Does "international" offer any diversification?
Re: Does "international" offer any diversification?
Someday, when all the stock markets go to zero, we'll resolve that it really didn't make much difference.
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- burritoLover
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Re: Does "international" offer any diversification?
True.Triple digit golfer wrote: ↑Mon Jan 17, 2022 8:41 amNo, but we all knew it would happen anyway.burritoLover wrote: ↑Mon Jan 17, 2022 8:31 am Did we really need 6 pages of discussion as to answer the question if adding 7500+ stocks to your portfolio that you didn't own before across different countries and markets you weren't invested in before offers you "any" diversification? lol, lol, lol.
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Re: Does "international" offer any diversification?
Very interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 amHere is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 8:29 am
In this scenario, how would one go about quantifying the difference between minimal, significant and maximum?
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
Perhaps, but the point of diversification is NOT that we expect international stocks to outperform on average but rather that we expect periods in which international stocks and US stocks will perform differently.Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 am Very interesting chart
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
Because most investors are risk-averse, making the bad times less bad is worth a lot more to most people than what happens on average or in the best case scenario.
"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?
7 now!burritoLover wrote: ↑Mon Jan 17, 2022 9:04 amTrue.Triple digit golfer wrote: ↑Mon Jan 17, 2022 8:41 amNo, but we all knew it would happen anyway.burritoLover wrote: ↑Mon Jan 17, 2022 8:31 am Did we really need 6 pages of discussion as to answer the question if adding 7500+ stocks to your portfolio that you didn't own before across different countries and markets you weren't invested in before offers you "any" diversification? lol, lol, lol.
to be fair, this wouldn't be BH if there wasn't at least one 5+ page active thread about US vs ex-US at any given moment.
Re: Does "international" offer any diversification?
This is a good thing. What would the BH forum be like if the US only chest pounding wasn't challenged?bling wrote: ↑Mon Jan 17, 2022 9:24 am7 now!burritoLover wrote: ↑Mon Jan 17, 2022 9:04 amTrue.Triple digit golfer wrote: ↑Mon Jan 17, 2022 8:41 amNo, but we all knew it would happen anyway.burritoLover wrote: ↑Mon Jan 17, 2022 8:31 am Did we really need 6 pages of discussion as to answer the question if adding 7500+ stocks to your portfolio that you didn't own before across different countries and markets you weren't invested in before offers you "any" diversification? lol, lol, lol.
to be fair, this wouldn't be BH if there wasn't at least one 5+ page active thread about US vs ex-US at any given moment.
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Re: Does "international" offer any diversification?
Right, the answer to the question asked in the title is trivially yes. The controversial aspect is whether one should diversify with ex-US indexing, and to what extent, but that's a different question.burritoLover wrote: ↑Mon Jan 17, 2022 8:31 am Did we really need 6 pages of discussion as to answer the question if adding 7500+ stocks to your portfolio that you didn't own before across different countries and markets you weren't invested in before offers you "any" diversification? lol, lol, lol.
Re: Does "international" offer any diversification?
So, it wasn't "different this time".Triple digit golfer wrote: ↑Mon Jan 17, 2022 8:41 amNo, but we all knew it would happen anyway.burritoLover wrote: ↑Mon Jan 17, 2022 8:31 am Did we really need 6 pages of discussion as to answer the question if adding 7500+ stocks to your portfolio that you didn't own before across different countries and markets you weren't invested in before offers you "any" diversification? lol, lol, lol.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
- vanbogle59
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Re: Does "international" offer any diversification?
I'm not an "opponent". I hold VTIAX. But I don't think it answers the question either.Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 amVery interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 amHere is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 8:29 am
In this scenario, how would one go about quantifying the difference between minimal, significant and maximum?
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
How does one go about quantifying the difference between minimal, significant and maximum?
Re: Does "international" offer any diversification?
One clearly quantifies them accurately only in retrospect... As in many areas, hindsight is great, future is murky. Mind you that murky future is part of why I own international.vanbogle59 wrote: ↑Mon Jan 17, 2022 10:56 amI'm not an "opponent". I hold VTIAX. But I don't think it answers the question either.Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 amVery interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 amHere is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 8:29 am
In this scenario, how would one go about quantifying the difference between minimal, significant and maximum?
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
How does one go about quantifying the difference between minimal, significant and maximum?
Re: Does "international" offer any diversification?
I think it should be clear that those are qualitative labels. Plenty of quantitative evidence has already been discussed, so let’s not miss the forest for the trees: some diversification is better than none, and more is better than less.vanbogle59 wrote: ↑Mon Jan 17, 2022 10:56 am How does one go about quantifying the difference between minimal, significant and maximum?
