Does "international" offer any diversification?
Re: Does "international" offer any diversification?
Should I only own Apple? It has revenue overseas and in the US. It has production overseas and some in the U.S. Better still, owning AAPL will result in zero expense ratio.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
Re: Does "international" offer any diversification?
Why? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.willthrill81 wrote: ↑Tue Jan 18, 2022 11:27 amMy point was just that the last 15 years of returns for U.S. and ex-U.S. stocks demonstrates that there is much more going on with returns than revenue alone or else ex-U.S. wouldn't have underperformed the U.S. so much for so long.Marseille07 wrote: ↑Tue Jan 18, 2022 11:20 amWell, falling apart or not isn't the issue though. The argument of not needing XYZ because rev comes from ABC is just incorrect whether you're on the right side of the coin or not.willthrill81 wrote: ↑Tue Jan 18, 2022 11:10 am And that argument (i.e., 'I don't need U.S. stocks because much of ex-U.S.'s revenue comes from the U.S.') falls apart when you look at the 7% annualized divergence between U.S. and ex-U.S. stock returns over the last 15 years.
Re: Does "international" offer any diversification?
Yes you probably should own some AAPL...in your fun money account...
You would have done well to only own AAPL...in theory it was discernible since 2008 that they would do well.
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: Does "international" offer any diversification?
The above argument that much of the S&P 500's revenues come from ex-U.S. is built on a faulty assumption, namely, that returns are primarily driven by revenues. But the fact that much of ex-U.S. stocks' revenues from the U.S. didn't seem to matter over the last 15 years as ex-U.S. stocks far underperformed those of U.S. stocks. As such, we can conclude that there is a lot more driving stock returns than revenues alone.nigel_ht wrote: ↑Tue Jan 18, 2022 11:58 amWhy? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.willthrill81 wrote: ↑Tue Jan 18, 2022 11:27 amMy point was just that the last 15 years of returns for U.S. and ex-U.S. stocks demonstrates that there is much more going on with returns than revenue alone or else ex-U.S. wouldn't have underperformed the U.S. so much for so long.Marseille07 wrote: ↑Tue Jan 18, 2022 11:20 amWell, falling apart or not isn't the issue though. The argument of not needing XYZ because rev comes from ABC is just incorrect whether you're on the right side of the coin or not.willthrill81 wrote: ↑Tue Jan 18, 2022 11:10 am And that argument (i.e., 'I don't need U.S. stocks because much of ex-U.S.'s revenue comes from the U.S.') falls apart when you look at the 7% annualized divergence between U.S. and ex-U.S. stock returns over the last 15 years.
However, you've actually hit the nail on the head: a very significant, possibly the single largest factor, in the outperformance of U.S. stocks over the last 15 years has been due to the huge returns produced by large-cap tech companies. No one knows how long that dominance will last.
The Sensible Steward
-
- Posts: 10433
- Joined: Mon May 18, 2009 5:57 pm
Re: Does "international" offer any diversification?
Everybody is wired differently, but I can't understand why anybody who holds a significant equity portion (call it 50% or greater) would be happy being a "total market" equity investor, holding the "total market" for size, styles, and sectors, "ignoring the noise," but only after throwing out 42% of the market capitalization because of where they're headquartered.
Re: Does "international" offer any diversification?
Don't you need to remove FAANG from that analysis to determine if ex-US really underperformed US stocks? Without checking I'd guess Toyota and VW outperformed GM and Ford or at least performed similarly.willthrill81 wrote: ↑Tue Jan 18, 2022 12:08 pmThe above argument that much of the S&P 500's revenues come from ex-U.S. is built on a faulty assumption, namely, that returns are primarily driven by revenues. But the fact that much of ex-U.S. stocks' revenues from the U.S. didn't seem to matter over the last 15 years as ex-U.S. stocks far underperformed those of U.S. stocks. As such, we can conclude that there is a lot more driving stock returns than revenues alone.nigel_ht wrote: ↑Tue Jan 18, 2022 11:58 amWhy? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.willthrill81 wrote: ↑Tue Jan 18, 2022 11:27 amMy point was just that the last 15 years of returns for U.S. and ex-U.S. stocks demonstrates that there is much more going on with returns than revenue alone or else ex-U.S. wouldn't have underperformed the U.S. so much for so long.Marseille07 wrote: ↑Tue Jan 18, 2022 11:20 amWell, falling apart or not isn't the issue though. The argument of not needing XYZ because rev comes from ABC is just incorrect whether you're on the right side of the coin or not.willthrill81 wrote: ↑Tue Jan 18, 2022 11:10 am And that argument (i.e., 'I don't need U.S. stocks because much of ex-U.S.'s revenue comes from the U.S.') falls apart when you look at the 7% annualized divergence between U.S. and ex-U.S. stock returns over the last 15 years.
