: Stocks are stocks. And if globalization means anything it means that the behavior of stock markets is going to become less and less independent over time.
Point #3: Endpoint, endpoints, it's always endpoints. In my opinion there is a weak case to be made for international diversification, but it's never been all that compelling. Same-old, same-old. International stocks helped during the decline of 2000-2003, and continued to help through 2008. But an international stock allocation made 2008-2009 worse, international diversification hurt. And of course international stocks have underperformed pretty badly from 2009-present. And as always when there is a long period of underperformance of any investment, it leads some investors say "that investment obviously sucks, I'm staying away" and some say "it's cheap and 'due' for a comeback."
I have tended to resist international stocks--20% of my stock allocation is international--out of sales resistance. The case for international stocks has never seemed anywhere near as strong as the voices of those advocating for it. I've always had a feeling of being sold something under high pressure. I have an impression that Vanguard and others must feel that it is important to them to develop a global stock investment capability, and that the strangely strident push for it reflects the needs of fund companies at least as much as it reflects the needs of investors.
You won't find any definitive answer.
Point #1: economies are not the same thing as stock markets. Emerging markets boosters like to tout the economic growth rate of emerging markets countries, but the relationship between GDP growth and stock performance is loose and unreliable. In this case, it's the other way around: even if a US index fund gives you exposure to the global economy, that isn't necessarily the same as exposure to the global stock market.
Point #2: Stocks are stocks. And if globalization means anything it means that the behavior of stock markets is going to become less and less independent over time.
Point #3: Endpoint, endpoints, it's always endpoints. In my opinion there is a weak case to be made for international diversification, but it's never been all that compelling. Same-old, same-old. International stocks helped during the decline of 2000-2003, and continued to help through 2008. But an international stock allocation made 2008-2009 worse, international diversification hurt. And of course international stocks have underperformed pretty badly from 2009-present. And as always when there is a long period of underperformance of any investment, it leads some investors say "that investment obviously sucks, I'm staying away" and some say "it's cheap and 'due' for a comeback."
I have tended to resist international stocks--20% of my stock allocation is international--out of sales resistance. The case for international stocks has never seemed anywhere near as strong as the voices of those advocating for it. I've always had a feeling of being sold something under high pressure. I have an impression that Vanguard and others must feel that it is important to them to develop a global stock investment capability, and that the strangely strident push for it reflects the needs of fund companies at least as much as it reflects the needs of investors.
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Re: S&P 500 International Exposure
I apologize if I missed an answer to this comment by the poster, but is this the case:
“consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.”
Runyer
“consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.”
Runyer
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Re: S&P 500 International Exposure
I listen to John Bogle on this matter. I invest 100% in VTSAX/VFIAX.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me.
Jack Bogle recommended 2 funds. The S&P 500 (or Total Market Index Fund) and a Total Bond Market index fund. The Boglehead investing books recommend 3 funds with the addition of the International Index fund to the total market (or S&P 500) and total bund fund.
I own all 3 , but less in the amount recommended by the Bogleheads (about 10%). Mr. Bogle said if you own the S&P 500 you have enough international exposure. I've been doing some additional research on the S&P 500, and depending on where you read it, the consensus is the S&P as a whole has an International Exposure rate of between 17% and 30%.
In fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
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Re: S&P 500 International Exposure
So, the typical Bogleheads 20% ex-US portfolio would have a 1.8% allocation to China - yet all we hear from the anti-international crowd is China, China, China. Not to mention you could easily just use a developed ex-US fund that has no China. If you going all-in on home country bias, at least come up with something other than the same tired and irrelevant talking points.
Re: S&P 500 International Exposure
You'd prefer we talk about Russia or the problems in some other EM?burritoLover wrote: ↑Sat Sep 18, 2021 8:38 am So, the typical Bogleheads 20% ex-US portfolio would have a 1.8% allocation to China - yet all we hear from the anti-international crowd is China, China, China. Not to mention you could easily just use a developed ex-US fund that has no China. If you going all-in on home country bias, at least come up with something other than the same tired and irrelevant talking points.