Further, I think it should be intuitive that there is a point of maximum benefit beyond which adding more international stocks begins to reduce diversification instead of increase it.
"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?
Well why doesn't it include performance up to 2022?Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 amVery interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 amHere is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 8:29 am
In this scenario, how would one go about quantifying the difference between minimal, significant and maximum?
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
US always outperforms is a straw man. Mostly it's likely just a wash where one or the other outperforms for a period. So having some of both is good. But it's not necessary to hold market weight to have the benefits of holding some international.
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Re: Does "international" offer any diversification?
It’s not a straw man for those advocating 100% US.nigel_ht wrote: ↑Mon Jan 17, 2022 11:27 amWell why doesn't it include performance up to 2022?Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 amVery interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 amHere is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 8:29 am
In this scenario, how would one go about quantifying the difference between minimal, significant and maximum?
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
US always outperforms is a straw man. Mostly it's likely just a wash where one or the other outperforms for a period. So having some of both is good. But it's not necessary to hold market weight to have the benefits of holding some international.
Vineviz has already discussed above that it’s “not necessary” to allocate 40-50% to get SOME benefits of international diversification, but the data suggests it to likely be more optimal.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
While I understand why 1966 is chosen the chart is misleading as to the real differences between minimal, significant and maximum over the entire dataset available.vineviz wrote: ↑Mon Jan 17, 2022 11:10 amI think it should be clear that those are qualitative labels. Plenty of quantitative evidence has already been discussed, so let’s not miss the forest for the trees: some diversification is better than none, and more is better than less.vanbogle59 wrote: ↑Mon Jan 17, 2022 10:56 am How does one go about quantifying the difference between minimal, significant and maximum?
Further, I think it should be intuitive that there is a point of maximum benefit beyond which adding more international stocks begins to reduce diversification instead of increase it.
In any case 10% provides 4.2% SWR over 30 years. That's good enough if the baseline is Trinity outcomes. Without being able to see the outcomes in other years you don't know how much going from 10% to 50% will cost you in more likely scenarios.
Re: Does "international" offer any diversification?
Because the 10% international investor in this scenario was completely broke by 2002.
"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?
It is absolutely a straw man if folks are advocating 100% because it works well enough and most of the time it's a wash and not because "the US will always outperform".Nathan Drake wrote: ↑Mon Jan 17, 2022 11:35 amIt’s not a straw man for those advocating 100% US.nigel_ht wrote: ↑Mon Jan 17, 2022 11:27 amWell why doesn't it include performance up to 2022?Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 amVery interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 amHere is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 8:29 am
In this scenario, how would one go about quantifying the difference between minimal, significant and maximum?
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
US always outperforms is a straw man. Mostly it's likely just a wash where one or the other outperforms for a period. So having some of both is good. But it's not necessary to hold market weight to have the benefits of holding some international.
Vineviz has already discussed above that it’s “not necessary” to allocate 40-50% to get SOME benefits of international diversification, but the data suggests it to likely be more optimal.
Vineviz doesn't say that it is necessary to hold market weight but YOU have in the past.
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Re: Does "international" offer any diversification?
Correction, it provided 4.2% in a limited number of sample periods. Not provides in the future tense.nigel_ht wrote: ↑Mon Jan 17, 2022 11:38 amWhile I understand why 1966 is chosen the chart is misleading as to the real differences between minimal, significant and maximum over the entire dataset available.vineviz wrote: ↑Mon Jan 17, 2022 11:10 amI think it should be clear that those are qualitative labels. Plenty of quantitative evidence has already been discussed, so let’s not miss the forest for the trees: some diversification is better than none, and more is better than less.vanbogle59 wrote: ↑Mon Jan 17, 2022 10:56 am How does one go about quantifying the difference between minimal, significant and maximum?
Further, I think it should be intuitive that there is a point of maximum benefit beyond which adding more international stocks begins to reduce diversification instead of increase it.
In any case 10% provides 4.2% SWR over 30 years. That's good enough if the baseline is Trinity outcomes. Without being able to see the outcomes in other years you don't know how much going from 10% to 50% will cost you in more likely scenarios.
Still, using all the limited samples we have suggests while 10% has provided some benefit, it is not as optimal as a much higher allocation.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
Only because you choose 4.2% WR instead of the SWR rate for 1966 (3.9 something?)...the failure in 2002 is a direct result of you picking an unsustainable rate even for 30 years much less 36 years.
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Re: Does "international" offer any diversification?