However, you've actually hit the nail on the head: a very significant, possibly the single largest factor, in the outperformance of U.S. stocks over the last 15 years has been due to the huge returns produced by large-cap tech companies. No one knows how long that dominance will last.
If Chinese tech companies were globally dominant I'd be overweight China and Chinese investors would be like "Why ex-China?". Well, beyond the fact that CCP doesn't want them to invest ex-China...
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: Does "international" offer any diversification?
Thanks for volunteering to examine that! I'll be eagerly awaiting the results.nigel_ht wrote: ↑Tue Jan 18, 2022 12:26 pmDon't you need to remove FAANG from that analysis to determine if ex-US really underperformed US stocks?willthrill81 wrote: ↑Tue Jan 18, 2022 12:08 pmThe above argument that much of the S&P 500's revenues come from ex-U.S. is built on a faulty assumption, namely, that returns are primarily driven by revenues. But the fact that much of ex-U.S. stocks' revenues from the U.S. didn't seem to matter over the last 15 years as ex-U.S. stocks far underperformed those of U.S. stocks. As such, we can conclude that there is a lot more driving stock returns than revenues alone.nigel_ht wrote: ↑Tue Jan 18, 2022 11:58 amWhy? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.willthrill81 wrote: ↑Tue Jan 18, 2022 11:27 amMy point was just that the last 15 years of returns for U.S. and ex-U.S. stocks demonstrates that there is much more going on with returns than revenue alone or else ex-U.S. wouldn't have underperformed the U.S. so much for so long.Marseille07 wrote: ↑Tue Jan 18, 2022 11:20 am
Well, falling apart or not isn't the issue though. The argument of not needing XYZ because rev comes from ABC is just incorrect whether you're on the right side of the coin or not.
However, you've actually hit the nail on the head: a very significant, possibly the single largest factor, in the outperformance of U.S. stocks over the last 15 years has been due to the huge returns produced by large-cap tech companies. No one knows how long that dominance will last.
The Sensible Steward
Re: Does "international" offer any diversification?
I would but I'm on my phone...so I will happily withdraw my observation...willthrill81 wrote: ↑Tue Jan 18, 2022 12:28 pmThanks for volunteering to examine that! I'll be eagerly awaiting the results.nigel_ht wrote: ↑Tue Jan 18, 2022 12:26 pmDon't you need to remove FAANG from that analysis to determine if ex-US really underperformed US stocks?willthrill81 wrote: ↑Tue Jan 18, 2022 12:08 pmThe above argument that much of the S&P 500's revenues come from ex-U.S. is built on a faulty assumption, namely, that returns are primarily driven by revenues. But the fact that much of ex-U.S. stocks' revenues from the U.S. didn't seem to matter over the last 15 years as ex-U.S. stocks far underperformed those of U.S. stocks. As such, we can conclude that there is a lot more driving stock returns than revenues alone.nigel_ht wrote: ↑Tue Jan 18, 2022 11:58 amWhy? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.willthrill81 wrote: ↑Tue Jan 18, 2022 11:27 am
My point was just that the last 15 years of returns for U.S. and ex-U.S. stocks demonstrates that there is much more going on with returns than revenue alone or else ex-U.S. wouldn't have underperformed the U.S. so much for so long.
However, you've actually hit the nail on the head: a very significant, possibly the single largest factor, in the outperformance of U.S. stocks over the last 15 years has been due to the huge returns produced by large-cap tech companies. No one knows how long that dominance will last.
Re: Does "international" offer any diversification?
Pretty easy to understand. Recency bias combined with pre-existing beliefs of American superiority. It's no different in sports or politics, where people talk about the superiority of their team or political party.Triple digit golfer wrote: ↑Tue Jan 18, 2022 12:13 pm Everybody is wired differently, but I can't understand why anybody who holds a significant equity portion (call it 50% or greater) would be happy being a "total market" equity investor, holding the "total market" for size, styles, and sectors, "ignoring the noise," but only after throwing out 42% of the market capitalization because of where they're headquartered.
