Does "international" offer any diversification?

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steve r
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Re: Does "international" offer any diversification?

Post by steve r »

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.
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Re: Does "international" offer any diversification?

Post by nigel_ht »

willthrill81 wrote: Tue Jan 18, 2022 11:27 am
Marseille07 wrote: Tue Jan 18, 2022 11:20 am
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.
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.
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.
Why? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.
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Re: Does "international" offer any diversification?

Post by nigel_ht »

steve r wrote: Tue Jan 18, 2022 11:49 am 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.
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.
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Re: Does "international" offer any diversification?

Post by willthrill81 »

nigel_ht wrote: Tue Jan 18, 2022 11:58 am
willthrill81 wrote: Tue Jan 18, 2022 11:27 am
Marseille07 wrote: Tue Jan 18, 2022 11:20 am
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.
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.
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.
Why? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.
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.

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.
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Triple digit golfer
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Re: Does "international" offer any diversification?

Post by Triple digit golfer »

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.
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Re: Does "international" offer any diversification?

Post by nigel_ht »

willthrill81 wrote: Tue Jan 18, 2022 12:08 pm
nigel_ht wrote: Tue Jan 18, 2022 11:58 am
willthrill81 wrote: Tue Jan 18, 2022 11:27 am
Marseille07 wrote: Tue Jan 18, 2022 11:20 am
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.
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.
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.
Why? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.
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.

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.
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.

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...
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Re: Does "international" offer any diversification?

Post by willthrill81 »

nigel_ht wrote: Tue Jan 18, 2022 12:26 pm
willthrill81 wrote: Tue Jan 18, 2022 12:08 pm
nigel_ht wrote: Tue Jan 18, 2022 11:58 am
willthrill81 wrote: Tue Jan 18, 2022 11:27 am
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.
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.
Why? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.
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.

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.
Don't you need to remove FAANG from that analysis to determine if ex-US really underperformed US stocks?
Thanks for volunteering to examine that! I'll be eagerly awaiting the results. :beer
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nigel_ht
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Re: Does "international" offer any diversification?

Post by nigel_ht »

willthrill81 wrote: Tue Jan 18, 2022 12:28 pm
nigel_ht wrote: Tue Jan 18, 2022 12:26 pm
willthrill81 wrote: Tue Jan 18, 2022 12:08 pm
nigel_ht wrote: Tue Jan 18, 2022 11:58 am
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.
Why? Where are FAANG from? US. For tech TINA for US. The outliers are TSMC and Tencent.
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.

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.
Don't you need to remove FAANG from that analysis to determine if ex-US really underperformed US stocks?
Thanks for volunteering to examine that! I'll be eagerly awaiting the results. :beer
I would but I'm on my phone...so I will happily withdraw my observation...
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Re: Does "international" offer any diversification?

Post by asif408 »

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.
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.

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.
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Re: Does "international" offer any diversification?

Post by nigel_ht »

asif408 wrote: Tue Jan 18, 2022 12:34 pm
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.
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.

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.
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.
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Re: Does "international" offer any diversification?

Post by vineviz »

nigel_ht wrote: Tue Jan 18, 2022 1:16 pm 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.
Because assets always provide early alerts before they outperform? How do I sign up for those emails?
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Re: Does "international" offer any diversification?

Post by nigel_ht »

vineviz wrote: Tue Jan 18, 2022 1:26 pm
nigel_ht wrote: Tue Jan 18, 2022 1:16 pm 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.
Because assets always provide early alerts before they outperform? How do I sign up for those emails?
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...
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Re: International Diversification -- why why???

Post by Nathan Drake »

willthrill81 wrote: Tue Jan 18, 2022 11:25 am
Nathan Drake wrote: Sat Jan 08, 2022 11:27 am
  • Because of Japan
Owning 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%.
That is a huge difference in SWR

So my point still stands
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Re: Does "international" offer any diversification?

Post by faltuk1 »

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.
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Re: International Diversification -- why why???

Post by willthrill81 »

Nathan Drake wrote: Tue Jan 18, 2022 1:51 pm
willthrill81 wrote: Tue Jan 18, 2022 11:25 am
Nathan Drake wrote: Sat Jan 08, 2022 11:27 am
  • Because of Japan
Owning 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%.
That is a huge difference in SWR

So my point still stands
If you believe that was 'huge', then you must believe that the historic effect of SCV was 'huger'. :wink:
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Re: International Diversification -- why why???

Post by Nathan Drake »

willthrill81 wrote: Tue Jan 18, 2022 2:26 pm
Nathan Drake wrote: Tue Jan 18, 2022 1:51 pm
willthrill81 wrote: Tue Jan 18, 2022 11:25 am
Nathan Drake wrote: Sat Jan 08, 2022 11:27 am
  • Because of Japan
Owning 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%.
That is a huge difference in SWR

So my point still stands
If you believe that was 'huge', then you must believe that the historic effect of SCV was 'huger'. :wink:
Without the strength of the yen, that situation could have been much worse for a Japanese investor as well

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
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Re: International Diversification -- why why???

Post by willthrill81 »

Nathan Drake wrote: Tue Jan 18, 2022 2:31 pm
willthrill81 wrote: Tue Jan 18, 2022 2:26 pm
Nathan Drake wrote: Tue Jan 18, 2022 1:51 pm
willthrill81 wrote: Tue Jan 18, 2022 11:25 am
Nathan Drake wrote: Sat Jan 08, 2022 11:27 am
  • Because of Japan
Owning 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%.
That is a huge difference in SWR

So my point still stands
If you believe that was 'huge', then you must believe that the historic effect of SCV was 'huger'. :wink:
Without the strength of the yen, that situation could have been much worse for a Japanese investor as well

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
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.
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Re: Does "international" offer any diversification?

Post by grog »

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).
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Re: Does "international" offer any diversification?

Post by burritoLover »

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?
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Re: Does "international" offer any diversification?

Post by abuss368 »

Diversification has been called the only “free lunch” in investing.

Best.
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Re: Does "international" offer any diversification?

Post by Hofburg43 »

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.
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Re: Does "international" offer any diversification?

Post by nigel_ht »

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.
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.
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Re: Does "international" offer any diversification?

Post by vineviz »

nigel_ht wrote: Sat Jan 22, 2022 8:49 am
Not really. Here on BH it’s generally a question of how much diversification is required as opposed to IF diversification is required.
People generally don’t care about increasing diversification until what they’ve concentrated their portfolio on has some poorly.
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Re: Does "international" offer any diversification?

Post by nigel_ht »

vineviz wrote: Sat Jan 22, 2022 8:54 am
nigel_ht wrote: Sat Jan 22, 2022 8:49 am
Not really. Here on BH it’s generally a question of how much diversification is required as opposed to IF diversification is required.
People generally don’t care about increasing diversification until what they’ve concentrated their portfolio on has some poorly.
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.
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Re: Does "international" offer any diversification?

Post by abuss368 »

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.
Triple Digit Golfer -

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.

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Re: Does "international" offer any diversification?

Post by Random Walker »

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.

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Re: Does "international" offer any diversification?

Post by GAAP »

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.
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Re: Does "international" offer any diversification?

Post by Da5id »

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.
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.
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Re: Does "international" offer any diversification?

Post by GAAP »

Da5id wrote: Mon Jan 24, 2022 4:04 pm
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.
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.
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Re: Does "international" offer any diversification?

Post by Da5id »

GAAP wrote: Mon Jan 24, 2022 4:21 pm
Da5id wrote: Mon Jan 24, 2022 4:04 pm
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.
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.
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.
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Re: Does "international" offer any diversification?

Post by steve r »

GAAP wrote: Mon Jan 24, 2022 4:21 pm ...
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.
...
Loving the same dance floor analogy. :beer
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Re: Does "international" offer any diversification?

Post by GAAP »

Da5id wrote: Mon Jan 24, 2022 4:24 pm
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.
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.
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Re: Does "international" offer any diversification?

Post by ckangas »

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.
I believe Australia typically edges out the US (pending on start/stop dates).
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.
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Re: Does "international" offer any diversification?

Post by Booogle »

International falling with American as usual.
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Re: Does "international" offer any diversification?

Post by Nathan Drake »

Booogle wrote: Tue Jan 25, 2022 9:24 am International falling with American as usual.
Yeah but not as badly
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Re: Does "international" offer any diversification?

Post by Booogle »

Nathan Drake wrote: Tue Jan 25, 2022 9:29 am
Booogle wrote: Tue Jan 25, 2022 9:24 am International falling with American as usual.
Yeah but not as badly
Yesterday AVDV was falling more than S&P 500.
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Re: Does "international" offer any diversification?

Post by Nathan Drake »

Booogle wrote: Tue Jan 25, 2022 9:30 am
Nathan Drake wrote: Tue Jan 25, 2022 9:29 am
Booogle wrote: Tue Jan 25, 2022 9:24 am International falling with American as usual.
Yeah but not as badly
Yesterday AVDV was falling more than S&P 500.
Ok, and today it’s not

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Re: Does "international" offer any diversification?

Post by steve r »

Booogle wrote: Tue Jan 25, 2022 9:24 am International falling with American as usual.
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.
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Re: Does "international" offer any diversification?

Post by Booogle »

steve r wrote: Tue Jan 25, 2022 9:33 am Not sure your point.

Title of thread is "Does "international" offer any diversification?"
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Re: Does "international" offer any diversification?

Post by Nathan Drake »

Booogle wrote: Tue Jan 25, 2022 9:35 am
steve r wrote: Tue Jan 25, 2022 9:33 am Not sure your point.

Title of thread is "Does "international" offer any diversification?"
Diversification isn’t measured by any particular day
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Re: Does "international" offer any diversification?

Post by Booogle »

Nathan Drake wrote: Tue Jan 25, 2022 9:38 am
Booogle wrote: Tue Jan 25, 2022 9:35 am
steve r wrote: Tue Jan 25, 2022 9:33 am Not sure your point.

Title of thread is "Does "international" offer any diversification?"
Diversification isn’t measured by any particular day
"Correlations between US and international equities over long-term time horizons now fall consistently between 80% and 90%."

https://blogs.cfainstitute.org/investor ... scontents/
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Re: Does "international" offer any diversification?

Post by steve r »

Booogle wrote: Tue Jan 25, 2022 9:41 am
Nathan Drake wrote: Tue Jan 25, 2022 9:38 am
Booogle wrote: Tue Jan 25, 2022 9:35 am
steve r wrote: Tue Jan 25, 2022 9:33 am Not sure your point.

Title of thread is "Does "international" offer any diversification?"
Diversification isn’t measured by any particular day
"Correlations between US and international equities over long-term time horizons now fall consistently between 80% and 90%."

https://blogs.cfainstitute.org/investor ... scontents/
That is not 1.

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)
steve r wrote: Tue Jan 25, 2022 9:33 am 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
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Re: Does "international" offer any diversification?

Post by burritoLover »

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?
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Re: Does "international" offer any diversification?

Post by Booogle »

steve r wrote: Tue Jan 25, 2022 10:12 am Should we only buy five stocks or so, because the other stocks are highly correlated?
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."
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Re: Does "international" offer any diversification?

Post by Da5id »

steve r wrote: Tue Jan 25, 2022 10:12 am That is not 1.

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)
steve r wrote: Tue Jan 25, 2022 9:33 am 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.
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.
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Re: Does "international" offer any diversification?

Post by Da5id »

Booogle wrote: Tue Jan 25, 2022 10:27 am
steve r wrote: Tue Jan 25, 2022 10:12 am Should we only buy five stocks or so, because the other stocks are highly correlated?
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."
Go to it! If only we could invest in the past...
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Re: Does "international" offer any diversification?

Post by Nathan Drake »

Booogle wrote: Tue Jan 25, 2022 9:41 am
Nathan Drake wrote: Tue Jan 25, 2022 9:38 am
Booogle wrote: Tue Jan 25, 2022 9:35 am
steve r wrote: Tue Jan 25, 2022 9:33 am Not sure your point.

Title of thread is "Does "international" offer any diversification?"
Diversification isn’t measured by any particular day
"Correlations between US and international equities over long-term time horizons now fall consistently between 80% and 90%."

https://blogs.cfainstitute.org/investor ... scontents/
Correlations aren’t the full picture of diversification

Magnitude/dispersion of returns matters. US TSM did dramatically better this past decade despite the high correlations
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Re: Does "international" offer any diversification?

Post by WhiteMaxima »

Yes they do. I will do at least some % in tnternatinal + small % in emerging market.
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Re: Does "international" offer any diversification?

Post by steve r »

Da5id wrote: Tue Jan 25, 2022 10:30 am
steve r wrote: Tue Jan 25, 2022 10:12 am That is not 1.

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)
steve r wrote: Tue Jan 25, 2022 9:33 am 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.
I don't think this style of reductio ad absurdum argument is very strong.
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 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).
+1.

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).
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Re: Does "international" offer any diversification?

Post by Nathan Drake »

steve r wrote: Tue Jan 25, 2022 11:18 am
Da5id wrote: Tue Jan 25, 2022 10:30 am
steve r wrote: Tue Jan 25, 2022 10:12 am That is not 1.

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)
steve r wrote: Tue Jan 25, 2022 9:33 am 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.
I don't think this style of reductio ad absurdum argument is very strong.
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 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).
+1.

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).
I dont agree with that at all
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