Many 100% US advocates justify their allocation because they believe it will perform better. Not because it “worked well enough”.nigel_ht wrote: ↑Mon Jan 17, 2022 11:43 amIt is absolutely a straw man if folks are advocating 100% because it works well enough and most of the time it's a wash and not because "the US will always outperform".Nathan Drake wrote: ↑Mon Jan 17, 2022 11:35 amIt’s not a straw man for those advocating 100% US.nigel_ht wrote: ↑Mon Jan 17, 2022 11:27 amWell why doesn't it include performance up to 2022?Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 amVery interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 am
Here is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
US always outperforms is a straw man. Mostly it's likely just a wash where one or the other outperforms for a period. So having some of both is good. But it's not necessary to hold market weight to have the benefits of holding some international.
Vineviz has already discussed above that it’s “not necessary” to allocate 40-50% to get SOME benefits of international diversification, but the data suggests it to likely be more optimal.
Vineviz doesn't say that it is necessary to hold market weight but YOU have in the past.
I have never said it is necessary to hold market weight. Please do not falsify my position. I have said much the same as what Vineviz is suggesting. 20% provides a benefit, higher allocations closer to market cap are more likely to provide more benefits.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
It worked in 1966 which is our current worst case. I suppose that we could repeat 1966 with worse international and end up with less than 4%.Nathan Drake wrote: ↑Mon Jan 17, 2022 11:46 amCorrection, it provided 4.2% in a limited number of sample periods. Not provides in the future tense.nigel_ht wrote: ↑Mon Jan 17, 2022 11:38 amWhile I understand why 1966 is chosen the chart is misleading as to the real differences between minimal, significant and maximum over the entire dataset available.vineviz wrote: ↑Mon Jan 17, 2022 11:10 amI think it should be clear that those are qualitative labels. Plenty of quantitative evidence has already been discussed, so let’s not miss the forest for the trees: some diversification is better than none, and more is better than less.vanbogle59 wrote: ↑Mon Jan 17, 2022 10:56 am How does one go about quantifying the difference between minimal, significant and maximum?
Further, I think it should be intuitive that there is a point of maximum benefit beyond which adding more international stocks begins to reduce diversification instead of increase it.
In any case 10% provides 4.2% SWR over 30 years. That's good enough if the baseline is Trinity outcomes. Without being able to see the outcomes in other years you don't know how much going from 10% to 50% will cost you in more likely scenarios.
Still, using all the limited samples we have suggests while 10% has provided some benefit, it is not as optimal as a much higher allocation.
Re: Does "international" offer any diversification?
Fine. I'll find a quote. Given how often you post it may take a while but we've argued this point in the past.Nathan Drake wrote: ↑Mon Jan 17, 2022 11:49 amMany 100% US advocates justify their allocation because they believe it will perform better. Not because it “worked well enough”.nigel_ht wrote: ↑Mon Jan 17, 2022 11:43 amIt is absolutely a straw man if folks are advocating 100% because it works well enough and most of the time it's a wash and not because "the US will always outperform".Nathan Drake wrote: ↑Mon Jan 17, 2022 11:35 amIt’s not a straw man for those advocating 100% US.nigel_ht wrote: ↑Mon Jan 17, 2022 11:27 amWell why doesn't it include performance up to 2022?Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 am
Very interesting chart
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
US always outperforms is a straw man. Mostly it's likely just a wash where one or the other outperforms for a period. So having some of both is good. But it's not necessary to hold market weight to have the benefits of holding some international.
Vineviz has already discussed above that it’s “not necessary” to allocate 40-50% to get SOME benefits of international diversification, but the data suggests it to likely be more optimal.
Vineviz doesn't say that it is necessary to hold market weight but YOU have in the past.
I have never said it is necessary to hold market weight. Please do not falsify my position. I have said much the same as what Vineviz is suggesting. 20% provides a benefit, higher allocations closer to market cap are more likely to provide more benefits.
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Re: Does "international" offer any diversification?
Good luck, I don’t think it’s worth the effort because “necessary” is a very definitive term, and different from believing it is “a more optimal starting point”nigel_ht wrote: ↑Mon Jan 17, 2022 11:51 amFine. I'll find a quote. Given how often you post it may take a while but we've argued this point in the past.Nathan Drake wrote: ↑Mon Jan 17, 2022 11:49 amMany 100% US advocates justify their allocation because they believe it will perform better. Not because it “worked well enough”.nigel_ht wrote: ↑Mon Jan 17, 2022 11:43 amIt is absolutely a straw man if folks are advocating 100% because it works well enough and most of the time it's a wash and not because "the US will always outperform".Nathan Drake wrote: ↑Mon Jan 17, 2022 11:35 amIt’s not a straw man for those advocating 100% US.nigel_ht wrote: ↑Mon Jan 17, 2022 11:27 am
Well why doesn't it include performance up to 2022?