For the most part the loudest acolytes of only investing in their home country reside in the US or other developed countries where the water is mostly clean and companies are not owned by the state. You don't find this mentality in places like Turkey, Chile, and Russia, for good reason. One only has to look at the example of Argentina for an economy that was once thriving in the early 20th century but has been a basket case for the last 80-90 years. It appears most of the US only folks don't think we could possible follow that path in their lifetime.
Re: Does "international" offer any diversification?
Its possible but unlikely without warning. There may be a scenario or two that would be more rapid but we can't discuss them in this forum.asif408 wrote: ↑Tue Jan 18, 2022 12:34 pmPretty easy to understand. Recency bias combined with pre-existing beliefs of American superiority. It's no different in sports or politics, where people talk about the superiority of their team or political party.Triple digit golfer wrote: ↑Tue Jan 18, 2022 12:13 pm Everybody is wired differently, but I can't understand why anybody who holds a significant equity portion (call it 50% or greater) would be happy being a "total market" equity investor, holding the "total market" for size, styles, and sectors, "ignoring the noise," but only after throwing out 42% of the market capitalization because of where they're headquartered.
For the most part the loudest acolytes of only investing in their home country reside in the US or other developed countries where the water is mostly clean and companies are not owned by the state. You don't find this mentality in places like Turkey, Chile, and Russia, for good reason. One only has to look at the example of Argentina for an economy that was once thriving in the early 20th century but has been a basket case for the last 80-90 years. It appears most of the US only folks don't think we could possible follow that path in their lifetime.
Re: Does "international" offer any diversification?
Because assets always provide early alerts before they outperform? How do I sign up for those emails?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Does "international" offer any diversification?
The collapse of empires generally have precursor events. If you pay me $1999 a year I can send you an email when it happens. Or you can just watch the news...
-
- Posts: 6238
- Joined: Mon Apr 11, 2011 12:28 am
Re: International Diversification -- why why???
That is a huge difference in SWRwillthrill81 wrote: ↑Tue Jan 18, 2022 11:25 amOwning ex-Japanese stock would certainly have benefited Japanese investors over the past 50 years in the form of producing higher SWRs, but the benefit was possibly smaller and the optimal range of proportions is probably very different from what many believe them to be. Japanese investors wholly invested in Japanese stocks and bonds at a 60/40 AA had a 30 year SWR of 3.0%. Evenly dividing their stocks between Japanese and ex-Japanese stocks increased the SWR to 3.8%, but greater allocations to ex-Japanese stocks would not have improved the SWR. For instance, the 30 year SWR for a 25% U.S. stock, 25%, ex-U.S. stock, 10% Japanese stock, and 40% Japanese bonds was 3.5%.
So my point still stands
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
So hard to hold international.
When things go up, VTI goes up lot more than VXUS.
When things go down, VXUS goes down almost same amount as VTI.
So many years of underperformance due to VXUS, it need to at least outperform massively during downturn.
When things go up, VTI goes up lot more than VXUS.
When things go down, VXUS goes down almost same amount as VTI.
So many years of underperformance due to VXUS, it need to at least outperform massively during downturn.
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: International Diversification -- why why???
If you believe that was 'huge', then you must believe that the historic effect of SCV was 'huger'.Nathan Drake wrote: ↑Tue Jan 18, 2022 1:51 pmThat is a huge difference in SWRwillthrill81 wrote: ↑Tue Jan 18, 2022 11:25 amOwning ex-Japanese stock would certainly have benefited Japanese investors over the past 50 years in the form of producing higher SWRs, but the benefit was possibly smaller and the optimal range of proportions is probably very different from what many believe them to be. Japanese investors wholly invested in Japanese stocks and bonds at a 60/40 AA had a 30 year SWR of 3.0%. Evenly dividing their stocks between Japanese and ex-Japanese stocks increased the SWR to 3.8%, but greater allocations to ex-Japanese stocks would not have improved the SWR. For instance, the 30 year SWR for a 25% U.S. stock, 25%, ex-U.S. stock, 10% Japanese stock, and 40% Japanese bonds was 3.5%.
So my point still stands
The Sensible Steward
-
- Posts: 6238
- Joined: Mon Apr 11, 2011 12:28 am
Re: International Diversification -- why why???