Or back to discussing the tax impacts (foreign withholding as well as domestic lack of qualified treatment), higher transaction and holding costs, higher volatility, additional risks like currency risk and the counterparty bank relationship needed to "own" foreign stocks you can't own as a foreigner, the failure of the purported "Efficient Frontier" correlations to provide any benefit that isn't offset by the times it's hurt performance, and other issues that the anti-"Broad Large Multinationals traded on US market is good enough" crowd chooses to completely ignore despite it being discussed over and over again.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: S&P 500 International Exposure
I don't understand the argument that S&P 500 provides enough international exposure because so much of their revenue comes from other countries.
How exactly is that different from saying that AAPL provides sufficient US market exposure since so much of their revenue comes from the US? (And therefore, owning APPL is enough and you don't need S&P 500).
How exactly is that different from saying that AAPL provides sufficient US market exposure since so much of their revenue comes from the US? (And therefore, owning APPL is enough and you don't need S&P 500).
Re: S&P 500 International Exposure
First, less than half of AAPL's revenues come from the "Americas" https://www.statista.com/statistics/382 ... al-region/etfan wrote: ↑Sat Sep 18, 2021 9:03 am I don't understand the argument that S&P 500 provides enough international exposure because so much of their revenue comes from other countries.
How exactly is that different from saying that AAPL provides sufficient US market exposure since so much of their revenue comes from the US? (And therefore, owning APPL is enough and you don't need S&P 500).
Second, AAPL is a single stock as opposed to a diversified portfolio of many companies/stocks and industrial sectors. There is a good argument that "diversification" is beneficial. How much diversification is necessary to capture its benefits without hurting the portfolio is another argument. Further dividing the up the portfolio into more pieces, even if those additional pieces introduce other risks, additional costs, and don't commensurately benefit the portfolio is di-worse-ification.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: S&P 500 International Exposure
It will never be answered because it involves an unknown future, large amounts of money, and big egos on both sides. However, I am willing to tell you why I invest in international. Here is my philosophy:mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pm Forgive me if this has already been answered, but I've combed through the Archives and other sites and have yet to find an answer that satisfies me...
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
I desire to disengage from financial and political news completely. I want to focus my stress and energy on more important things (i.e. Wife, kids, career, community involvement). I want to not care if a new president or senator proposes some crazy new legistation, or if I hear some new demographic trend that may affect the trajectory of one country versus another. I have found that, for me, having a whole world stock index fund as my primary investment, and a healthy emergency fund, gives me the peace of mind to ignore news and not worry that it will negatively impact my investments.
An example - due to my job I pay attention to world demographic projections, such as the below:
No one knows if these projections will come true, but by being well diversified, I am comfortable when I see such projections or geopolitical rumblings, knowing that I am as diversified as possible.
I think this also illustrates why there is no consensus on international investing - because when our underlying approaches differ so widely, we should have different final answers.
Founding Father
"I do not think myself equal to the Command I am honored with." -George Washington (excerpt from Journals of the Continental Congress, 16 June 1775)
Re: S&P 500 International Exposure
To diversify away from country and currency exposure. In general, you diversify risk away as much as possible, as long as its cost effective to do so. It's been cost effective to diversify into international stocks for many years now.
- burritoLover
- Posts: 4097
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Re: S&P 500 International Exposure
Russia, which would make 0.2% of the typical BH 20% ex-us portfolio. Once again, focus on EM, even though you are not obligated to include EM in your international allocation. Thanks for proving my point.JoMoney wrote: ↑Sat Sep 18, 2021 8:55 amYou'd prefer we talk about Russia or the problems in some other EM?burritoLover wrote: ↑Sat Sep 18, 2021 8:38 am So, the typical Bogleheads 20% ex-US portfolio would have a 1.8% allocation to China - yet all we hear from the anti-international crowd is China, China, China. Not to mention you could easily just use a developed ex-US fund that has no China. If you going all-in on home country bias, at least come up with something other than the same tired and irrelevant talking points.
Or back to discussing the tax impacts (foreign withholding as well as domestic lack of qualified treatment), higher transaction and holding costs, higher volatility, additional risks like currency risk and the counterparty bank relationship needed to "own" foreign stocks you can't own as a foreigner, the failure of the purported "Efficient Frontier" correlations to provide any benefit that isn't offset by the times it's hurt performance, and other issues that the anti-"Broad Large Multinationals traded on US market is good enough" crowd chooses to completely ignore despite it being discussed over and over again.
Currency risk works both ways with an unhedged ex-us allocation - another tired point - but you must be absolutely certain about the future of the U.S. dollar - aren't you?
You do realize that correlations and the "efficient frontier" change over time and are highly dependent on the time period selected? They aren't predictive of any future returns - there's no optimal portfolio for the future that you can derive from them. A future optimal portfolio is NOT known - that is why we diversify.
Re: S&P 500 International Exposure
I don't know what the right answer is, but the idea that investing internationally SHOULD be a pretty good thing makes sense, I guess... I mean, diversification, right?
But then my brain tells me that as a US investor, a huge benefit is that my taxes & fees will undeniably be lower in domestic funds. This can compound over time and make a huge difference in returns.... Then my brain further tells me, without getting political, the world is becoming more and more globalized and Country borders matter less and less as time marches on... so there is no need to buy these more expensive, less tax-efficient funds/etf's. But then when I think about it a little bit more, it makes me a little uneasy having all my investments in one Country, even if it is the US... I mean, diversification is better, right?
I saved this chart and always refer to it when I'm having an International investing crisis. It's the after-tax returns of the S&P 500 vs. International since 1970. It helps me out a bit. That being said, I invest in VTSAX/VFIAX, but that is subject to change.
http://quotes.morningstar.com/chart/fun ... 2%3A955%7D
But then my brain tells me that as a US investor, a huge benefit is that my taxes & fees will undeniably be lower in domestic funds. This can compound over time and make a huge difference in returns.... Then my brain further tells me, without getting political, the world is becoming more and more globalized and Country borders matter less and less as time marches on... so there is no need to buy these more expensive, less tax-efficient funds/etf's. But then when I think about it a little bit more, it makes me a little uneasy having all my investments in one Country, even if it is the US... I mean, diversification is better, right?
I saved this chart and always refer to it when I'm having an International investing crisis. It's the after-tax returns of the S&P 500 vs. International since 1970. It helps me out a bit. That being said, I invest in VTSAX/VFIAX, but that is subject to change.
http://quotes.morningstar.com/chart/fun ... 2%3A955%7D
Re: S&P 500 International Exposure
Even better!JoMoney wrote: ↑Sat Sep 18, 2021 9:11 amFirst, less than half of AAPL's revenues come from the "Americas" https://www.statista.com/statistics/382 ... al-region/etfan wrote: ↑Sat Sep 18, 2021 9:03 am I don't understand the argument that S&P 500 provides enough international exposure because so much of their revenue comes from other countries.
How exactly is that different from saying that AAPL provides sufficient US market exposure since so much of their revenue comes from the US? (And therefore, owning APPL is enough and you don't need S&P 500).
About half of of S&P 500 revenue is international as well and that's considered an argument that S&P 500 is sufficient world exposure (including US).
The same can be said about AAPL. (The "over-diversification" point is a separate argument).
That's a fair point but two things come to mind:Second, AAPL is a single stock as opposed to a diversified portfolio of many companies/stocks and industrial sectors. There is a good argument that "diversification" is beneficial. How much diversification is necessary to capture its benefits without hurting the portfolio is another argument. Further dividing the up the portfolio into more pieces, even if those additional pieces introduce other risks, additional costs, and don't commensurately benefit the portfolio is di-worse-ification.
1- Total Stock Market seems to have outperformed S&P 500 slightly so it seems "over-diversification" at least didn't hurt, and probably helped.
2- Diversification via exposure to international seems to serve the purpose of not being tied to American-based companies. Just like you find it risky to rely completely on AAPL for your US-based investments, doesn't it also seem prudent to not rely completely on US-based investments for the same reason?
Re: S&P 500 International Exposure
While that is marginally true if looking only at returns of Vanguard's TSM Fund vs. Vanguard's 500 Fund, it's not true of the various Total Stock Market Indexes over longer periods against the S&P 500 index.
Even with Vanguard's funds over the existence of the TSM fund, Vanguard's 500 fund had marginally better "risk adjusted return" (Sharpe ratio)
PV Link
Or had a higher return with lower or same standard deviation holding S&P500/Bonds over TSM/Bonds adjusted to comparable standard deviation
PV Link
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: S&P 500 International Exposure
This seems to be a well reasoned discussion discussion, with fine points on both sides. After reading it, I feel fairly good about holding SWISX at Schwab. I’m wondering if my international allocation is a bit high. I know there is no right answer for an outsider to give; and that AA is a very personal decision. But I’d like your thoughts on how to help me determine which way to move - if at all.
I hold 70% equities 30 bonds and cash.
My 70% equities are:
VIIIX (Vanguard S&P index) =70% of equities, or 49% of my total holdings.
SWISX (Schwab international index) = 30% of equities, or 21% of my total holdings.
I was thinking about increasing my S&P holdings (I was 100% invested in the S&P until I became a boglehead, then I became more diversified, as I was exposed to the in-depth financial literacy displayed in this group). With valuations of the S&P being expensive right now, I’m torn. I don’t want to market time, yet I am compelled to, “don’t just do something…….. sit there”!
In your opinion, should I stay put, or move funds toward higher or lower international exposure. I’m 51 years old and could retire now. I like my job, and will probably punch out at age 60.
Thanks ahead of time for you consideration.
Whitecap
I hold 70% equities 30 bonds and cash.
My 70% equities are:
VIIIX (Vanguard S&P index) =70% of equities, or 49% of my total holdings.
SWISX (Schwab international index) = 30% of equities, or 21% of my total holdings.
I was thinking about increasing my S&P holdings (I was 100% invested in the S&P until I became a boglehead, then I became more diversified, as I was exposed to the in-depth financial literacy displayed in this group). With valuations of the S&P being expensive right now, I’m torn. I don’t want to market time, yet I am compelled to, “don’t just do something…….. sit there”!
In your opinion, should I stay put, or move funds toward higher or lower international exposure. I’m 51 years old and could retire now. I like my job, and will probably punch out at age 60.
Thanks ahead of time for you consideration.
Whitecap
Re: S&P 500 International Exposure
IMO, and anecdotal experience, making changes is usually a mistake.
If you have a reasonably diversified portfolio "Stay the course." There is room for lots of noise for us to argue about around the margins without any of it making a substantial difference one could predict one way or the other.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: S&P 500 International Exposure
JoMoney,JoMoney wrote: ↑Sat Sep 18, 2021 10:20 amIMO, and anecdotal experience, making changes is usually a mistake.
If you have a reasonably diversified portfolio "Stay the course." There is room for lots of noise for us to argue about around the margins without any of it making a substantial difference one could predict one way or the other.
You have helped me on a few occasions now, and I have always enjoyed your thoughts (even when they challenge my own thoughts, as I continue me education in financial literacy). You always seem to be considerate, well reasoned, and somehow comforting……..lol. Thank you again for your contributions.
Your friend,
Whitecap
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Re: S&P 500 International Exposure
I wish SWISX held Canada and emerging markets.
Re: S&P 500 International Exposure
Because stock performance does not depend solely on the economy in the region that revenue comes from.mkpainter wrote: ↑Fri Sep 17, 2021 4:07 pmIn fact, I just discovered there is an S&P 500 Foreign Revenue Exposure Index that tracks companies within the S&P with a "higher than average revenue exposure to regions outside the U.S." BTW, it's up 36.8% YTD.
So with that international exposure through the S&P 500, that Jack Bogle has clearly stated, why do I still need an international index fund?
Home country business style, home country regulations, and many company-specific factors also have an impact. So do many sector-specific factors, and the sector balance in the US is very different from the rest of the world.
If region of revenue really were the only thing that matters, then you could just buy non-US stocks only on the grounds that they have plenty of revenue exposure to the US.
Re: S&P 500 International Exposure
How much you save is much more important than asset allocation.
Re: S&P 500 International Exposure
We don't ignore the claims of currency risk. We also don't ignore the claims that US companies have sufficient international exposure due to their foreign revenue. However, ignoring neither of those means that we can't ignore that the dreaded currency risk could also show up in the foreign revenue of US companies.JoMoney wrote: ↑Sat Sep 18, 2021 8:55 amYou'd prefer we talk about Russia or the problems in some other EM?burritoLover wrote: ↑Sat Sep 18, 2021 8:38 am So, the typical Bogleheads 20% ex-US portfolio would have a 1.8% allocation to China - yet all we hear from the anti-international crowd is China, China, China. Not to mention you could easily just use a developed ex-US fund that has no China. If you going all-in on home country bias, at least come up with something other than the same tired and irrelevant talking points.
Or back to discussing the tax impacts (foreign withholding as well as domestic lack of qualified treatment), higher transaction and holding costs, higher volatility, additional risks like currency risk and the counterparty bank relationship needed to "own" foreign stocks you can't own as a foreigner, the failure of the purported "Efficient Frontier" correlations to provide any benefit that isn't offset by the times it's hurt performance, and other issues that the anti-"Broad Large Multinationals traded on US market is good enough" crowd chooses to completely ignore despite it being discussed over and over again.
We don't ignore the other risks mentioned either. At the same time, we can't ignore the lack of a reason to presume they are not reflected in the current market price.
And we certainly don't ignore the past performance you allude to. If we did, we couldn't accuse country-pickers of performance chasing.
Re: S&P 500 International Exposure
You have this backwards. A widespread shift from US-only to internationally diversified would not benefit diversified investors. Their non-US holdings could go up but their US holdings would go down to match. On the other hand, stock-pickers and country-pickers would lose if enough people diversify from the individual stocks or countries they favor.Somethingwitty92912 wrote: ↑Sat Sep 18, 2021 7:13 amSpeaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international.
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Re: S&P 500 International Exposure
That would depend on asset allocation. Which is sort of implied knowledge when talking portfolio management. So I don’t see your point?patrick wrote: ↑Sat Sep 18, 2021 11:25 amYou have this backwards. A widespread shift from US-only to internationally diversified would not benefit diversified investors. Their non-US holdings could go up but their US holdings would go down to match. On the other hand, stock-pickers and country-pickers would lose if enough people diversify from the individual stocks or countries they favor.Somethingwitty92912 wrote: ↑Sat Sep 18, 2021 7:13 amSpeaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international.
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Re: S&P 500 International Exposure
Would it give you comfort knowing that you held a US only portfolio due to less fees, taxes, and so forth while the US market has a prolonged bear market while the rest of the world does reasonably well?JoMoney wrote: ↑Sat Sep 18, 2021 8:55 amYou'd prefer we talk about Russia or the problems in some other EM?burritoLover wrote: ↑Sat Sep 18, 2021 8:38 am So, the typical Bogleheads 20% ex-US portfolio would have a 1.8% allocation to China - yet all we hear from the anti-international crowd is China, China, China. Not to mention you could easily just use a developed ex-US fund that has no China. If you going all-in on home country bias, at least come up with something other than the same tired and irrelevant talking points.
Or back to discussing the tax impacts (foreign withholding as well as domestic lack of qualified treatment), higher transaction and holding costs, higher volatility, additional risks like currency risk and the counterparty bank relationship needed to "own" foreign stocks you can't own as a foreigner, the failure of the purported "Efficient Frontier" correlations to provide any benefit that isn't offset by the times it's hurt performance, and other issues that the anti-"Broad Large Multinationals traded on US market is good enough" crowd chooses to completely ignore despite it being discussed over and over again.
Don't let the minor additional insurance cost through fees/taxes take away from the fact that you invest globally to mitigate tail events for a specific region. The cost delta is decreasing over time as well. It is extremely cheap to get exposure to VXUS for instance (only 5 basis points in cost)
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: S&P 500 International Exposure
This is a very odd position to take. Why do you feel like Vanguard is trying to sell you something with VXUS? Again, the difference in fees is extremely minor and compressing with time as the costs to manage an international fund decrease. It is no surprise that a fund which comprises of a very large number of countries is more expensive to run than a fund comprising of one country. This doesn't mean Vangaurd is trying to upsell you on something you don't need.nisiprius wrote: ↑Sat Sep 18, 2021 8:17 am I have tended to resist international stocks--20% of my stock allocation is international--out of sales resistance. The case for international stocks has never seemed anywhere near as strong as the voices of those advocating for it. I've always had a feeling of being sold something under high pressure. I have an impression that Vanguard and others must feel that it is important to them to develop a global stock investment capability, and that the strangely strident push for it reflects the needs of fund companies at least as much as it reflects the needs of investors.
Vanguard is simply looking at the evidence and tail risk. Unfortunately many people that are skeptical of exUS simply look at US performance under the lens of "well, over the past 100 years things have worked out well for the US, and I don't see exUS adding much to me over the long term" ignoring the fact that the US over the next few decades could face risks that it hasn't had to face over the recent 30 year history, and that the US could encounter risks that were faced by countries that have historically underperformed. These risks include growing social division fomented by an increasing reliance on social media, debt/GDP that is some of the worst in the developed world, lack of social safety nets, and increasing disparity of wealth. Combine these risks with the market pricing in higher valuations (anticipating less risk) and you have a potential whipsaw situation of investment returns SHOULD that risk show up in a meaningful way.
And we have seen countless examples where investments in only a single country have had disastrous results despite: 1) those countries having a huge portion of their revenue from foreign sources, 2) the size of those countries being meaningful in relation to global GDP. Yes, US fits both 1) & 2), but that does not prevent the tail risk from showing up in a meaningful way. And the US does not need to have a bad acute event for the investment returns to be poor. It simply needs to underperform relative to the pricing expectations of the market.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: S&P 500 International Exposure
This argument that US companies have international exposure is just silly. Non-US companies also have US exposure. If you want to index, you are missing US exposure owning just US companies. How many out there buy products from non-US companies. Any Samsung phone owners ? How are you indexing and not owning Samsung ?
Re: S&P 500 International Exposure
All US-only investors have a profit incentive to discourage diversification. A widespread shift of investment from US-only stocks portfolios to diversified portfolios could push US stock prices down. This would impact US stock prices broadly and this is a risk to any portfolio that has all its stocks in the US regardless of the exact asset allocation.Somethingwitty92912 wrote: ↑Sat Sep 18, 2021 11:41 amThat would depend on asset allocation. Which is sort of implied knowledge when talking portfolio management. So I don’t see your point?patrick wrote: ↑Sat Sep 18, 2021 11:25 amYou have this backwards. A widespread shift from US-only to internationally diversified would not benefit diversified investors. Their non-US holdings could go up but their US holdings would go down to match. On the other hand, stock-pickers and country-pickers would lose if enough people diversify from the individual stocks or countries they favor.Somethingwitty92912 wrote: ↑Sat Sep 18, 2021 7:13 amSpeaking of, always look to the profit incentive of others to determine where their values are... kinda like all the people who hold international funds that have been failing to keep up with the S&P500 recommending to you in this very thread that you NEEED international.
The same incentive doesn't exist for diversified investors whose gains on non-US stocks would be balanced by losses on US stocks. This one does, however, presume that the allocation is balanced. Someone who has only a small amount of non-US stocks would still prefer US-only investors to stay that way. The only asset allocations that generate incentives to push non-US investing are the ones heavily tilted away from the US.
Of course, the above is only relevant if you actually can persuade enough people to have an impact on asset prices. Realistically, anything that anyone says here has approximately zero chance of doing that. But if, hypothetically, we were able to convince enough people of their views, then the US-only investors have a profit incentive to do so, but not the diversified investors.
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Re: S&P 500 International Exposure
Whitecap wrote: ↑Sat Sep 18, 2021 10:06 am This seems to be a well reasoned discussion discussion, with fine points on both sides. After reading it, I feel fairly good about holding SWISX at Schwab. I’m wondering if my international allocation is a bit high. I know there is no right answer for an outsider to give; and that AA is a very personal decision. But I’d like your thoughts on how to help me determine which way to move - if at all.
I hold 70% equities 30 bonds and cash.
My 70% equities are:
VIIIX (Vanguard S&P index) =70% of equities, or 49% of my total holdings.
SWISX (Schwab international index) = 30% of equities, or 21% of my total holdings.
I was thinking about increasing my S&P holdings (I was 100% invested in the S&P until I became a boglehead, then I became more diversified, as I was exposed to the in-depth financial literacy displayed in this group). With valuations of the S&P being expensive right now, I’m torn. I don’t want to market time, yet I am compelled to, “don’t just do something…….. sit there”!
In your opinion, should I stay put, or move funds toward higher or lower international exposure. I’m 51 years old and could retire now. I like my job, and will probably punch out at age 60.
Thanks ahead of time for you consideration.
Whitecap
I dumped my ex-us fund and reallocated it to S and P 500 4 yesrs ago and have never looked back.
Re: S&P 500 International Exposure
You do realize that passive indexing is by itself inherently performance chasing, right? Yet we all still do it. Why? Because it worked well in the past, so double dose of performance chasing, actually.