US always outperforms is a straw man. Mostly it's likely just a wash where one or the other outperforms for a period. So having some of both is good. But it's not necessary to hold market weight to have the benefits of holding some international.
Vineviz has already discussed above that it’s “not necessary” to allocate 40-50% to get SOME benefits of international diversification, but the data suggests it to likely be more optimal.
Vineviz doesn't say that it is necessary to hold market weight but YOU have in the past.
I have never said it is necessary to hold market weight. Please do not falsify my position. I have said much the same as what Vineviz is suggesting. 20% provides a benefit, higher allocations closer to market cap are more likely to provide more benefits.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Does "international" offer any diversification?
The chart was an illustration of the kind of difference various levels of diversification can provide.
Over the full period from 1961 to present, here's how various levels of international diversification affected average SWR, minimum SWR, and the volatility of SWR. Increased allocations improved the sustainable retirement income and reduced the cohort-to-cohort variability in income.
Code: Select all
Intl. Average Minimum Std. Dev. Of
Allocation SWR SWR SWR
0% 6.60% 3.94% 2.03%
10% 6.64% 4.09% 1.96%
20% 6.67% 4.24% 1.89%
30% 6.70% 4.34% 1.82%
40% 6.72% 4.43% 1.77%
50% 6.74% 4.52% 1.71%
60% 6.75% 4.60% 1.67%
70% 6.76% 4.68% 1.63%
80% 6.76% 4.76% 1.60%
90% 6.75% 4.83% 1.57%
100% 6.74% 4.89% 1.56%
Last edited by vineviz on Mon Jan 17, 2022 12:22 pm, edited 1 time in total.
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Re: Does "international" offer any diversification?
Great data here. Just shows how 100% US has actually been the least optimal allocation, even when compared to 100% exUS which has a surprisingly high SWR. Intuitively this makes sense since 100% exUS is far more diversified than 100% US, and yet the former is unheard of while the latter position is quite common on this forum.vineviz wrote: ↑Mon Jan 17, 2022 12:15 pmThe chart was an illustration of the kind of difference various levels of diversification can provide.
Over the full period from 1961 to present, here's how various levels of international diversification affected average SWR, minimum SWR, and the volatility of SWR. Increased allocations improved the sustainable retirement income and reduced the cohort-to-cohort variability in income.
Code: Select all
Intl. Average Minimum Std. Dev. Of Allocation SWR SWR SWR 0% 6.6% 3.9% 2.0% 10% 6.6% 4.1% 2.0% 20% 6.7% 4.2% 1.9% 30% 6.7% 4.3% 1.8% 40% 6.7% 4.4% 1.8% 50% 6.7% 4.5% 1.7% 60% 6.8% 4.6% 1.7% 70% 6.8% 4.7% 1.6% 80% 6.8% 4.8% 1.6% 90% 6.8% 4.8% 1.6% 100% 6.7% 4.9% 1.6%
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Re: Does "international" offer any diversification?
I have no clue how to quantify the difference between minimal, significant, maximum. And this is especially true since we can’t predict the future and can’t predict the future over our individually relevant finite investing lifetimes. But I think one can make very good decisions thinking qualitatively. The first steps down the diversification path have the biggest bang for the buck. For example, the marginal benefit of adding the first 20% international to a portfolio is greater than adding the second 20% to get to a total 40% allocation. Thinking beyond international, one can look at the marginal benefits and marginal costs to diversifying across asset classes, geographies, styles, factors, Alts. In general, the greatest bang for the buck is with the first steps. As one goes further and further down the diversification path, slicing and dicing towards smaller % allocations to individual investments, the marginal benefits decrease and the marginal costs increase. I don’t mind complexity, and I do perceive lack of portfolio efficiency as a real cost. So I tend to run with more complexity. I figure as long as perceived marginal benefit greater than marginal cost, go for it; even if the incremental benefit is small. Once a portfolio is established, it’s on IPS/spreadsheet autopilot, so I don’t think complexity is a real issue. I suppose some investors can perceive complexity as a cost too. It’s up to each individual investor to decide at what point down the diversification path marginal costs outweigh marginal benefits, and where to draw the line.vanbogle59 wrote: ↑Mon Jan 17, 2022 10:56 amI'm not an "opponent". I hold VTIAX. But I don't think it answers the question either.Nathan Drake wrote: ↑Mon Jan 17, 2022 9:08 amVery interesting chartvineviz wrote: ↑Mon Jan 17, 2022 8:56 amHere is the experience for three possible 1966 retirees withdrawing $350/month (inflation adjusted) from a $100k portfolio with various allocations to international stocks: 10% ("minimal"), 30% ("significant"), and 50% ("maximum"). All portfolios are 60% stock and 40% bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 8:29 am
In this scenario, how would one go about quantifying the difference between minimal, significant and maximum?