Without the strength of the yen, that situation could have been much worse for a Japanese investor as wellwillthrill81 wrote: ↑Tue Jan 18, 2022 2:26 pmIf you believe that was 'huge', then you must believe that the historic effect of SCV was 'huger'.Nathan Drake wrote: ↑Tue Jan 18, 2022 1:51 pmThat is a huge difference in SWRwillthrill81 wrote: ↑Tue Jan 18, 2022 11:25 amOwning ex-Japanese stock would certainly have benefited Japanese investors over the past 50 years in the form of producing higher SWRs, but the benefit was possibly smaller and the optimal range of proportions is probably very different from what many believe them to be. Japanese investors wholly invested in Japanese stocks and bonds at a 60/40 AA had a 30 year SWR of 3.0%. Evenly dividing their stocks between Japanese and ex-Japanese stocks increased the SWR to 3.8%, but greater allocations to ex-Japanese stocks would not have improved the SWR. For instance, the 30 year SWR for a 25% U.S. stock, 25%, ex-U.S. stock, 10% Japanese stock, and 40% Japanese bonds was 3.5%.
So my point still stands
Many possibilities, weakening dollar plus overvalued equities and that scenario may be much worse. But either way there’s an obvious benefit to both exUS and SCV - why not both? That’s how I construct my own portfolio
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: International Diversification -- why why???
This brings up an interesting point that is seldom discussed, which is combining the theoretical diversification benefit of foreign investing with SCV. For Japanese investors, who split the stocks in a 60/40 AA who split their stocks between U.S. and ex-U.S. holdings, retaining half their stocks in large-cap Japanese stocks, the 30 year SWR was 4.3%. This would not have worked as well over the same period for U.S. investors; splitting their stocks evenly between large-caps and U.S. SCV produced a 5.4% SWR while splitting their SCV between U.S. and ex-U.S. produced a 5.1% SWR. But there does seem to have been a persistent effect in developed nations at least for (1) some degree of foreign stock exposure, (2) some degree of tilt to the stocks of one's home country, and (3) putting a significant portion of one's stocks into SCV.Nathan Drake wrote: ↑Tue Jan 18, 2022 2:31 pmWithout the strength of the yen, that situation could have been much worse for a Japanese investor as wellwillthrill81 wrote: ↑Tue Jan 18, 2022 2:26 pmIf you believe that was 'huge', then you must believe that the historic effect of SCV was 'huger'.Nathan Drake wrote: ↑Tue Jan 18, 2022 1:51 pmThat is a huge difference in SWRwillthrill81 wrote: ↑Tue Jan 18, 2022 11:25 amOwning ex-Japanese stock would certainly have benefited Japanese investors over the past 50 years in the form of producing higher SWRs, but the benefit was possibly smaller and the optimal range of proportions is probably very different from what many believe them to be. Japanese investors wholly invested in Japanese stocks and bonds at a 60/40 AA had a 30 year SWR of 3.0%. Evenly dividing their stocks between Japanese and ex-Japanese stocks increased the SWR to 3.8%, but greater allocations to ex-Japanese stocks would not have improved the SWR. For instance, the 30 year SWR for a 25% U.S. stock, 25%, ex-U.S. stock, 10% Japanese stock, and 40% Japanese bonds was 3.5%.
So my point still stands
Many possibilities, weakening dollar plus overvalued equities and that scenario may be much worse. But either way there’s an obvious benefit to both exUS and SCV - why not both? That’s how I construct my own portfolio
The Sensible Steward
Re: Does "international" offer any diversification?
Empirically there has been no significant reduction in volatility from adding international. Data from before international funds were widely available suggested a possible benefit in this regard (statistically if the correlation is not perfect you should see some volatility reduction for the aggregate portfolio and improved Sharpe ratio). But over the past 20+ years, we see that a global portfolio has had slightly higher volatility than a US-only portfolio. This is because the international stocks are more volatile to begin with and because the correlation has been too high, especially now that the barriers to international investing are minimal and the investment markets have become more globalized. The beta of Vanguard Total International since 1997 is 0.94. Finding something with equity returns with low correlation is the Holy Grail of investing, but it never pans out because once people are actually able to invest in whatever it is the beta goes up.
Now you might say, ah, but volatility is only the second moment. Might there be some kind of tail risk protection? While this is a reasonable supposition, again it appears doubtful empirically. Portfolio Visualizer lists five major drawdowns in the back history and it's the same exact list for US and international and the drawdown for international has been larger fives times out of five. In these crashes there is a "flight to quality" phenomenon where investors flock to what they perceive as the safest assets and the US appears to benefit from this even in cases where the crisis originated in the US and is due to US incompetence (see subprime crisis).
