Can somebody convince me to feel comfortable investing in international funds?
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Can somebody convince me to feel comfortable investing in international funds?
I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
I think somewhere between 5%-10% of my portfolio is international but I hate it so much.
Personally I really like REIT funds as a risk diversifier. I have about 5%-10% of my portfolio in REIT funds as well.
Why should I bother investing in international equities?
I think somewhere between 5%-10% of my portfolio is international but I hate it so much.
Personally I really like REIT funds as a risk diversifier. I have about 5%-10% of my portfolio in REIT funds as well.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
We have innumerable threads on this subject with every perspective already made, argued and denigrated.
The search box will provide all the feedback you desire.
Cheers
The search box will provide all the feedback you desire.
Cheers
Re: Can somebody convince me to feel comfortable invesing in international funds?
Many have no international or a small slice.
So no, I can't convince you. Stay the course!
So no, I can't convince you. Stay the course!
- vanbogle59
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Forget relative performance.
Below is the list of top 10 holdings for VXUS.
Does that look like something that a buy-and-hold, nobody-knows-nothing, investor might be interested in as a source of long-term wealth creation?
For me, the answer is obvious.
All that remains is to decide AA.
1 Taiwan Semiconductor Manufacturing Co. Ltd.
2 Tencent Holdings Ltd.
3 Samsung Electronics Co. Ltd.
4 Nestle SA
5 ASML Holding NV
6 Alibaba Group Holding Ltd.
7 Roche Holding AG
8 Toyota Motor Corp.
9 Novartis AG
10 LVMH Moet Hennessy Louis Vuitton SE
Below is the list of top 10 holdings for VXUS.
Does that look like something that a buy-and-hold, nobody-knows-nothing, investor might be interested in as a source of long-term wealth creation?
For me, the answer is obvious.
All that remains is to decide AA.
1 Taiwan Semiconductor Manufacturing Co. Ltd.
2 Tencent Holdings Ltd.
3 Samsung Electronics Co. Ltd.
4 Nestle SA
5 ASML Holding NV
6 Alibaba Group Holding Ltd.
7 Roche Holding AG
8 Toyota Motor Corp.
9 Novartis AG
10 LVMH Moet Hennessy Louis Vuitton SE
Re: Can somebody convince me to feel comfortable invesing in international funds?
I think your uncle is right, U.S. investors have a great opportunity with the level of diversification, low costs, high liquidity, and investor legal protections and regulations.
That said, I would be cautious about expecting the out-performance of US stocks in recent years to be a persistent thing. But I would point out the higher volatility and expenses in global stocks, that has reasons to be more persistent over time.
I would be hesitant to over-weight REITs relative to the market, they are a lot riskier than the broader stock market, and similar to international have their own unique tax and cost considerations.... that I don't see as a benefit, and can be avoided by using a simple broad market fund.
That said, I would be cautious about expecting the out-performance of US stocks in recent years to be a persistent thing. But I would point out the higher volatility and expenses in global stocks, that has reasons to be more persistent over time.
I would be hesitant to over-weight REITs relative to the market, they are a lot riskier than the broader stock market, and similar to international have their own unique tax and cost considerations.... that I don't see as a benefit, and can be avoided by using a simple broad market fund.
"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: Can somebody convince me to feel comfortable invesing in international funds?
vanbogle59 wrote: ↑Thu Oct 14, 2021 8:38 am Forget relative performance.
Below is the list of top 10 holdings for VXUS.
Does that look like something that a buy-and-hold, nobody-knows-nothing, investor might be interested in as a source of long-term wealth creation?
For me, the answer is obvious.
All that remains is to decide AA.
1 Taiwan Semiconductor Manufacturing Co. Ltd.
2 Tencent Holdings Ltd.
3 Samsung Electronics Co. Ltd.
4 Nestle SA
5 ASML Holding NV
6 Alibaba Group Holding Ltd.
7 Roche Holding AG
8 Toyota Motor Corp.
9 Novartis AG
10 LVMH Moet Hennessy Louis Vuitton SE
I hold VTWAX, VFWAX, SWISX and VRSNX between brokerage, IRA and 401(k)
I guess the answer you infer is a yes?
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Why are you asking someone to convince you to invest in international?
If you're comfortable betting on US, go ahead and do so. Don't kid yourself that you are as diversified as someone who holds international at market weight though.
If you're comfortable betting on US, go ahead and do so. Don't kid yourself that you are as diversified as someone who holds international at market weight though.
A task begun is nearly half complete | Enough is as good as a feast | Risk: Ensure your goals can be met even under worst case scenario and be realistic.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
5-10% of your portfolio in international and/or REITs is going to do very little to impact your investment performance. If this amount of exposure to international is giving you heartburn, you might as well go with all U.S.
De gustibus non disputandum est
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Its like 5%-10% REITS and 5%-10% International so like a total of 15% between the two.cadreamer2015 wrote: ↑Thu Oct 14, 2021 8:46 am 5-10% of your portfolio in international and/or REITs is going to do very little to impact your investment performance. If this amount of exposure to international is giving you heartburn, you might as well go with all U.S.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:48 amIts like 5%-10% REITS and 5%-10% International so like a total of 15% between the two. But I see your point. I do not want heartburn. I am probably being overly obsessive.cadreamer2015 wrote: ↑Thu Oct 14, 2021 8:46 am 5-10% of your portfolio in international and/or REITs is going to do very little to impact your investment performance. If this amount of exposure to international is giving you heartburn, you might as well go with all U.S.
Re: Can somebody convince me to feel comfortable invesing in international funds?
The problem is not that you don't feel comfortable investing in international funds, the problem is that you DO feel comfortable investing domestically.
All stocks are risky, all stocks can disappoint. International has just been wearing this fact on its sleeve more often lately.
All stocks are risky, all stocks can disappoint. International has just been wearing this fact on its sleeve more often lately.
- vanbogle59
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Re: Can somebody convince me to feel comfortable invesing in international funds?
loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:43 am
I hold VTWAX, VFWAX, SWISX and VRSNX between brokerage, IRA and 401(k)
I guess the answer you infer is a yes?
Re: Can somebody convince me to feel comfortable invesing in international funds?
I'd believe in the international market before REITs.
But like most beliefs it's hard to change someone's mind one way or the other.
But like most beliefs it's hard to change someone's mind one way or the other.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Why, no. I can't convince you to feel comfortable investing in international equity funds.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices.
I was looking at two funds yesterday. IIRC, total international was lagging total US by ~ 4% / year. I'm not comfortable with this type of performance. But, I'm less comfortable with the notion that I can confidently and accurately predict that this type of performance will continue for as long as I'm around.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
Re: Can somebody convince me to feel comfortable invesing in international funds?
At some point in the future, international stocks will be the place to be. The only way to fully benefit from that is to have positions in those stocks before their values go up. It is of much lesser benefit to you to buy in after the upswing starts. In fact, buying in then may even backfire.
If you want to benefit from that upswing, you need to hold international stocks all the time. If you don't mind missing the upswing, don't hold international stocks at all.
Neither is the right or wrong choice. It's just a choice. Make it and move on.
Since you say you hate your international allocation, maybe you should get out. Just don't be tempted to get in later after it starts looking good.
If you want to benefit from that upswing, you need to hold international stocks all the time. If you don't mind missing the upswing, don't hold international stocks at all.
Neither is the right or wrong choice. It's just a choice. Make it and move on.
Since you say you hate your international allocation, maybe you should get out. Just don't be tempted to get in later after it starts looking good.
Link to Asking Portfolio Questions
Re: Can somebody convince me to feel comfortable invesing in international funds?
5-10% won't do anything really so I'd just go 100% US if that's all you want. I keep my ex-US exposure between 15-20%. The last decade has been sad relative to the US, but I've stayed the course - for now
Re: Can somebody convince me to feel comfortable invesing in international funds?
I own TIDDX and ODVIX. Up 6% and down 4% ytd respectively. Scant offerings in my 401k for International.
Represents 9% of my portfolio.
Yuk.
But, I am keeping most of them and even accumulating some more. Theory being that they won't be down forever. When (if) they have a run I want to participate.
Represents 9% of my portfolio.
Yuk.
But, I am keeping most of them and even accumulating some more. Theory being that they won't be down forever. When (if) they have a run I want to participate.
Re: Can somebody convince me to feel comfortable invesing in international funds?
I was just thinking "thank god we have a thread about international investing, it hasn't been posted for at least 14 minutes."
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Re: Can somebody convince me to feel comfortable invesing in international funds?
They're pretty highly correlated, and that's been increasing in recent decades. It's unlikely to make a major difference to your long-term goals to have or not have international either way, especially at such a low %. Whatever decision you make, stick to it and don't sweat it.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Look at the progression of returns for international vs US funds since the 70's. There can be long cycles of double digits years where one or the other outperforms. Don't get caught up in the idea that the US will always outperform because it did for the last 10 years.
Re: Can somebody convince me to feel comfortable invesing in international funds?
The main argument for holding an international index fund is diversification. If you truly "hate" holding it, then dump it. This decision shouldn't keep you up at night.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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Re: Can somebody convince me to feel comfortable invesing in international funds?
The tech sector is a great market, why look elsewhere?
See how silly that sounds?
So why do it with countries?
See how silly that sounds?
So why do it with countries?
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Re: Can somebody convince me to feel comfortable invesing in international funds?
I had 25% in international and emerging for almost a decade and dumped them all two years ago. Now all in domestic but these domestic companies do have large export markets and international subsidiaries so I am getting some exposure. That's enough for me.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Large domestic companies are global. If you are in a fund such as the S&P 500 index or Vanguard Total Stock index, you already have a percentage of international.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
I think somewhere between 5%-10% of my portfolio is international but I hate it so much.
Personally I really like REIT funds as a risk diversifier. I have about 5%-10% of my portfolio in REIT funds as well.
Most "pundits" say that you are doing well if you have an allocation to international, and also, you are not hurting yourself if you don't have an allocation to international.
So. There is no right or wrong or better or worse.
For, example, a strong case by anyone, for or against, a simple 2 Fund Index Portfolio consisting of Vanguard Total Stock and Vanguard Total Bond.
So, do what makes you happy and follow your IPS.
What is on your IPS (personal investing policy statement)?
As for "convincing". . . it's been said that only fools spend effort convincing others of what they don't want to do.
Follow your instincts and acumen.
j
- burritoLover
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Re: Can somebody convince me to feel comfortable invesing in international funds?
If you are going to dump funds that underperform over a 10 year period, then you seriously need to re-examine your understanding of how markets work.
https://www.evidenceinvestor.com/result ... ers-alike/
https://www.evidenceinvestor.com/result ... ers-alike/
Larry Swedroe wrote: One of the more common mistakes both individual and institutional investors make is the tendency to equate the quality of a decision with the quality of its outcome. Poker players call this trait “resulting”. Nassim Nicholas Taleb, author of Fooled by Randomness, provided this insight into the right way to think about outcomes: “One cannot judge a performance in any given field by the results, but by the costs of the alternative (i.e. if history played out in a different way). Such substitute courses of events are called alternative histories. Clearly the quality of a decision cannot be solely judged based on its outcome, but such a point seems to be voiced only by people who fail (those who succeed attribute their success to the quality of their decision).”
In my book Investment Mistakes Even Smart Investors Make and How to Avoid Them, this mistake is called “confusing before-the-fact strategy with after-the-fact outcome”. The mistake is often caused by “hindsight bias”: the tendency, after an outcome is known, to see it as virtually inevitable. As John Stepek, author of The Sceptical Investor, advised: “To avoid such mistakes, you must accept that you can neither know the future, nor control it. Thus, the key to investing well is to make good decisions in the face of uncertainty, based on a strong understanding of your goals and a strong understanding of the tools available to help you achieve those goals. A single good decision can lead to a bad outcome. And a single bad decision may lead to a good outcome. But the making of many good decisions, over time, should compound into a better outcome than making a series of bad decisions. Making good decisions is mostly about putting distance between your gut and your investment choices.
Re: Can somebody convince me to feel comfortable invesing in international funds?
OP,
Diversification means that there will always be
A) Something that does well
B) Something that does badly
at any time. If you LOVE everything that you are holding now, you have NO diversification.
And, there also mean you would be uncomfortable investing in something at any time.
I believe in DIVERSIFICATION. I know that I am not smart enough to know what would do well in the future.
KlangFool
Diversification means that there will always be
A) Something that does well
B) Something that does badly
at any time. If you LOVE everything that you are holding now, you have NO diversification.
And, there also mean you would be uncomfortable investing in something at any time.
I believe in DIVERSIFICATION. I know that I am not smart enough to know what would do well in the future.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Look at the chart that burritolover posted. Look around 2011. What do you see?
- vanbogle59
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Re: Can somebody convince me to feel comfortable invesing in international funds?
OMG, I love me some NNT.burritoLover wrote: ↑Thu Oct 14, 2021 10:06 am "Clearly the quality of a decision cannot be solely judged based on its outcome, but such a point seems to be voiced only by people who fail (those who succeed attribute their success to the quality of their decision).”
At least on this point, so common sense. So true. So rarely acknowledged.
Re: Can somebody convince me to feel comfortable invesing in international funds?
The point of diversification is that some parts of your portfolio will zig when the other parts are zagging. The behavior of your portfolio as a whole is therefore smoothed out. You're dissatisfied because there's both zigging and zagging going on, and international is currently underperforming. That's diversification working.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
I think somewhere between 5%-10% of my portfolio is international but I hate it so much.
Personally I really like REIT funds as a risk diversifier. I have about 5%-10% of my portfolio in REIT funds as well.
If you're happy with the performance of every component of your portfolio, you're not diversified.
Look at the Callan table of Investment Returns. This chart tells you the historical top asset class in any given year.
Specifically look for the international fund performance (Emerging Markets and Developed Ex-US Equities) blob:https://www.callan.com/f71e5c53-0618-49 ... 02f79ed6bd
https://www.callan.com/periodic-table/
Some years they're on top. Some years they're not. We diversify because we can't predict who the winners are going to be. So it's better to buy some of everything.
Re: Can somebody convince me to feel comfortable invesing in international funds?
Great graphic!burritoLover wrote: ↑Thu Oct 14, 2021 9:51 am Look at the progression of returns for international vs US funds since the 70's. There can be long cycles of double digits years where one or the other outperforms. Don't get caught up in the idea that the US will always outperform because it did for the last 10 years.
The tendency to take recent performance and linearize it into the future is so strong that people are simply going to make suboptimal choices. People talk about recent correlations without looking at those of the past. People talk about US outperformance without acknowledging periods of past underperformance. I am always amazed at how strongly people only accept information that meets their preexisting views.
Investing through hating whatever underperformed is not a good investing philosophy. You have to hold things that underperform if you are going to be diversified. Ask yourself why using your own logic you wouldn't go all international in the late 80's?
Starting today, either US or international will outperform over the next 10 years. It is independent of what happened in the past, and it won't be a straight line projecting recent performance into the future. The winner is not known in advance. International investing is a trade-off of some additional costs for some additional diversity. International has different sources of risk and will be uncorrelated with US when events happen that differentiate this risk. This type of diversification is most important during the early years of retirement, so whatever you decide revisit this again.
"I don't know, I'm just going to go with US" is a perfectly fine answer. So is 10%, 20% or market weight international. We simply don't know what will be the best answer for your time frame in advance. It likely won't matter in the near term if you are still accumulating, but it will become more important as assets grow and as you contemplate retirement.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
The global stock market is the true baseline. With that in mind, you have to ask yourself why the tilt towards the US? The common mistake is to assume the US is the baseline and compare everything to it, or treat international as if it is a separate asset. It is like value and growth; neither is the baseline, for the market combination of the two is.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Can somebody convince me to feel comfortable invesing in international funds?
Having < 10% of your portfolio in international which has underperformed and hating it is a strong reaction for something that is not likely to make a significant difference in your outcome. If you are easily swayed by underpeformance and it really gets to you, you don't sound like a good candidate for further diversification into international because you will likely cave when the going gets tough. With that in mind I'm not sure how you will react when/if the US has a prolonged period of underperforming. Stay the course and take your lumps.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
Re: Can somebody convince me to feel comfortable invesing in international funds?
This is exactly what many believed. For many years, it was why not hold just the Nasdaq instead of the S&P 500 or a total market fund?
The same is the case now for US only vs international. This will not change. It's too easy to look at outperformance over the past 5-10 years and project that trend into the future.
The same is the case now for US only vs international. This will not change. It's too easy to look at outperformance over the past 5-10 years and project that trend into the future.
Triple digit golfer wrote: ↑Thu Oct 14, 2021 9:53 am The tech sector is a great market, why look elsewhere?
See how silly that sounds?
So why do it with countries?
Re: Can somebody convince me to feel comfortable invesing in international funds?
+1. I have international in my portfolio. It did not perform well like the US but it didn't go negative so I wouldn't be worried about it too much.KlangFool wrote: ↑Thu Oct 14, 2021 10:07 am OP,
Diversification means that there will always be
A) Something that does well
B) Something that does badly
at any time. If you LOVE everything that you are holding now, you have NO diversification.
And, there also mean you would be uncomfortable investing in something at any time.
I believe in DIVERSIFICATION. I know that I am not smart enough to know what would do well in the future.
KlangFool
Re: Can somebody convince me to feel comfortable invesing in international funds?
OP,
How much or any international has been debated since the dawn of Bogleheads!
So I don't think there is a definitive answer...just do what you are comfortable with and stay the course.
FWIW, in the stock portion of my portfolio, I am 50% Total US and 50% Total International and very comfortable with that.
How much or any international has been debated since the dawn of Bogleheads!
So I don't think there is a definitive answer...just do what you are comfortable with and stay the course.
FWIW, in the stock portion of my portfolio, I am 50% Total US and 50% Total International and very comfortable with that.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
This should be read and understood by all.secondopinion wrote: ↑Thu Oct 14, 2021 10:26 amThe global stock market is the true baseline. With that in mind, you have to ask yourself why the tilt towards the US? The common mistake is to assume the US is the baseline and compare everything to it, or treat international as if it is a separate asset. It is like value and growth; neither is the baseline, for the market combination of the two is.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
People will disagree, but it is not logical to call a U.S. only portfolio an untilted portfolio. It is absolutely tilted, and very heavily, to one country.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
I would sell the REIT funds and use the proceeds to add to your international holdings.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
I think somewhere between 5%-10% of my portfolio is international but I hate it so much.
Personally I really like REIT funds as a risk diversifier. I have about 5%-10% of my portfolio in REIT funds as well.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
You shouldn't expect to feel "comfortable" in any kind of stock.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Can somebody convince me to feel comfortable invesing in international funds?
Fabulous nisiprius!
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
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Re: Can somebody convince me to feel comfortable invesing in international funds?
i won't convince you but I'll tell you three things I thought about when I started investing in international in 2013 after I first learned about here and through Bernstein's books (Intelligent Asset Allocator) and others:
1. I looked at the following chart below from Vanguard and saw that the volatility of the portfolio overall decreased with the addition of international stocks (to a point). The chart then showed the sweet spot (most decrease in volatility) was around 30% in international. So I invest 30% in international in my Roth IRA.
Having said that, if you look at the chart having 100% in stocks (70/30 US/Int) only decreases that volatility by around 0.75%. So it's reducing volatility much less than the chart appears in my mind (I could be misinterpreting the chart). Less stocks overall in your portfolio and the volatility reduction is like 0.5%.
In addition, a few years later the chart was tweaked and instead of showing 30% international as the sweet spot (most volatility reduction) now shows 40% in international. That coincided with Vanguard's switch from 30% to 40% international in their target date funds. I haven't changed and just have 30% in my Roth IRA, but since I hold a target date fund in my 457b, I accept the 40% international of my stock allocation there.
2. If you look at the performance from 2003-2007, international beat US by a lot. In fact you wouldn't have had a lost decade between 2000-2009 or 2001-2010 if you'd held international along with US.
https://www.portfoliovisualizer.com/bac ... tion2_3=50
https://www.portfoliovisualizer.com/bac ... tion2_3=50
3. you're exchanging country risk for currency risk. If you only own US you're undiversified because of those other companies (toyota, samsung, nestle, etc) you're missing out on. I'd much rather own 10,000 companies than 3000. Yes you may have enough diversification with 3000, but why not have more diversification?
Sometimes currency fluctuations helps and sometimes it hurts:
you have to convince yourself what to do. just because you convince yourself doesn't mean you made the right decision. international hasn't done well in the recent past, but you're supposed to buy that which hasn't done well. so my money's been going into international (with exception of the target date through work which is split between US and Int and some bonds so my money's being allocated into all those assets). you can't know what was the right thing to do until after the fact.
1. I looked at the following chart below from Vanguard and saw that the volatility of the portfolio overall decreased with the addition of international stocks (to a point). The chart then showed the sweet spot (most decrease in volatility) was around 30% in international. So I invest 30% in international in my Roth IRA.
Having said that, if you look at the chart having 100% in stocks (70/30 US/Int) only decreases that volatility by around 0.75%. So it's reducing volatility much less than the chart appears in my mind (I could be misinterpreting the chart). Less stocks overall in your portfolio and the volatility reduction is like 0.5%.
In addition, a few years later the chart was tweaked and instead of showing 30% international as the sweet spot (most volatility reduction) now shows 40% in international. That coincided with Vanguard's switch from 30% to 40% international in their target date funds. I haven't changed and just have 30% in my Roth IRA, but since I hold a target date fund in my 457b, I accept the 40% international of my stock allocation there.
2. If you look at the performance from 2003-2007, international beat US by a lot. In fact you wouldn't have had a lost decade between 2000-2009 or 2001-2010 if you'd held international along with US.
https://www.portfoliovisualizer.com/bac ... tion2_3=50
https://www.portfoliovisualizer.com/bac ... tion2_3=50
3. you're exchanging country risk for currency risk. If you only own US you're undiversified because of those other companies (toyota, samsung, nestle, etc) you're missing out on. I'd much rather own 10,000 companies than 3000. Yes you may have enough diversification with 3000, but why not have more diversification?
Sometimes currency fluctuations helps and sometimes it hurts:
you have to convince yourself what to do. just because you convince yourself doesn't mean you made the right decision. international hasn't done well in the recent past, but you're supposed to buy that which hasn't done well. so my money's been going into international (with exception of the target date through work which is split between US and Int and some bonds so my money's being allocated into all those assets). you can't know what was the right thing to do until after the fact.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Good graph and comments. I want to add to these the figure below that shows the relative performance of the MSCI USA index to the MSCI WORLD exUSA index. Historical data is available going back to 1969. It appears that relative outperformance comes and goes as the superposition of cycles. There seem to be short-term cycles of approx. 10 years and long term cycles that stretch over multiple decades.abc132 wrote: ↑Thu Oct 14, 2021 10:24 amGreat graphic!burritoLover wrote: ↑Thu Oct 14, 2021 9:51 am Look at the progression of returns for international vs US funds since the 70's. There can be long cycles of double digits years where one or the other outperforms. Don't get caught up in the idea that the US will always outperform because it did for the last 10 years.
The tendency to take recent performance and linearize it into the future is so strong that people are simply going to make suboptimal choices. People talk about recent correlations without looking at those of the past. People talk about US outperformance without acknowledging periods of past underperformance. I am always amazed at how strongly people only accept information that meets their preexisting views.
Investing through hating whatever underperformed is not a good investing philosophy. You have to hold things that underperform if you are going to be diversified. Ask yourself why using your own logic you wouldn't go all international in the late 80's?
Starting today, either US or international will outperform over the next 10 years. It is independent of what happened in the past, and it won't be a straight line projecting recent performance into the future. The winner is not known in advance. International investing is a trade-off of some additional costs for some additional diversity. International has different sources of risk and will be uncorrelated with US when events happen that differentiate this risk. This type of diversification is most important during the early years of retirement, so whatever you decide revisit this again.
"I don't know, I'm just going to go with US" is a perfectly fine answer. So is 10%, 20% or market weight international. We simply don't know what will be the best answer for your time frame in advance. It likely won't matter in the near term if you are still accumulating, but it will become more important as assets grow and as you contemplate retirement.
It seems to me that we are currently in a situation where the USA has been on the outperforming part on both the short and long cycle. The amplitude at which US stocks have outperformed is normal in the historical context. Please note that international stocks had outperformed at a higher rate before 1989 than US stocks have outperformed since.
I often hear investors who are solely invested in the US claim that the US stock market is exceptional in one form or another and that is why there are higher risk-adjusted returns possible there than in the rest of the world. I can't believe that. If that was the case, this would be arbitraged away via relatively efficient markets. Also if there is something so exceptional good about US Stocks today that explains their outperformance, what was it about the USA that made them so exceptionally bad before 1989? I could hypothesize a dozen things such as the collapse of the Soviet Union, the way the US can project power as the one remaining superpower, rapid globalization etc. and adjacent effects that could have contributed to US stock outperformance. But truly, that would be speculation and touch political topics. And I for sure can't predict what the impact of macroeconomic trends over the next 3 decades could be.
OP: If you follow your uncle's advice, you have to live with the not unlikely possibility that your equity portfolio could underperform the rest of the world by an annualized 5% or more over a period of multiple decades. It happened before. If you are OK with that, focusing only on US stocks is a fine decision. But if you justify being solely invested in US stocks because of their outperformance over the last 1, 3, 5, 10, 20, or even 30 years, then you are simply ignoring prior history.
Have a great day. |
Asset allocation: 70% Stocks, 15% Treasuries, 15% Gold (all ETFs)
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Re: Can somebody convince me to feel comfortable invesing in international funds?
No. Avoid them when possible.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
There is no "global stock market."
Re: Can somebody convince me to feel comfortable invesing in international funds?
Nobody can convince you of anything you aren't willing to be convinced of. If you hate international stocks, just don't invest in them. Your money, your choice. If/when a significant period of US underperformance shows up, it is probably important that you be willing to stick with your choice though.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
I think somewhere between 5%-10% of my portfolio is international but I hate it so much.
Personally I really like REIT funds as a risk diversifier. I have about 5%-10% of my portfolio in REIT funds as well.
If you are looking for reasons to consider some international holdings, I like this https://www.bogleheads.org/blog/2020/03 ... ld-part-1/ writeup myself. But there isn't much new to say on this topic that hasn't been said in oh so many international threads. If nothing there persuaded you (or the link above or other information doesn't resonate with you), seems like you are all set with your decision so just move on with your life.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Diversification is cool I hold 50/50. Easy to rebalance that way. I don’t know which one will outperform in the future. This way I don’t have to worry.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Sandtrap wrote: ↑Thu Oct 14, 2021 9:58 amLarge domestic companies are global. If you are in a fund such as the S&P 500 index or Vanguard Total Stock index, you already have a percentage of international.loganvonstrangle wrote: ↑Thu Oct 14, 2021 8:32 am I have a hard time convincing myself to invest in foreign equity indices. My uncle said something along the lines of "we have a great stock market in the US, why look elsewhere?" also looking at historical performance it seems SPX outperforms foreign markets.
Why should I bother investing in international equities?
I think somewhere between 5%-10% of my portfolio is international but I hate it so much.
Personally I really like REIT funds as a risk diversifier. I have about 5%-10% of my portfolio in REIT funds as well.
Most "pundits" say that you are doing well if you have an allocation to international, and also, you are not hurting yourself if you don't have an allocation to international.
So. There is no right or wrong or better or worse.
For, example, a strong case by anyone, for or against, a simple 2 Fund Index Portfolio consisting of Vanguard Total Stock and Vanguard Total Bond.
So, do what makes you happy and follow your IPS.
What is on your IPS (personal investing policy statement)?
As for "convincing". . . it's been said that only fools spend effort convincing others of what they don't want to do.
Follow your instincts and acumen.
j
So I do not have a personal IPS lol. I do know what that is though. I should design one.Would be a good thing to have.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
Thank you for this.burritoLover wrote: ↑Thu Oct 14, 2021 10:06 am If you are going to dump funds that underperform over a 10 year period, then you seriously need to re-examine your understanding of how markets work.
https://www.evidenceinvestor.com/result ... ers-alike/
Larry Swedroe wrote: One of the more common mistakes both individual and institutional investors make is the tendency to equate the quality of a decision with the quality of its outcome. Poker players call this trait “resulting”. Nassim Nicholas Taleb, author of Fooled by Randomness, provided this insight into the right way to think about outcomes: “One cannot judge a performance in any given field by the results, but by the costs of the alternative (i.e. if history played out in a different way). Such substitute courses of events are called alternative histories. Clearly the quality of a decision cannot be solely judged based on its outcome, but such a point seems to be voiced only by people who fail (those who succeed attribute their success to the quality of their decision).”
In my book Investment Mistakes Even Smart Investors Make and How to Avoid Them, this mistake is called “confusing before-the-fact strategy with after-the-fact outcome”. The mistake is often caused by “hindsight bias”: the tendency, after an outcome is known, to see it as virtually inevitable. As John Stepek, author of The Sceptical Investor, advised: “To avoid such mistakes, you must accept that you can neither know the future, nor control it. Thus, the key to investing well is to make good decisions in the face of uncertainty, based on a strong understanding of your goals and a strong understanding of the tools available to help you achieve those goals. A single good decision can lead to a bad outcome. And a single bad decision may lead to a good outcome. But the making of many good decisions, over time, should compound into a better outcome than making a series of bad decisions. Making good decisions is mostly about putting distance between your gut and your investment choices.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
I have been investing for 5 years now. I will not sell anything for another 15-20 years, just thinking about future allocation though. I plan on holding what I currently have for a long time.Candor wrote: ↑Thu Oct 14, 2021 10:51 am Having < 10% of your portfolio in international which has underperformed and hating it is a strong reaction for something that is not likely to make a significant difference in your outcome. If you are easily swayed by underpeformance and it really gets to you, you don't sound like a good candidate for further diversification into international because you will likely cave when the going gets tough. With that in mind I'm not sure how you will react when/if the US has a prolonged period of underperforming. Stay the course and take your lumps.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
I’ll take a stab at persuading OP. Full disclosure: I invest 30% of my equities outside the US based on free float market capitalization through a low fee, passive index fund, and I think this might be too little, but have chosen this percentage based on Vanguard’s research papers, which suggest that something close to 30% reduces volatility without reducing returns.
If you invest only in the US stock market, you are tilting or biasing your portfolio in a way that will likely underperform in certain circumstances and overperform in other circumstances. Specifically, your portfolio is is overexposed to the value of the US dollar (and the the risk of dollar inflation caused by US fiscal policy or the Federal Reserve’s monetary policy). You are also more dependent upon US growth and profitability of publicly traded companies and US tax policy than a more diversified portfolio. Note: a significant portion of revenue from US equities comes from overseas, so those companies provide some diversification.
I think these bets are risky. The US is a declining share of world GDP and population (I’d have to double check population); it’s economic growth rate is low relative to China and elsewhere; and it increasingly has sustained budget deficits due to a structural mismatch by the population’s unwillingness to pay taxes and the population’s demand for free services. This has resulted in declining expenditures on investment activities (research, infrastructure), increasing expenditures on interest payments, and an increased viciousness in its politics because trade offs have to be made to right the fiscal ship and the population rightly perceive that their political enemies want to solve the fiscal problem by taking from their opponents and giving to their supporters. Combined, these factors suggest that an agreement on taxation and spending will be impossible and that inflating the currency will be the only solution, in part because the Federal Reserve isn’t elected and in part because inflation is harder to blame on a person or group (or at least on Congress). I’d predict that you’ll see a devalued currency (in part due to inflation and in part because foreigners will move funds out of the US to more lucrative regions, in part because then US is reallocating strategic forces out of the Middle East towards Asia, which will reduce our ability to pressure OPEC to transact in dollars, in part because the Chinese are beginning to attach conditions on doing business there, like non-dollar requirements for transactions, and in part because I think this flirtation with debt ceiling defaults has a real risk of actually happening, among other reasons) and reduced economic growth in the US as the population ages demographically and as we have fewer and fewer dollars for RD and infrastructure and continue to inflate the price of education by providing tuition dollars for useless majors and by concealing the cost of education until post graduation, and therefore eliminating downward cost pressure and indenturing a generation of Americans to non dischargeable debts.
I might be wrong about this—and I indeed do have a personality that is glass half empty. But I might be right, and there’s substantial evidence to suggest that these trends will occur (and are even occurring now). For example, a Federal Reserve that denies 6% inflation, then claims its transistory while suggesting that inflation is good, then promises to do something about it in the future but not now, despite the economy having recovered substantially and despite inflation figures now accounting for 15-20% inflation in the price of housing, is strongly suggestive of a Federal Reserve that is deliberately ignoring its inflation mandate to coordinate or subsidize trillions and trillions of dollars of undimmed borrowing. That’s why I diversify—to avoid being harmed by an all US portfolio that would be hurt significantly in some future scenarios.
Finally, I’d add that people underappreciate history and the effect of long-term, irresponsible policy. Venezuela has roughly the income per capita of the US 100 years ago and for much of the last century. Now look at their country. A few decades of bad policy crushed them. Or you can just look at GB—they were the US before the US, but lost their reserve currency status when a rising power with better managed finances (the US) came to be: Let’s not pretend that the US is any different in trend, just because inertia and being large may slow the collapse.
If you invest only in the US stock market, you are tilting or biasing your portfolio in a way that will likely underperform in certain circumstances and overperform in other circumstances. Specifically, your portfolio is is overexposed to the value of the US dollar (and the the risk of dollar inflation caused by US fiscal policy or the Federal Reserve’s monetary policy). You are also more dependent upon US growth and profitability of publicly traded companies and US tax policy than a more diversified portfolio. Note: a significant portion of revenue from US equities comes from overseas, so those companies provide some diversification.
I think these bets are risky. The US is a declining share of world GDP and population (I’d have to double check population); it’s economic growth rate is low relative to China and elsewhere; and it increasingly has sustained budget deficits due to a structural mismatch by the population’s unwillingness to pay taxes and the population’s demand for free services. This has resulted in declining expenditures on investment activities (research, infrastructure), increasing expenditures on interest payments, and an increased viciousness in its politics because trade offs have to be made to right the fiscal ship and the population rightly perceive that their political enemies want to solve the fiscal problem by taking from their opponents and giving to their supporters. Combined, these factors suggest that an agreement on taxation and spending will be impossible and that inflating the currency will be the only solution, in part because the Federal Reserve isn’t elected and in part because inflation is harder to blame on a person or group (or at least on Congress). I’d predict that you’ll see a devalued currency (in part due to inflation and in part because foreigners will move funds out of the US to more lucrative regions, in part because then US is reallocating strategic forces out of the Middle East towards Asia, which will reduce our ability to pressure OPEC to transact in dollars, in part because the Chinese are beginning to attach conditions on doing business there, like non-dollar requirements for transactions, and in part because I think this flirtation with debt ceiling defaults has a real risk of actually happening, among other reasons) and reduced economic growth in the US as the population ages demographically and as we have fewer and fewer dollars for RD and infrastructure and continue to inflate the price of education by providing tuition dollars for useless majors and by concealing the cost of education until post graduation, and therefore eliminating downward cost pressure and indenturing a generation of Americans to non dischargeable debts.
I might be wrong about this—and I indeed do have a personality that is glass half empty. But I might be right, and there’s substantial evidence to suggest that these trends will occur (and are even occurring now). For example, a Federal Reserve that denies 6% inflation, then claims its transistory while suggesting that inflation is good, then promises to do something about it in the future but not now, despite the economy having recovered substantially and despite inflation figures now accounting for 15-20% inflation in the price of housing, is strongly suggestive of a Federal Reserve that is deliberately ignoring its inflation mandate to coordinate or subsidize trillions and trillions of dollars of undimmed borrowing. That’s why I diversify—to avoid being harmed by an all US portfolio that would be hurt significantly in some future scenarios.
Finally, I’d add that people underappreciate history and the effect of long-term, irresponsible policy. Venezuela has roughly the income per capita of the US 100 years ago and for much of the last century. Now look at their country. A few decades of bad policy crushed them. Or you can just look at GB—they were the US before the US, but lost their reserve currency status when a rising power with better managed finances (the US) came to be: Let’s not pretend that the US is any different in trend, just because inertia and being large may slow the collapse.
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Re: Can somebody convince me to feel comfortable invesing in international funds?
I don’t feel comfortable investing in Dave’s hedge fund but I do it!
Tony
John C. Bogle: “Simplicity is the master key to financial success."