Opponents will argue “this is 2022, not 1966!”. US always outperforms now because of [insert fallacy here]
How does one go about quantifying the difference between minimal, significant and maximum?
Dave
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Re: Does "international" offer any diversification?
TY, but I am confused.
But this seems to contradict it. If I say "optimize for minimum SWR", 100% int wins. Right?
1) I find that very surprising. Are you really saying the highest minimum SWR (presumably for all rolling 30 year periods from 1961 to 2021) is obtained by excluding the US stock market completely? (Or does that just mean something like you have to eliminate 1966 US to raise the minimum?)
2) I also note that the average SWRs are VERY tightly grouped. Which would seem to be an argument for not worrying about this too much.
That makes perfect sense.vineviz wrote: ↑Mon Jan 17, 2022 11:10 amI think it should be clear that those are qualitative labels. Plenty of quantitative evidence has already been discussed, so let’s not miss the forest for the trees: some diversification is better than none, and more is better than less.vanbogle59 wrote: ↑Mon Jan 17, 2022 10:56 am How does one go about quantifying the difference between minimal, significant and maximum?
Further, I think it should be intuitive that there is a point of maximum benefit beyond which adding more international stocks begins to reduce diversification instead of increase it.
vineviz wrote: ↑Mon Jan 17, 2022 12:15 pm
The chart was an illustration of the kind of difference various levels of diversification can provide.
Over the full period from 1961 to present, here's how various levels of international diversification affected average SWR, minimum SWR, and the volatility of SWR. Increased allocations improved the sustainable retirement income and reduced the cohort-to-cohort variability in income.
Code: Select all
Intl. Average Minimum Std. Dev. Of Allocation SWR SWR SWR 0% 6.60% 3.94% 2.03% 10% 6.64% 4.09% 1.96% 20% 6.67% 4.24% 1.89% 30% 6.70% 4.34% 1.82% 40% 6.72% 4.43% 1.77% 50% 6.74% 4.52% 1.71% 60% 6.75% 4.60% 1.67% 70% 6.76% 4.68% 1.63% 80% 6.76% 4.76% 1.60% 90% 6.75% 4.83% 1.57% 100% 6.74% 4.89% 1.56%
But this seems to contradict it. If I say "optimize for minimum SWR", 100% int wins. Right?
1) I find that very surprising. Are you really saying the highest minimum SWR (presumably for all rolling 30 year periods from 1961 to 2021) is obtained by excluding the US stock market completely? (Or does that just mean something like you have to eliminate 1966 US to raise the minimum?)
2) I also note that the average SWRs are VERY tightly grouped. Which would seem to be an argument for not worrying about this too much.
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Re: Does "international" offer any diversification?
1. While Portfolio Charts only includes data going back to 1970, it yields the same result. A 60/40 AA with only ex-U.S. stock had a 30 year SWR of 4.7%, while a 60/40 AA with only U.S. stock had a 30 year SWR of 4.4%.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm But this seems to contradict it. If I say "optimize for minimum SWR", 100% int wins. Right?
1) I find that very surprising. Are you really saying the highest minimum SWR (presumably for all rolling 30 year periods from 1961 to 2021) is obtained by excluding the US stock market completely? (Or does that just mean something like you have to eliminate 1966 US to raise the minimum?)
2) I also note that the average SWRs are VERY tightly grouped. Which would seem to be an argument for not worrying about this too much.
2. The point remains though that ex-U.S. improved the worst historic periods in the years analyzed, which is what SWRs are all about in the first place; in other words, it reduced downside risk. However, going back to my earlier argument, owning ex-U.S. stocks has had only a minor diversification benefit compared to other factors, such as how much exposure one had to SCV or gold. For instance, a 60/40 where the stocks were evenly split between U.S. and ex-U.S. SCV since 1970 had a 30 year SWR of 5.8%. And if the bond allocation were reduced from 40% to 30% and that 10% moved into gold, the 30 year SWR went up to 6.1%.
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Re: Does "international" offer any diversification?
I agree that in most cases, international stocks haven't made a huge difference in SWR.
However, it's most cases, not all. Vineviz's chart from 1966 on showed the danger of an equity allocation that is 100% U.S.
The other thing is, just because international stocks haven't made a huge difference in SWR in the past doesn't mean they won't in the future. Why do so many assume that the U.S. is immune to a 30 year period of zero real returns? It has happened to other countries throughout history and it can certainly happen here.
Cue the "if it rains in the U.S. it'll poor everywhere else" argument.