Now you might say, ah, but volatility is only the second moment. Might there be some kind of tail risk protection? While this is a reasonable supposition, again it appears doubtful empirically. Portfolio Visualizer lists five major drawdowns in the back history and it's the same exact list for US and international and the drawdown for international has been larger fives times out of five. In these crashes there is a "flight to quality" phenomenon where investors flock to what they perceive as the safest assets and the US appears to benefit from this even in cases where the crisis originated in the US and is due to US incompetence (see subprime crisis).
- burritoLover
- Posts: 4097
- Joined: Sun Jul 05, 2020 12:13 pm
Re: Does "international" offer any diversification?
The sequence of returns from the last 10, 20, 30, or how ever many years is not going to repeat again starting in 2022. What US vs international equity returns or volatility has been seen in a portfolio over whatever time period you wish to pick gives you no more information going forward than knowing which individual stocks have outperformed over the same period. You don't know what is going to happen. I don't know what is going to happen. That is why we diversify. If it were so easy as doing a back-test, then you should be able to simply back-test individual US sectors and pick the ones that are going to outperform going forward and stick all your money in that - why bother with the whole market?
- abuss368
- Posts: 27850
- Joined: Mon Aug 03, 2009 2:33 pm
- Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
- Contact:
Re: Does "international" offer any diversification?
Diversification has been called the only “free lunch” in investing.
Best.
Tony
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: Does "international" offer any diversification?
I am brand new to the forum, but have to wonder if the tendency to shop around for geographies and factors that might outperform isn't somewhat like attempting to pick indivudual stocks.
I know that the US stock market for a period of more than 100 years is the greatest wealth building machine.
I can't say that I know the same for anywhere else. It may well be, but I haven't the time, energy or money to find out.
The behavioral bias seems to be, "Estonia might take off and I'll miss out on its 121% gain."
Maybe Estonia will rise 121%. And maybe not.
I do know that over a long period of time, US stock market has reliably returned enough for me. With Bogle's fantastic advocacy for small investors, we have access to it for pennies.
If my lifetime coincides with a cascade of once-in-a-milenium events that fundamentally change the society that has created and sustained the greatest wealth building machine in history, the 10% EM weighting in VTWAX isn't going save me.
It simply strikes me as an unsubstantiated fear of missing out, and the trading costs are way too high.
I know that the US stock market for a period of more than 100 years is the greatest wealth building machine.
I can't say that I know the same for anywhere else. It may well be, but I haven't the time, energy or money to find out.
The behavioral bias seems to be, "Estonia might take off and I'll miss out on its 121% gain."
Maybe Estonia will rise 121%. And maybe not.
I do know that over a long period of time, US stock market has reliably returned enough for me. With Bogle's fantastic advocacy for small investors, we have access to it for pennies.
If my lifetime coincides with a cascade of once-in-a-milenium events that fundamentally change the society that has created and sustained the greatest wealth building machine in history, the 10% EM weighting in VTWAX isn't going save me.
It simply strikes me as an unsubstantiated fear of missing out, and the trading costs are way too high.
My lifetime requirement for investment advice was satisfied upon reading Jack Bogle write that most people need only a low cost S&P 500 Index fund.
Re: Does "international" offer any diversification?
Not really. Here on BH it’s generally a question of how much diversification is required as opposed to IF diversification is required.
Nobody is really advocating investing in Estonia except as part of a broader international index.
The disagreement is whether market weight large cap international really offers a lot of useful diversification over 20% large cap international allocation or even 0% large cap international allocation.
Then there are the gazillion variations on international small cap value, em, etc. which clouds the issue.
But for most the 3 fund is likely “good enough” diversification. Maybe do a little SCV is you want.
The larger differences in outcomes between the various approaches occur in left tail events which if we could predict how these will play out wouldn’t be black swans anymore.
Re: Does "international" offer any diversification?
People generally don’t care about increasing diversification until what they’ve concentrated their portfolio on has some poorly.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Does "international" offer any diversification?
Yah but if you have 20-30% international in a standard 3 fund how bad can it be? PV uses 50/30/20.
That’s not a terrible baseline.
- abuss368
- Posts: 27850
- Joined: Mon Aug 03, 2009 2:33 pm
- Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
- Contact:
Re: Does "international" offer any diversification?
Triple Digit Golfer -Triple digit golfer wrote: ↑Tue Jan 18, 2022 12:13 pm Everybody is wired differently, but I can't understand why anybody who holds a significant equity portion (call it 50% or greater) would be happy being a "total market" equity investor, holding the "total market" for size, styles, and sectors, "ignoring the noise," but only after throwing out 42% of the market capitalization because of where they're headquartered.