However, it's most cases, not all. Vineviz's chart from 1966 on showed the danger of an equity allocation that is 100% U.S.
The other thing is, just because international stocks haven't made a huge difference in SWR in the past doesn't mean they won't in the future. Why do so many assume that the U.S. is immune to a 30 year period of zero real returns? It has happened to other countries throughout history and it can certainly happen here.
Cue the "if it rains in the U.S. it'll poor everywhere else" argument.
Re: Does "international" offer any diversification?
The data above is just the historical data, which is obviously quite noisy. In general we'd expect the highest worst-case SWR to appear near the point of maximum diversification which is roughly 55% US/45% international.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm But this seems to contradict it. If I say "optimize for minimum SWR", 100% int wins. Right?
Historically this was the case, but it is important to remember that all of the worse SWR periods started in the late 1960s. I think it would be as imprudent to be 100% ex-US stocks as to be 100% US stocks.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm 1) I find that very surprising. Are you really saying the highest minimum SWR (presumably for all rolling 30 year periods from 1961 to 2021) is obtained by excluding the US stock market completely? (Or does that just mean something like you have to eliminate 1966 US to raise the minimum?)
I think this would be an improper conclusion. We can see examples in the historical record where despite the tight grouping of average returns the sequence of returns generated notably different outcomes. Because most people are loss averse we generally do feel the pain of the worst outcomes disproportionately more than good outcomes of similar magnitude. If we only cared about average outcomes we'd always be 100% in stocks instead of mixing stocks with bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm 2) I also note that the average SWRs are VERY tightly grouped. Which would seem to be an argument for not worrying about this too much.
I presented the average SWRs to illustrate that the improvement in SWR from having international diversification wasn't simply a one-time phenomenon.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Does "international" offer any diversification?
OK. That all makes pretty good sense to me.vineviz wrote: ↑Mon Jan 17, 2022 1:22 pmThe data above is just the historical data, which is obviously quite noisy. In general we'd expect the highest worst-case SWR to appear near the point of maximum diversification which is roughly 55% US/45% international.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm But this seems to contradict it. If I say "optimize for minimum SWR", 100% int wins. Right?
Historically this was the case, but it is important to remember that all of the worse SWR periods started in the late 1960s. I think it would be as imprudent to be 100% ex-US stocks as to be 100% US stocks.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm 1) I find that very surprising. Are you really saying the highest minimum SWR (presumably for all rolling 30 year periods from 1961 to 2021) is obtained by excluding the US stock market completely? (Or does that just mean something like you have to eliminate 1966 US to raise the minimum?)
I think this would be an improper conclusion. We can see examples in the historical record where despite the tight grouping of average returns the sequence of returns generated notably different outcomes. Because most people are loss averse we generally do feel the pain of the worst outcomes disproportionately more than good outcomes of similar magnitude. If we only cared about average outcomes we'd always be 100% in stocks instead of mixing stocks with bonds.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm 2) I also note that the average SWRs are VERY tightly grouped. Which would seem to be an argument for not worrying about this too much.
I presented the average SWRs to illustrate that the improvement in SWR from having international diversification wasn't simply a one-time phenomenon.
TY
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Re: Does "international" offer any diversification?
Yes.willthrill81 wrote: ↑Mon Jan 17, 2022 1:03 pm1. While Portfolio Charts only includes data going back to 1970, it yields the same result. A 60/40 AA with only ex-U.S. stock had a 30 year SWR of 4.7%, while a 60/40 AA with only U.S. stock had a 30 year SWR of 4.4%.vanbogle59 wrote: ↑Mon Jan 17, 2022 12:51 pm But this seems to contradict it. If I say "optimize for minimum SWR", 100% int wins. Right?
1) I find that very surprising. Are you really saying the highest minimum SWR (presumably for all rolling 30 year periods from 1961 to 2021) is obtained by excluding the US stock market completely? (Or does that just mean something like you have to eliminate 1966 US to raise the minimum?)
2) I also note that the average SWRs are VERY tightly grouped. Which would seem to be an argument for not worrying about this too much.
2. The point remains though that ex-U.S. improved the worst historic periods in the years analyzed, which is what SWRs are all about in the first place; in other words, it reduced downside risk. However, going back to my earlier argument, owning ex-U.S. stocks has had only a minor diversification benefit compared to other factors, such as how much exposure one had to SCV or gold. For instance, a 60/40 where the stocks were evenly split between U.S. and ex-U.S. SCV since 1970 had a 30 year SWR of 5.8%. And if the bond allocation were reduced from 40% to 30% and that 10% moved into gold, the 30 year SWR went up to 6.1%.
As you and I have discussed before, I continue to consider changing my IPS.
FWIW, I am 50/50 equity/fixed, and my equity is 80/20 vtsax/vtiax. Been like that for years.
I am still very committed to the 50/50 (for reasons that are entirely personal).
But I did add vaipx and I-bonds on the fixed side this year. The IPS says I have to stick with that until SS kicks in.
And the mix of equities is very much on the table (including SC and Int).
Even maybe a dollop of the shiny stuff?
All of this precisely to add diversity and minimize downside risk in retirement.
To my great surprise, when I mentioned a potential change to DW, she was very much interested.
So, who knows? I just might pull the trigger some day soon.
Re: Does "international" offer any diversification?
Better still .... since 1921 (through 2021)DB2 wrote: ↑Sun Jan 16, 2022 9:37 amWhy only go up to 2010? That seems like cherry picking dates given how strong the U.S. stock market has performed since that time.CraigTester wrote: ↑Sat Jan 15, 2022 10:55 pm I stumbled on this factoid in a WSJ article today.... Seems tangentally relevant to this discussion:
From 1950 to 2010, U.S. stocks returned 6.9% a year above inflation, including dividends, while the rest of the world returned 7.6%, according to market historians Elroy Dimson, Paul Marsh and Mike Staunton
Let's see what 1950 to 2020 looks like.
http://efinance.org.cn/cn/fm/Global%20S ... entury.pdf
Journal of Finance (top tier journal, I believe)
The U.S. returned 4.3 percent real (though 1996) in dollars. The other 38 countries, 0.8 percent median (abstract).
Using Simba data from 1997 to 2021, 7.42 real in U.S. versus 3.05 ex US.
I guess you cold argue it is not fair to include WWII. OK, but then why is fair to focus on a date with the recovery from WWII. I would also point out that the U.S. trounced the returns of all countries that had continuous history during the period.
FWIW, I am a big holder of VT.
"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?
Yes, but VT is more than 50% USA. So it seems to me that your International exposure is rather low, compared to some fund that is 100% Intl.
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Re: Does "international" offer any diversification?
I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
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Re: Does "international" offer any diversification?
The first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
Re: Does "international" offer any diversification?
Can someone give an explanation as to why the overseas-revenue argument is flawed? Wasn't it the overseas-revenue argument that Bogle used for not owning ex-US equity?Marseille07 wrote: ↑Mon Jan 17, 2022 9:47 pmThe first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: Does "international" offer any diversification?
Part of the problem with that argument is that it wrongly assumes that revenues alone are responsible for stock returns.GaryA505 wrote: ↑Tue Jan 18, 2022 10:53 amCan someone give an explanation as to why the overseas-revenue argument is flawed? Wasn't it the overseas-revenue argument that Bogle used for not owning ex-US equity?Marseille07 wrote: ↑Mon Jan 17, 2022 9:47 pmThe first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
The Sensible Steward
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Re: Does "international" offer any diversification?
Correct, but there's even more to it. If we say we don't need ex-US because US companies are earning money overseas, the same argument can be made that we don't need US because ex-US companies are earning money in the US. Imo neither statement makes sense.willthrill81 wrote: ↑Tue Jan 18, 2022 10:58 amPart of the problem with that argument is that it wrongly assumes that revenues alone are responsible for stock returns.GaryA505 wrote: ↑Tue Jan 18, 2022 10:53 amCan someone give an explanation as to why the overseas-revenue argument is flawed? Wasn't it the overseas-revenue argument that Bogle used for not owning ex-US equity?Marseille07 wrote: ↑Mon Jan 17, 2022 9:47 pmThe first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
Re: Does "international" offer any diversification?
Well, lack of revenues will certainly impact stock returns. If Apple gets locked out of China sales we can expect an "AAPL in Freefall" thread...and that won't do good things for VTI either...willthrill81 wrote: ↑Tue Jan 18, 2022 10:58 amPart of the problem with that argument is that it wrongly assumes that revenues alone are responsible for stock returns.GaryA505 wrote: ↑Tue Jan 18, 2022 10:53 amCan someone give an explanation as to why the overseas-revenue argument is flawed? Wasn't it the overseas-revenue argument that Bogle used for not owning ex-US equity?Marseille07 wrote: ↑Mon Jan 17, 2022 9:47 pmThe first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
And, if folks believe that valuation matters then why wouldn't global revenues impact stock returns? The only two parts of that equation is price and earnings...
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Re: Does "international" offer any diversification?