You raise a good point. Definitely a different angle to view from and consider. I hope international will finally have some time in the sun. It is ahead of Total Stock this year to date. I recall last year at this time, it was ahead as well.
Diversification is the only free lunch in investing.
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
-
- Posts: 5561
- Joined: Fri Feb 23, 2007 7:21 pm
Re: Does "international" offer any diversification?
Boy last week was significant. Over the week
Vanguard total stock market lost 5.97%
Vanguard total international lost 3.02%
Vanguard total bond market gained 0.01%
60/40 VTSMX/BND lost 3.2%
30/30/40 VTSMX/VGTIAX/BND lost 2.66%
So over the last week evenly splitting US and Int cut losses for a 60/40 portfolio 0.54%
It’s not just about correlations. The size of gains and losses matter too. Also smoothing the ride and lessening variance drain can be worthwhile too.
Dave
Vanguard total stock market lost 5.97%
Vanguard total international lost 3.02%
Vanguard total bond market gained 0.01%
60/40 VTSMX/BND lost 3.2%
30/30/40 VTSMX/VGTIAX/BND lost 2.66%
So over the last week evenly splitting US and Int cut losses for a 60/40 portfolio 0.54%
It’s not just about correlations. The size of gains and losses matter too. Also smoothing the ride and lessening variance drain can be worthwhile too.
Dave
Re: Does "international" offer any diversification?
YTD:
Vanguard Total International Stock Index Fund ETF (VXUS): -4.08%
Vanguard Total Stock Market Index Fund ETF (VTI): -8.49%
Vanguard Total World Stock Index Fund ETF (VT): -6.54%
Vanguard Total Bond Market Index Fund ETF (BND): -1.09%
Vanguard Total International Bond Index Fund ETF (BNDX): -0.40%
Vanguard Total World Bond ETF (BNDW): -0.77%
International certainly has offered some diversification this year for both stocks and bonds. The Total World funds illustrate the net difference of that diversity, and should also offer some reduced volatility benefits.
Vanguard Total International Stock Index Fund ETF (VXUS): -4.08%
Vanguard Total Stock Market Index Fund ETF (VTI): -8.49%
Vanguard Total World Stock Index Fund ETF (VT): -6.54%
Vanguard Total Bond Market Index Fund ETF (BND): -1.09%
Vanguard Total International Bond Index Fund ETF (BNDX): -0.40%
Vanguard Total World Bond ETF (BNDW): -0.77%
International certainly has offered some diversification this year for both stocks and bonds. The Total World funds illustrate the net difference of that diversity, and should also offer some reduced volatility benefits.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
Re: Does "international" offer any diversification?
While I'm a fan of int'l and own 40% ex-US, I don't believe that a very short period of time should be used to illustrate anything in particular.GAAP wrote: ↑Mon Jan 24, 2022 3:54 pm YTD:
Vanguard Total International Stock Index Fund ETF (VXUS): -4.08%
Vanguard Total Stock Market Index Fund ETF (VTI): -8.49%
Vanguard Total World Stock Index Fund ETF (VT): -6.54%
Vanguard Total Bond Market Index Fund ETF (BND): -1.09%
Vanguard Total International Bond Index Fund ETF (BNDX): -0.40%
Vanguard Total World Bond ETF (BNDW): -0.77%
International certainly has offered some diversification this year for both stocks and bonds. The Total World funds illustrate the net difference of that diversity, and should also offer some reduced volatility benefits.
Re: Does "international" offer any diversification?
Portfolio Visualizer shows the same concept for January 2012 to December 2021 (constrained by the available data for Vanguard Total International Stock ETF (VXUS) [Feb 2011 - Dec 2021]):
VXUS: 7.62% CAGR, 14.1% Std. Dev.
VTI: 16.29% CAGR, 13.5% Std. Dev.
VT: 12.06% CAGR, 13.33% Std. Dev.
Domestic and International are different things, doing their own dance steps (although on the same dance floor). Total World reduces the variability somewhat, and also averages out the overall growth.
I'm too lazy to pull the net differences from January 2012 to today, but I'm certain the pattern will hold.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
Re: Does "international" offer any diversification?
Not arguing the point that ex-US is useful to own and can help diversify, I own it. Just that the post that you made trying to illustrate the benefits of ex-US based on the 16 trading days so far in 2022 is not very compelling IMO.GAAP wrote: ↑Mon Jan 24, 2022 4:21 pmPortfolio Visualizer shows the same concept for January 2012 to December 2021 (constrained by the available data for Vanguard Total International Stock ETF (VXUS) [Feb 2011 - Dec 2021]):
VXUS: 7.62% CAGR, 14.1% Std. Dev.
VTI: 16.29% CAGR, 13.5% Std. Dev.
VT: 12.06% CAGR, 13.33% Std. Dev.
Domestic and International are different things, doing their own dance steps (although on the same dance floor). Total World reduces the variability somewhat, and also averages out the overall growth.
I'm too lazy to pull the net differences from January 2012 to today, but I'm certain the pattern will hold.
Re: Does "international" offer any diversification?
Loving the same dance floor analogy.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
Re: Does "international" offer any diversification?
Not really intended to be compelling, just illustrative. High volatility can lead many to behavioral mistakes. The increased diversification from adding international to a domestic portfolio should reduce the volatility and provide some additional insurance against such mistakes.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
Re: Does "international" offer any diversification?
I believe Australia typically edges out the US (pending on start/stop dates).Hofburg43 wrote: ↑Sat Jan 22, 2022 8:14 am I am brand new to the forum, but have to wonder if the tendency to shop around for geographies and factors that might outperform isn't somewhat like attempting to pick indivudual stocks.
I know that the US stock market for a period of more than 100 years is the greatest wealth building machine.
Chinese indexes haven't been around for 100 years. If you include the earliest start dates, Chinese stocks have outperformed.
And the Nifty 50 has crushed the S&P500 since it has existed.
In the US, certain sectors and factors have overperformed the S&P500.
There are options that backtest better than 100% VOO over most time periods; however long or short.
Home country bias is something that affects all investors to one degree or another. Perhaps 100% VOO is correct for some investors; with behavior considered it doubtless is right for some. But it would behoove us to be aware of our inherit biases and how they shape our decisions.
After all, you can find lots of investors in China/India/Australia who are 100% invested in their specific country. And 30-50 years from now, not everyone will be correct.
Re: Does "international" offer any diversification?
International falling with American as usual.
-
- Posts: 6238
- Joined: Mon Apr 11, 2011 12:28 am
Re: Does "international" offer any diversification?
Yeah but not as badly
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
Yesterday AVDV was falling more than S&P 500.
-
- Posts: 6238
- Joined: Mon Apr 11, 2011 12:28 am
Re: Does "international" offer any diversification?
Ok, and today it’s not
Noise
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
Not sure your point. Bonds are falling as well.
If owning more stock does not increase diversification, then just buy one stock. A better question is does owning more stock (international) meaningfully add to diversification.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
-
- Posts: 6238
- Joined: Mon Apr 11, 2011 12:28 am
Re: Does "international" offer any diversification?
Diversification isn’t measured by any particular day
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
"Correlations between US and international equities over long-term time horizons now fall consistently between 80% and 90%."
https://blogs.cfainstitute.org/investor ... scontents/
Re: Does "international" offer any diversification?
That is not 1.Booogle wrote: ↑Tue Jan 25, 2022 9:41 am"Correlations between US and international equities over long-term time horizons now fall consistently between 80% and 90%."
https://blogs.cfainstitute.org/investor ... scontents/
Should we only buy five stocks or so, because the other stocks are highly correlated?
As I noted before: (cut out I assume for simplicity -- fair enough)
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
- burritoLover
- Posts: 4097
- Joined: Sun Jul 05, 2020 12:13 pm
Re: Does "international" offer any diversification?
Correlations change over time people. Starting in the 70's, stocks and bonds were much more highly correlated for some 30 years. Should you have dumped bonds then cause that should be a permanent change, right?
Re: Does "international" offer any diversification?
Maybe yes.
https://www.gmo.com/americas/research-l ... ly-letter/
"The U.S. market, after all, includes some truly amazing businesses. For example, Apple, Amazon, Microsoft, Google, and Facebook (the “Big Five”) generated annualized fundamental performance of 16.3% over the last 10 years. Companies that can reinvest capital at high rates for long periods of time deserve to trade at higher multiples, and many investors seem to assume that the strong growth of these dominant companies justifies the premium multiple applied to the U.S. market. The problem with that narrative is not that these five companies don’t deserve their valuations. The problem is that when you look at the U.S. market excluding these five names, its fundamental return was only 4.2% annualized over the last decade."
Re: Does "international" offer any diversification?