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.Marseille07 wrote: ↑Tue Jan 18, 2022 11:04 amCorrect, but there's even more to it. If we say we don't need ex-US because US companies are earning money overseas, the same argument can be made that we don't need US because ex-US companies are earning money in the US. Imo neither statement makes sense.willthrill81 wrote: ↑Tue Jan 18, 2022 10:58 amPart of the problem with that argument is that it wrongly assumes that revenues alone are responsible for stock returns.GaryA505 wrote: ↑Tue Jan 18, 2022 10:53 amCan someone give an explanation as to why the overseas-revenue argument is flawed? Wasn't it the overseas-revenue argument that Bogle used for not owning ex-US equity?Marseille07 wrote: ↑Mon Jan 17, 2022 9:47 pmThe first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
The Sensible Steward
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Re: Does "international" offer any diversification?
Of course, but it's hardly the only factor, as I just noted above. A significant part of ex-U.S.'s revenues come from the U.S., but that hasn't stopped the U.S. from outperforming by nearly 7% annualized since 2007.nigel_ht wrote: ↑Tue Jan 18, 2022 11:09 amWell, lack of revenues will certainly impact stock returns.willthrill81 wrote: ↑Tue Jan 18, 2022 10:58 amPart of the problem with that argument is that it wrongly assumes that revenues alone are responsible for stock returns.GaryA505 wrote: ↑Tue Jan 18, 2022 10:53 amCan someone give an explanation as to why the overseas-revenue argument is flawed? Wasn't it the overseas-revenue argument that Bogle used for not owning ex-US equity?Marseille07 wrote: ↑Mon Jan 17, 2022 9:47 pmThe first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
I don't say any of this as being 'pro' either side. Both sides of the issue have what I believe to be compelling arguments.
The Sensible Steward
Re: International Diversification -- why why???
+100.Nathan Drake wrote: ↑Sat Jan 08, 2022 11:27 am
- Because of Japan
- Because of Germany
Because what performed best in the recent or even long-term past may not perform best in the future when you need it the most. Diversification is an acceptance of some portion of your portfolio underperforming at any given time.
- Because of the US during 1965 - 1982.
I'm not sure why this is a difficult concept to grasp - can you possibly be just fine being US only? Possibly. But why take that gamble? It MAY not pay off. Markets can get overvalued even though they are still good markets. No different than an individual company stock
You say you don't want the "risk", as though "risk and returns" arent inextricably linked. Sometimes the risk shows up, sometimes it doesn't. There can, and will be, long periods where any assetclass outperforms or underperforms. US included.
Look at the anger in the U.S. over Covid and the dreaded P-word.
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Re: Does "international" offer any diversification?
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.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?
Except that the US holds the lion's share of tech revenue...Tencent is really the only non-US platform with a global footprint...Marseille07 wrote: ↑Tue Jan 18, 2022 11:04 amCorrect, but there's even more to it. If we say we don't need ex-US because US companies are earning money overseas, the same argument can be made that we don't need US because ex-US companies are earning money in the US. Imo neither statement makes sense.willthrill81 wrote: ↑Tue Jan 18, 2022 10:58 amPart of the problem with that argument is that it wrongly assumes that revenues alone are responsible for stock returns.GaryA505 wrote: ↑Tue Jan 18, 2022 10:53 amCan someone give an explanation as to why the overseas-revenue argument is flawed? Wasn't it the overseas-revenue argument that Bogle used for not owning ex-US equity?Marseille07 wrote: ↑Mon Jan 17, 2022 9:47 pmThe first part of what you're saying is correct, the overseas-revenue argument is flawed.ParlayBogle wrote: ↑Mon Jan 17, 2022 9:11 pm I don't at all understand the argument that owning Intl is unnecessary because US companies earn x% of their revenue from overseas. The natural corollary is that Intl companies also earn significant revenue from the US. So if the point is that the designation of these corporations as "US" or "Intl" is somewhat arbitrary (differentiated only by physical HQ location and some local regulations and tax codes), then isn't that a strong argument in favor of a total global market-cap weighted approach?
However, the argument being flawed doesn't mean global cap weight is the conclusion. Imo we can't draw any conclusion from the flawed argument.
US investors can live without ex-US but non-US investors can't live without US.
In time that will change.
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Re: International Diversification -- why why???
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%.
The Sensible Steward
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Re: Does "international" offer any diversification?
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.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.
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Re: Does "international" offer any diversification?
Agree completely with that take.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.
Re: Does "international" offer any diversification?
Nevermind.
Last edited by Booogle on Tue Jan 18, 2022 11:44 am, edited 1 time in total.
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Re: Does "international" offer any diversification?
I did a backtest on my house and for its 25 year life, I found that it did not catch on fire or get robbed. Therefore, I cancelled my home owner's insurance as the data clearly shows that this will never happen since it hasn't happened for 25 years.