I don't think this style of reductio ad absurdum argument is very strong. At all. If you don't think international is necessary for diversification, why not just own one or 5 stocks?!? Have a look at this article from Larry Swedroe https://mutualfunds.com/expert-analysis ... are-enough. You get most (90%) of the diversification benefit in a country from roughly 100 stocks or less (more than it used to be). In terms of raw numbers the 4139 stocks of VTI are plenty to be diversified. Adding the 7742 stocks in VXUS doesn't help just by making the new total a much bigger 11881.
I still think international is a good idea (I own 40%). Just am dubious about the strength of this line of argument. It isn't so much that you are adding more stocks, it is that you are adding different stocks with different risks (and adding currency into the mix). Even when US and ex-US are fairly strongly correlated, the magnitude of the changes can be rather different. And there is always the possibility of extended US underperformance (inconceivable as it may be to some).
Last edited by Da5id on Tue Jan 25, 2022 10:50 am, edited 1 time in total.
Re: Does "international" offer any diversification?
Go to it! If only we could invest in the past...Booogle wrote: ↑Tue Jan 25, 2022 10:27 amMaybe yes.
https://www.gmo.com/americas/research-l ... ly-letter/
"The U.S. market, after all, includes some truly amazing businesses. For example, Apple, Amazon, Microsoft, Google, and Facebook (the “Big Five”) generated annualized fundamental performance of 16.3% over the last 10 years. Companies that can reinvest capital at high rates for long periods of time deserve to trade at higher multiples, and many investors seem to assume that the strong growth of these dominant companies justifies the premium multiple applied to the U.S. market. The problem with that narrative is not that these five companies don’t deserve their valuations. The problem is that when you look at the U.S. market excluding these five names, its fundamental return was only 4.2% annualized over the last decade."
-
- Posts: 6238
- Joined: Mon Apr 11, 2011 12:28 am
Re: Does "international" offer any diversification?
Correlations aren’t the full picture of diversificationBooogle wrote: ↑Tue Jan 25, 2022 9:41 am"Correlations between US and international equities over long-term time horizons now fall consistently between 80% and 90%."
https://blogs.cfainstitute.org/investor ... scontents/
Magnitude/dispersion of returns matters. US TSM did dramatically better this past decade despite the high correlations
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
-
- Posts: 3340
- Joined: Thu May 19, 2016 5:04 pm
Re: Does "international" offer any diversification?
Yes they do. I will do at least some % in tnternatinal + small % in emerging market.
Re: Does "international" offer any diversification?
Fair enough. Burton Makiel wrote of such benefit at 5 different types (variants?) of stocks. But 5, 100, all of one country, all (or close to it). They all vary in degrees. There certainly is diminishing returns on the diversification benefit.Da5id wrote: ↑Tue Jan 25, 2022 10:30 amI don't think this style of reductio ad absurdum argument is very strong.
+1.Da5id wrote: ↑Tue Jan 25, 2022 10:30 amIt isn't so much that you are adding more stocks, it is that you are adding different stocks with different risks (and adding currency into the mix). Even when US and ex-US are fairly strongly correlated, the magnitude of the changes can be rather different. And there is always the possibility of extended US underperformance (inconceivable as it may be to some).
And I think we will agree that the diversification benefit of international stocks (which I own) is NOT as strong as the benefits of other assets like bonds, real estate, SCV in large amounts, commodities, etc. (some of which I do not do).
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
-
- Posts: 6238
- Joined: Mon Apr 11, 2011 12:28 am
Re: Does "international" offer any diversification?
I dont agree with that at allsteve r wrote: ↑Tue Jan 25, 2022 11:18 amFair enough. Burton Makiel wrote of such benefit at 5 different types (variants?) of stocks. But 5, 100, all of one country, all (or close to it). They all vary in degrees. There certainly is diminishing returns on the diversification benefit.Da5id wrote: ↑Tue Jan 25, 2022 10:30 amI don't think this style of reductio ad absurdum argument is very strong.
+1.Da5id wrote: ↑Tue Jan 25, 2022 10:30 amIt isn't so much that you are adding more stocks, it is that you are adding different stocks with different risks (and adding currency into the mix). Even when US and ex-US are fairly strongly correlated, the magnitude of the changes can be rather different. And there is always the possibility of extended US underperformance (inconceivable as it may be to some).
And I think we will agree that the diversification benefit of international stocks (which I own) is NOT as strong as the benefits of other assets like bonds, real estate, SCV in large amounts, commodities, etc. (some of which I do not do).
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES