Author Topic: Has the time come to add international?  (Read 10773 times)

Cycling Stache

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Has the time come to add international?
« on: July 12, 2016, 06:04:37 PM »
Is this a market timing question?  Have I become Mr. Percentage?

I'm not sure, but I have not held international funds in a number of years.  At the time I stopped, the U.S. and international markets generally seemed to track each other reasonably closely, and I got tired of dealing with the tax questions of profits earned in a foreign country.

Since that time, I have skipped foreign investments on the theories that it overcomplicated my investing (which might prevent my consistent investing), and given that all of my holdings were (and are) in VTSAX, the S&P 500, or the equivalent, I was getting a fair amount of international exposure without the added complication of currency movements.

That said, is there a reasonable argument for adding international at this point?  It feels like a market timing question, but I see a lot of posts about portfolio rebalancing, and clearly if I had dictated a certain percentage of my portfolio to be international, sometime in the last couple of years I would have needed to move more over to international to rebalance.

I can do this entirely through a TSP (retirement) account with the I fund.  Is it time to do it, or does it not make a huge difference given the amount of business the top US companies do abroad?  Is the added complication of currency exchange variations a concern, or is that actually greater diversification?  IS this just a Coke/Pepsi issue for which there is no good answer?  I'm not really sure at this point, so I welcome constructive advice.

Otherwise, I'll just keep my eye out for Mr. P's sharks or whatever the latest market crashing analogy is.  Thanks.

Indexer

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Re: Has the time come to add international?
« Reply #1 on: July 12, 2016, 07:06:34 PM »
The time to add international was that day all the news was talking about a 'brexit'.


On a more serious note, the time to add it was when your asset allocation should have included it. This was probably years ago, potentially decades depending on how old you are. Adding international doesn't make you a market timer. Avoiding it because of how you think it will perform, that makes you a market timer.

Vanguard has a lot of research on this. You should have about 30-50% of your stock position in international holdings. The reason is diversification. Adding international gives you more diversification and like diversification is meant to do it smooths out your returns.

VTIAX is a good compliment if you already have VTSAX. The I fund is pretty similar. I wouldn't worry too much about currencies. They tend to make up a small % of the total returns and volatility of an international stock fund.
« Last Edit: July 12, 2016, 07:08:18 PM by Indexer »

Heckler

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Re: Has the time come to add international?
« Reply #2 on: July 12, 2016, 07:07:54 PM »

Heckler

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Re: Has the time come to add international?
« Reply #3 on: July 12, 2016, 07:17:54 PM »
The time to add international was that day all the news was talking about a 'brexit'.


 Diversification - it smooths out your returns.



I cant wait till Clinton or that Trump fella gets voted in.  Either way, my international (US) is bound to plummet at least for a day or two.  When's that election I need to be saving up for?


Diversification certainly does smooth out returns.  I hold bonds. Canada, US, EAFE and EM indexes, and daily watch them each rise and fall out of sync.  Total balance just slowly keeps rising. 

DavidAnnArbor

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Re: Has the time come to add international?
« Reply #4 on: July 12, 2016, 08:18:18 PM »
I think having a portion of your portfolio in an international index fund is a good idea in the event that the US stock market undergoes a decades long Japan like swoon. I have a 20% international stake.

webguy

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Re: Has the time come to add international?
« Reply #5 on: July 12, 2016, 09:57:41 PM »
Yes, absolutely. You're missing out on owning shares in some of the biggest companies in the world if you don't hold international. I currently have about 30% of my portfolio in intl stocks.

whiskeyjack

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Re: Has the time come to add international?
« Reply #6 on: July 12, 2016, 10:34:33 PM »
When (anyone upthread) says they hold 30% international - does that mean that 30% of your stocks are international stocks  and 70% US or that 30% of your total portfolio is international stocks?   Which of those was Vanguard suggesting?

MustacheAndaHalf

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Re: Has the time come to add international?
« Reply #7 on: July 12, 2016, 11:27:43 PM »
When (anyone upthread) says they hold 30% international - does that mean that 30% of your stocks are international stocks  and 70% US or that 30% of your total portfolio is international stocks?   Which of those was Vanguard suggesting?
I cannot speak for Vanguard, but conventionally it's the percent of your equity/stock holdings.  So a 50/50 portfolio with 1/3rd international translates to something like 33% US / 17% international / 50% bonds.

seattlecyclone

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Re: Has the time come to add international?
« Reply #8 on: July 12, 2016, 11:36:01 PM »
I got tired of dealing with the tax questions of profits earned in a foreign country.

If you just buy an international index fund, it really isn't that complicated. You'll get a 1099 at the end of the year stating how much you received in dividends and how much of that counts as "qualified dividends," just like a domestic stock fund. When you sell the fund, the capital gains or losses work the same as a domestic stock fund.

The one additional wrinkle is the foreign tax credit. Again, it's not that hard. Your 1099 will tell you how much tax was withheld by foreign countries. You can claim a foreign tax credit in this amount. If it's less than $300 (or $600 if married filing jointly), and this is your only foreign income, you don't even need to fill out an additional form. You just put it down on the "foreign tax credit" line on your 1040 and subtract it from your US tax.


Retire-Canada

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Re: Has the time come to add international?
« Reply #9 on: July 13, 2016, 06:54:13 AM »
What does your IPS say?

https://www.bogleheads.org/wiki/IPS

This ^^^ --- Come up with a plan and stick to it.

My AA is:

- Canada = 30%
- US = 50%
- Int'l = 20%

Living in Canada I'm 70% international stocks.

Cycling Stache

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Re: Has the time come to add international?
« Reply #10 on: July 13, 2016, 08:03:06 AM »
What does your IPS say?

https://www.bogleheads.org/wiki/IPS

I think this made me realize that my question really wasn't a market timing question, and was more a question of what percentage (if any) should international holdings be.  I've got a clear plan for my money (every dollar goes to market).  But I am trying to determine whether the correct percentage of international holdings (not counting U.S. companies' revenue from abroad, which I understand to be 1/3 of total revenue for the S&P 500 companies) is 0%, 20%, 30%, or 50%, or something else.

I did pull a white paper from Vanguard on this that I'll review.  But I will note that there are a lot of different percentages suggested by people even in this thread, without the pushback that comes when people suggest buying individual stocks or market timing.  In other words, the near-universal response to I intend to buy X stock is no, buy index funds, but there's no similar reaction to the person who says they consistently hold 20% international (as opposed to 30%, 50%, etc.)

Does that suggest that the research isn't nearly as conclusive as to the appropriate amount of international to hold, or that people are less confident in the correctness of the particular percentage they hold?  Indeed, I believe Bogle recently said that VTSAX is plenty and no need for international, and Buffett's 10-year bet against the private equity firms is based on holding a S&P 500 fund.   I nodded my head when I saw both those, but now am not sure if that was just confirmation bias, or does it highlight some real uncertainty about the importance (read, "essential"-ness) of holding international funds.

Also, is there anything to the notion that the United States is shameless in the amount of credit it gives people, and the extent to which we encourage people to buy, buy, buy stuff that will make them happy?  The growth of American companies depends on the idea that people are willing to buy an ever-increasing amount of stuff.  While international market growth seems to be based on the extension of that American model, is there just a little bit more of a restraint in other parts of the world where the ultimate goal may not be (unquestionably) acquiring more stuff?  If so, does that affect the growth prospects for non-U.S. companies (which presumably will do on average a smaller percentage of their business in the United States than American companies)?

In other words, are other parts of the world ever so slightly more Mustachian than the United States (i.e. people don't feel the need to own as much crap) in a way that would limit the growth prospects of companies based in those countries compared to companies based in the United States?

Again, I appreciate the input on this.  I'm able to move a large percentage of my TSP account to international easily in a way that would cover whatever percentage of my total holdings I decide international should be, but that's what I don't know for sure yet.

MichaelB

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Re: Has the time come to add international?
« Reply #11 on: July 13, 2016, 08:27:55 AM »
I have a related question--I've been looking at a couple different funds to get international exposure, Vanguard's Total International Stock Index (VGTSX) and their FTSE All-World Ex-US Index fund (VFWIX).

They look like damn near the same fund--very similar return histories (less than 0.5% difference every year), very similar allocations--hell, their top 10 holdings are all the exact same companies, just in a slightly different order. Total International has a slightly lower expense ratio (0.19% vs 0.26%), but it's a much bigger fund. With my contrarian nature, I'm kind of tempted to go with the FTSE one just so I'm not in Total International like everyone else.

Interested to get people's thoughts. Would one be really preferable, or is it basically six one way and half a dozen the other?

Jack

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Re: Has the time come to add international?
« Reply #12 on: July 13, 2016, 08:51:14 AM »
I got tired of dealing with the tax questions of profits earned in a foreign country.

If you just buy an international index fund, it really isn't that complicated. You'll get a 1099 at the end of the year stating how much you received in dividends and how much of that counts as "qualified dividends," just like a domestic stock fund. When you sell the fund, the capital gains or losses work the same as a domestic stock fund.

The one additional wrinkle is the foreign tax credit. Again, it's not that hard. Your 1099 will tell you how much tax was withheld by foreign countries. You can claim a foreign tax credit in this amount. If it's less than $300 (or $600 if married filing jointly), and this is your only foreign income, you don't even need to fill out an additional form. You just put it down on the "foreign tax credit" line on your 1040 and subtract it from your US tax.

Or just buy the international funds in your 401k/IRA. That's what I've been doing so far (albeit mostly because taxable investing is below maxing tax-advantaged investing, debt repayment, and maybe real estate on my list of priorities, and I haven't gotten to it yet).

But I will note that there are a lot of different percentages suggested by people even in this thread, without the pushback that comes when people suggest buying individual stocks or market timing.  In other words, the near-universal response to I intend to buy X stock is no, buy index funds, but there's no similar reaction to the person who says they consistently hold 20% international (as opposed to 30%, 50%, etc.)

Do you believe in American exceptionalism -- i.e., that there is something structural about the US, such as better governance, that will cause it to outperform the rest of the world in the long run -- or do you believe that the dominance in the latter-half of the 20th Century was merely due to the fact that we were the last economy standing after WWII and that the rest of the world will catch up?

People set their percentage based on their personal opinion on that topic, and nobody questions anybody else's percentage because they don't want to start a political argument. ; )

(Otherwise, you could just go for a worldwide cap-weighting by either putting all your holdings in VT / VTWSX or mirroring its asset allocation with 56% US/44% international.)

beltim

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Re: Has the time come to add international?
« Reply #13 on: July 13, 2016, 09:04:56 AM »
What does your IPS say?

https://www.bogleheads.org/wiki/IPS

I think this made me realize that my question really wasn't a market timing question, and was more a question of what percentage (if any) should international holdings be.  I've got a clear plan for my money (every dollar goes to market).  But I am trying to determine whether the correct percentage of international holdings (not counting U.S. companies' revenue from abroad, which I understand to be 1/3 of total revenue for the S&P 500 companies) is 0%, 20%, 30%, or 50%, or something else.

I did pull a white paper from Vanguard on this that I'll review.  But I will note that there are a lot of different percentages suggested by people even in this thread, without the pushback that comes when people suggest buying individual stocks or market timing.  In other words, the near-universal response to I intend to buy X stock is no, buy index funds, but there's no similar reaction to the person who says they consistently hold 20% international (as opposed to 30%, 50%, etc.)

Does that suggest that the research isn't nearly as conclusive as to the appropriate amount of international to hold, or that people are less confident in the correctness of the particular percentage they hold?  Indeed, I believe Bogle recently said that VTSAX is plenty and no need for international, and Buffett's 10-year bet against the private equity firms is based on holding a S&P 500 fund.   I nodded my head when I saw both those, but now am not sure if that was just confirmation bias, or does it highlight some real uncertainty about the importance (read, "essential"-ness) of holding international funds.

You are basically correct.  Just like deciding the proper allocation of stocks and bonds has no one "best" answer, neither is there a "best" allocation between US and international stocks.  In fact, US & International stocks are unusual in that holding both can result in higher average returns than holding either alone: see for example https://www.bogleheads.org/wiki/File:US-International.png

johnny847

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Re: Has the time come to add international?
« Reply #14 on: July 13, 2016, 09:13:20 AM »
I have a related question--I've been looking at a couple different funds to get international exposure, Vanguard's Total International Stock Index (VGTSX) and their FTSE All-World Ex-US Index fund (VFWIX).

They look like damn near the same fund--very similar return histories (less than 0.5% difference every year), very similar allocations--hell, their top 10 holdings are all the exact same companies, just in a slightly different order. Total International has a slightly lower expense ratio (0.19% vs 0.26%), but it's a much bigger fund. With my contrarian nature, I'm kind of tempted to go with the FTSE one just so I'm not in Total International like everyone else.

Interested to get people's thoughts. Would one be really preferable, or is it basically six one way and half a dozen the other?

IIRC All World Ex US is missing small caps.

I use them both, but not simultaneously---I use them as tax loss harvesting pairs.

MichaelB

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Re: Has the time come to add international?
« Reply #15 on: July 13, 2016, 09:15:59 AM »
What does your IPS say?

https://www.bogleheads.org/wiki/IPS

I think this made me realize that my question really wasn't a market timing question, and was more a question of what percentage (if any) should international holdings be.  I've got a clear plan for my money (every dollar goes to market).  But I am trying to determine whether the correct percentage of international holdings (not counting U.S. companies' revenue from abroad, which I understand to be 1/3 of total revenue for the S&P 500 companies) is 0%, 20%, 30%, or 50%, or something else.

I did pull a white paper from Vanguard on this that I'll review.  But I will note that there are a lot of different percentages suggested by people even in this thread, without the pushback that comes when people suggest buying individual stocks or market timing.  In other words, the near-universal response to I intend to buy X stock is no, buy index funds, but there's no similar reaction to the person who says they consistently hold 20% international (as opposed to 30%, 50%, etc.)

Does that suggest that the research isn't nearly as conclusive as to the appropriate amount of international to hold, or that people are less confident in the correctness of the particular percentage they hold?  Indeed, I believe Bogle recently said that VTSAX is plenty and no need for international, and Buffett's 10-year bet against the private equity firms is based on holding a S&P 500 fund.   I nodded my head when I saw both those, but now am not sure if that was just confirmation bias, or does it highlight some real uncertainty about the importance (read, "essential"-ness) of holding international funds.

You are basically correct.  Just like deciding the proper allocation of stocks and bonds has no one "best" answer, neither is there a "best" allocation between US and international stocks.  In fact, US & International stocks are unusual in that holding both can result in higher average returns than holding either alone: see for example https://www.bogleheads.org/wiki/File:US-International.png

In the end, it's impossible to avoid a degree of "active" management. Even with indexing--okay, but which indices? And in what proportions? Indexing is an extremely efficient way to gain exposure to an asset class, but even so, you've got to decide what asset classes you want, and why.

MichaelB

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Re: Has the time come to add international?
« Reply #16 on: July 13, 2016, 09:43:51 AM »
I have a related question--I've been looking at a couple different funds to get international exposure, Vanguard's Total International Stock Index (VGTSX) and their FTSE All-World Ex-US Index fund (VFWIX).

They look like damn near the same fund--very similar return histories (less than 0.5% difference every year), very similar allocations--hell, their top 10 holdings are all the exact same companies, just in a slightly different order. Total International has a slightly lower expense ratio (0.19% vs 0.26%), but it's a much bigger fund. With my contrarian nature, I'm kind of tempted to go with the FTSE one just so I'm not in Total International like everyone else.

Interested to get people's thoughts. Would one be really preferable, or is it basically six one way and half a dozen the other?

IIRC All World Ex US is missing small caps.

I use them both, but not simultaneously---I use them as tax loss harvesting pairs.

Thanks. Yeah I think Total International has 4% small caps, and All World Ex US doesn't have any. Wow, there's enough difference between them to avoid a wash sale?? How close to they need to be to run afoul of the rule--basically just exchanging MF for ETF, or Investor for Admiral, but anything else is fine?

johnny847

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Re: Has the time come to add international?
« Reply #17 on: July 13, 2016, 09:54:02 AM »
I have a related question--I've been looking at a couple different funds to get international exposure, Vanguard's Total International Stock Index (VGTSX) and their FTSE All-World Ex-US Index fund (VFWIX).

They look like damn near the same fund--very similar return histories (less than 0.5% difference every year), very similar allocations--hell, their top 10 holdings are all the exact same companies, just in a slightly different order. Total International has a slightly lower expense ratio (0.19% vs 0.26%), but it's a much bigger fund. With my contrarian nature, I'm kind of tempted to go with the FTSE one just so I'm not in Total International like everyone else.

Interested to get people's thoughts. Would one be really preferable, or is it basically six one way and half a dozen the other?

IIRC All World Ex US is missing small caps.

I use them both, but not simultaneously---I use them as tax loss harvesting pairs.

Thanks. Yeah I think Total International has 4% small caps, and All World Ex US doesn't have any. Wow, there's enough difference between them to avoid a wash sale?? How close to they need to be to run afoul of the rule--basically just exchanging MF for ETF, or Investor for Admiral, but anything else is fine?

The law says "substantially identical." Neither the courts nor the IRS have opined on what actually constitutes substantially identical. A fair number of people go by if it tracks a different index, it's not substantially identical. You're going to have to decide for yourself what definition you're okay with. I go with that one.

Exchanging MF for ETF or Investor for Admiral would almost certainly be ruled as substantially identical funds. Vanguard implements those as different share classes of the same fund. It'd be pretty hard to argue that they're substantially identical. But IANAL--maybe a lawyer could successfully argue they're not substantially identical because of bid/ask spreads on ETFs, and different expense ratios. But on the spectrum of likely substantially identical to likely not substantially identical, switching between Investor, Admiral, and ETF is definitely on the likely substantially identical side.

seattlecyclone

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Re: Has the time come to add international?
« Reply #18 on: July 13, 2016, 11:09:36 AM »
I got tired of dealing with the tax questions of profits earned in a foreign country.

If you just buy an international index fund, it really isn't that complicated. You'll get a 1099 at the end of the year stating how much you received in dividends and how much of that counts as "qualified dividends," just like a domestic stock fund. When you sell the fund, the capital gains or losses work the same as a domestic stock fund.

The one additional wrinkle is the foreign tax credit. Again, it's not that hard. Your 1099 will tell you how much tax was withheld by foreign countries. You can claim a foreign tax credit in this amount. If it's less than $300 (or $600 if married filing jointly), and this is your only foreign income, you don't even need to fill out an additional form. You just put it down on the "foreign tax credit" line on your 1040 and subtract it from your US tax.

Or just buy the international funds in your 401k/IRA. That's what I've been doing so far (albeit mostly because taxable investing is below maxing tax-advantaged investing, debt repayment, and maybe real estate on my list of priorities, and I haven't gotten to it yet).

Sure, if all your investments are in retirement accounts you may as well buy international in there. But if you do have taxable investments, then international makes a lot of sense in that account because you can't claim the foreign tax credit against retirement account funds. This factor puts international funds just ahead of domestic stock funds on the https://www.bogleheads.org/wiki/Tax-efficient_fund_placement chart.

tonysemail

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Re: Has the time come to add international?
« Reply #19 on: July 13, 2016, 11:13:50 AM »
In other words, are other parts of the world ever so slightly more Mustachian than the United States (i.e. people don't feel the need to own as much crap) in a way that would limit the growth prospects of companies based in those countries compared to companies based in the United States?

no offense intended, but this sounds like rationalizing. 
you have a theory and you are making stuff up to support it.
it kind of doesn't matter.

My main perspective on this is that you've already done 90% of the work by deciding to index and to use buy and hold strategy.
Don't do anything that would put your greater strategy at risk.
You're NOT panic selling or market timing.
Make sure your AA and IPS reflect what you are comfortable with long term.

johnny847

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Re: Has the time come to add international?
« Reply #20 on: July 13, 2016, 11:14:24 AM »
I got tired of dealing with the tax questions of profits earned in a foreign country.

If you just buy an international index fund, it really isn't that complicated. You'll get a 1099 at the end of the year stating how much you received in dividends and how much of that counts as "qualified dividends," just like a domestic stock fund. When you sell the fund, the capital gains or losses work the same as a domestic stock fund.

The one additional wrinkle is the foreign tax credit. Again, it's not that hard. Your 1099 will tell you how much tax was withheld by foreign countries. You can claim a foreign tax credit in this amount. If it's less than $300 (or $600 if married filing jointly), and this is your only foreign income, you don't even need to fill out an additional form. You just put it down on the "foreign tax credit" line on your 1040 and subtract it from your US tax.

Or just buy the international funds in your 401k/IRA. That's what I've been doing so far (albeit mostly because taxable investing is below maxing tax-advantaged investing, debt repayment, and maybe real estate on my list of priorities, and I haven't gotten to it yet).

Sure, if all your investments are in retirement accounts you may as well buy international in there. But if you do have taxable investments, then international makes a lot of sense in that account because you can't claim the foreign tax credit against retirement account funds. This factor puts international funds just ahead of domestic stock funds on the https://www.bogleheads.org/wiki/Tax-efficient_fund_placement chart.

It's not quite that simple. International funds do get the foreign tax credit, but they also have a lower rate of qualified dividends. Depending on your tax bracket, dividend yields, and qualified dividend rates, you can still be better off with international funds in a retirement account. I've worked out some examples here.

seattlecyclone

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Re: Has the time come to add international?
« Reply #21 on: July 13, 2016, 11:24:01 AM »
It's not quite that simple. International funds do get the foreign tax credit, but they also have a lower rate of qualified dividends. Depending on your tax bracket, dividend yields, and qualified dividend rates, you can still be better off with international funds in a retirement account. I've worked out some examples here.

I'm pretty sure the folks at Bogleheads took that into account when making their tax efficiency tables. International has a slight edge over domestic all told. It's not huge. But if you have contrary assumptions, you're welcome to act on them.

johnny847

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Re: Has the time come to add international?
« Reply #22 on: July 13, 2016, 11:32:50 AM »
It's not quite that simple. International funds do get the foreign tax credit, but they also have a lower rate of qualified dividends. Depending on your tax bracket, dividend yields, and qualified dividend rates, you can still be better off with international funds in a retirement account. I've worked out some examples here.

I'm pretty sure the folks at Bogleheads took that into account when making their tax efficiency tables. International has a slight edge over domestic all told. It's not huge. But if you have contrary assumptions, you're welcome to act on them.

Even the Bogleheads allude to what I said

Quote
It is sometimes possible to get tax credit for foreign taxes paid from international stock funds, but this opportunity is lost in tax-advantaged accounts.  If all else is equal, the existence of the credit may make it advantageous to prioritize these funds in the taxable account. Whether or not the foreign tax credit is sufficient depends on such factors as the the percentage of the fund's foreign source income component, the foreign tax rate, the percentage of the foreign dividends that are qualified, and the the US marginal tax bracket of the fundholder.

I take into account the last two things they mention here in my post.

They make a general recommendation, which will work for a lot of people. However, each individual should work out for him/herself whether the assumptions the Bogleheads made are actually true for them.

webguy

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Re: Has the time come to add international?
« Reply #23 on: July 13, 2016, 06:48:31 PM »
When (anyone upthread) says they hold 30% international - does that mean that 30% of your stocks are international stocks  and 70% US or that 30% of your total portfolio is international stocks?   Which of those was Vanguard suggesting?

30% of my total portfolio. My current AA is 20% bonds/cash, 40% US stocks, 30% Intl stocks, 10% REITs. Nice and simple and diversified.

beastykato

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Re: Has the time come to add international?
« Reply #24 on: July 13, 2016, 06:58:57 PM »
I personally keep only 15% of my total stock allocation in international because John Bogle is who got me started on this whole indexing thing to begin with.  I choose to keep some out of the desire for world diversification, however many experts seem to think it's not needed because of the international exposure U.S. companies already have.   I tend to agree with them for the most part, but I still enjoy a little extra diversification on the off chance that they do perform well.

Throughout the recent history though international has pretty much followed the U.S. stock chart.   Many people argue to keep both so that when one may go down the other would go up.  However, since they are tracking each other that kind of debunks the whole idea that they have an inverse relationship.

johnny847

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Re: Has the time come to add international?
« Reply #25 on: July 13, 2016, 07:05:16 PM »
For anybody here who keeps a fixed percentage of international, do you guys intend to drop the international allocation if it ever exceeds market weight? So for example, you hold 30% of your stocks as international, and by market cap, US increases to 75% of world stock markets, would you still hold your 30% international? Why or why not?

Cycling Stache

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Re: Has the time come to add international?
« Reply #26 on: July 26, 2016, 08:30:54 AM »
So, I just moved 20% of my total portfolio to international (the I fund in the TSP account, which tracks the MSCI EAFE index).

I have to say that I felt very conflicted about this.  The entirely rational side of me that believes in big-picture market efficiency agrees that non-U.S. funds should be priced just as correctly at this point as U.S. funds (especially since this is for developed countries), and it doesn't make sense from an indexer perspective to ignore a number of established companies just because they are based outside the United States.

That said, there is a lot of advice against (or at least not for) investing internationally, including comments by Buffett, Bogle, MMM (initially in 2011, although I think he changed his stance when he moved to Betterment), and JL Collins.  Most of these comments seem to focus on the increased costs, increased complication of the investment, already existing exposure to financial markets through the S&P 500, currency exchange risks, and shareholder risks for companies outside the United States.

Ultimately, I went with the 20% recommendation from Vanguard's white paper, which itself was sort of a fudge number that acknowledged that the US only represented 50% of world total market cap, but most U.S. investors don't invest internationally at all, so try 20% to start in order to reduce volatility.

Thus, I consider this a move to more "rational" investing, although hedged because I'm just not sure why there are so many caveats and equivocations that aren't present with indexing generally.  I'm also making this investment with the goal of increasing overall returns (even if only slightly) by better diversification and rebalancing, not reducing volatility, because I don't have any short-term needs for the money.  I realize that fluctuating currency valuations are a risk, but given that it could go either way, I'm ignoring it.

We'll see how it goes, but I wanted to thank everyone for the advice, and share my uncertainty given that it's probably held by a number of others what are considering whether to invest internationally at all.  If I missed something, please let me know.

DrF

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Re: Has the time come to add international?
« Reply #27 on: July 26, 2016, 10:10:32 AM »
Your thread made me think about this previous thread started by hodedofome:
http://forum.mrmoneymustache.com/investor-alley/meb-faber-which-asset-allocation-model-is-best/msg1091087/#msg1091087

Basically, you could go blue in the face deciding which asset allocation is the "best" and there's a very good chance you'll choose incorrectly when you look back at your investments in 30+ years. Once you are "diverse enough" final tweaking of 10% vs 20% in this or that doesn't really change the outcome. Now that you've switched 20% of your assets to international you should keep it that way until you have a major shift in either your risk category or your working category.

Cycling Stache

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Re: Has the time come to add international?
« Reply #28 on: July 26, 2016, 10:51:31 AM »
Your thread made me think about this previous thread started by hodedofome:
http://forum.mrmoneymustache.com/investor-alley/meb-faber-which-asset-allocation-model-is-best/msg1091087/#msg1091087

Basically, you could go blue in the face deciding which asset allocation is the "best" and there's a very good chance you'll choose incorrectly when you look back at your investments in 30+ years. Once you are "diverse enough" final tweaking of 10% vs 20% in this or that doesn't really change the outcome. Now that you've switched 20% of your assets to international you should keep it that way until you have a major shift in either your risk category or your working category.

Thanks for posting this.  The fact that I agonized over it highlights that it's probably a close call either way.  But what bothered me was not being able to reconcile what seems like the perfectly rational position (holdings to match world market caps) with the advice.  Even MMM has a post that you don't need international because why do you think you're smarter than the market, only to include a response to a comment 2 years later that maybe he should change the post because he did shift to some international, and 2 years after that, he posted his Betterment stuff that he's now majority (barely) international because that's their default.

What I found amusing is that even after all the analysis, my 20% figure is just an arbitrary number that represents a compromise between my current position and what seems like the rational position to me.  So it's still irrational.   But I agree with you that I'm going to stick with it until something changes in my work/investment situation, or my views on international allocation shift.

One final note for federal employees: the TSP expense ratio is the same for each fund, so there is no additional cost (that I see) to investing in international over the C fund (S&P 500) in your TSP account.  The higher expense ratio is one factor often cited against investing in international funds.

frugledoc

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Re: Has the time come to add international?
« Reply #29 on: July 27, 2016, 03:19:26 PM »
What does your IPS say?

https://www.bogleheads.org/wiki/IPS

This ^^^ --- Come up with a plan and stick to it.

My AA is:

- Canada = 30%
- US = 50%
- Int'l = 20%

Living in Canada I'm 70% international stocks.

Still far too overweight your home country

Retire-Canada

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Re: Has the time come to add international?
« Reply #30 on: July 27, 2016, 04:25:27 PM »
Still far too overweight your home country

Not as far as I am concerned. I think 30% is just right.

http://www.moneysense.ca/magazine-archive/just-how-canadian-should-you-be/

Jack

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Re: Has the time come to add international?
« Reply #31 on: July 28, 2016, 09:43:00 AM »
That said, there is a lot of advice against (or at least not for) investing internationally, including comments by Buffett, Bogle, MMM (initially in 2011, although I think he changed his stance when he moved to Betterment), and JL Collins.  Most of these comments seem to focus on the increased costs, increased complication of the investment, already existing exposure to financial markets through the S&P 500, currency exchange risks, and shareholder risks for companies outside the United States.

You know, currency exchange risk is the part I don't entirely understand. I mean, I get why investing all your money in things denominated in an other-than-home-currency is a bad idea, but why wouldn't a moderate amount currency diversification be a good thing? Consider Venezuela, for instance: if I were investing there right now, I'd be a lot happier if some of my investments were denominated in dollars instead of 100% of them being denominated in bolivars.

(Yes, I'm aware that I'm conflating to some extent the currency used by the underlying companies vs. the currencies in which the investment itself is denominated, but that's because I don't understand all implications of the difference myself.)

Cycling Stache

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Re: Has the time come to add international?
« Reply #32 on: July 28, 2016, 01:42:38 PM »
You know, currency exchange risk is the part I don't entirely understand. I mean, I get why investing all your money in things denominated in an other-than-home-currency is a bad idea, but why wouldn't a moderate amount currency diversification be a good thing? Consider Venezuela, for instance: if I were investing there right now, I'd be a lot happier if some of my investments were denominated in dollars instead of 100% of them being denominated in bolivars.

I think the theory is that if you intend to do all your living and spending in U.S. dollars forever, what happens to other currencies (i.e., the relative strength or weakness of the U.S. dollar) doesn't matter that much.  So having all investments in U.S. companies doing most of their business in U.S. dollars removes currency fluctuations from your analysis.  If instead you invest in a European company earning most of its money in Euros, the company might have fine growth, but if the value of the Euro plummets compared to the U.S. dollar, your investment is worth less.  Of course it could go the other way, but the idea is that you're adding an element of risk where one didn't exist before.

Retire-Canada

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Re: Has the time come to add international?
« Reply #33 on: July 28, 2016, 03:14:35 PM »
I think the theory is that if you intend to do all your living and spending in U.S. dollars forever, what happens to other currencies (i.e., the relative strength or weakness of the U.S. dollar) doesn't matter that much.

That would be a poor theory unless the country you lived in was totally self-sufficient.

When the Canadian dollar lost 20%+ value recently almost everything became more expensive within a short time because most things we buy have some component of foreign supply and/or labour involved in it.

However, owning a lot of US stocks I saw a really nice bump to the value of those investments in my home currency with the drop in the Canadian dollar.

Conversely if the Canadian dollar goes up rapidly my US stocks would drop in value in my home currency, but the cost of buying most things would go down as well.

By having investments in a number of currencies whatever the fluctuations are you'll mosy likely have some assets that benefit.

Cycling Stache

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Re: Has the time come to add international?
« Reply #34 on: August 11, 2016, 08:26:53 AM »
Does anyone know what percentage of total world market cap the MSCI EAFE index makes up? 

I moved 20% of my total portfolio over last month, and even considering going another 10% more, but I wanted to know what percentage of total world market it covered before I upped my percentage any more.  For some reason, I had a hard time finding this through Google (which could be a user problem).

I realize that there are Vanguard total world market funds, etc., but for now I'm doing this with the TSP account and the super low fees that are the same for all holdings, so MSCI EAFE it is.

I appreciate the help.

Interest Compound

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Re: Has the time come to add international?
« Reply #35 on: August 11, 2016, 09:23:42 AM »
Don't fall into the trap of convincing yourself to hold less international stocks, because VTSAX companies also sell products internationally. Those same international stocks also sell products to the US, but does anyone ever make the argument that you aren't truly exposed to the US if you don't own international? These are all just rationalizations for a home-bias, to keep all your money in the US.

The dozen large companies in NY state are closely linked to both the international economy, and the US economy. Why shouldn't I just buy them? GE often follows movements in the S&P 500, why not just own one stock?

If Samsung beats Apple in the multi-billion smartphone business, how much will it help me that Apple also sells phones in South Korea? Why would I want to own Chevy and Ford and skip Honda and Toyota, or BMW and Mercedes, if you could own them all at low cost?

Consider that in international markets you will find...

  • 7 of the 10 largest automobile companies
  • 7 of the 10 largest diversified telecommunications companies
  • 8 of the 10 largest metals and mining companies
  • 6 of the 10 largest electronic equipment and instruments companies
  • 5 of the 10 largest household durables companies

It's nonsense to say that a companies participation in a market, is an excuse to not own all stocks in that market. I tried to find some correlation between companies with a strong foreign presence, and the performance of the international/domestic market, but was unconvinced. Looking at Fidelity's Export and Multinational Fund - FEXPX, which invests "primarily in securities of U.S. companies that are expected to benefit from exporting or selling their goods or services outside of the United States."



Let's look at the first three phases:

1. International greatly underperformed the US, so we would expect the export fund to be pulled down, yet it outgrows domestic.

2. International drop just about matches the US drop (might have dropped a bit further), yet the export fund is almost flat, not pulled downward.

3. International greatly outperforms the US, but the export fund is in-line with the US.

In short, you shouldn't make investment decisions, based on expectations like "US company share price with a strong foreign presence will be pulled by economic performance in those countries in the long run." unless you have data showing this effect (if it exists) is strong enough to make an impact on your portfolio. Do you have this data?

Indexing makes sense globally as much as it makes sense domestically. Here's an example of what can go wrong during retirement, when you're 80/20 US stocks/US bonds, vs 40/40/20 US Stocks/International Stocks/US Bonds (global market cap portfolio):



In this catastrophe scenario, the USA only portfolio would have dropped to 0, while the 3 fund portfolio would have grown to $920,365 an overall gain of over 30%. Also, the obligatory 25 year Japan chart:


« Last Edit: August 11, 2016, 09:28:00 AM by Interest Compound »

Cycling Stache

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Re: Has the time come to add international?
« Reply #36 on: August 11, 2016, 10:11:49 AM »
Don't fall into the trap of convincing yourself to hold less international stocks, because VTSAX companies also sell products internationally. Those same international stocks also sell products to the US, but does anyone ever make the argument that you aren't truly exposed to the US if you don't own international? These are all just rationalizations for a home-bias, to keep all your money in the US.

Interest Compound, you always provide a lot of useful information.

(1) Do you know the percentage of total world market cap that MSCI EAFE represents?  It's not "total international," so part of the reason I'm asking the question is to consider moving closer to the correct percentage of world market cap that it represents.

(2) As noted above, it is interesting to me that the view about investing to match world market cap is not held with nearly the same fervor that indexing is.  I don't know if that's because of a lack of evidence (which would seem surprising), but it includes comments by a lot of intelligent people.  As referenced in the Vanguard white paper, even their 20% recommendation was just a "better than most people are currently doing," although I don't think peak data got them to 50/50.  I'm not saying it's anything more than home bias, but in a world where numbers can be used to prove points, I'm surprised by the lack of ringing endorsement.  Could just be home bias--but a little surprising, right?

(3)  For whatever reason, international has seriously lagged US for a number of years.  While I'm less interested in the relatively short-term nature of that in the long-term investment horizon, it raises an interesting question.  Are the valuations just really off for one index or the other?  Or is there something different about the rest of world?  Specifically, if you take your efficient market hypothesis (which I buy) to its logical conclusion, wouldn't US companies and international companies of comparable size eventually move their products to the same markets (within a reasonable margin, anyway)?  If US companies aren't inherently any better than international companies, and they can both reasonably identify which markets are best, why would there be such a discrepancy in their performance over a 10+ year timeframe?  That's something I just haven't been able to logic out, unless the argument is that yes, US companies have been better, but maybe not going forward?

(4) Your analysis showing a US portfolio going to zero is with withdrawals, correct?  I'm in the "not needing that money for a while" phase, so I've focused less on volatility at this point.  That matters to me more post-retirement, although I know there are a bunch of posts about having the same investments pre-retirement, but we don't need to rehash that.  The one thing I understood is that over most 30-year periods, holding some percentage of international up to 50% has never increased returns by more than, e.g., a percentage point.  Is that correct?  It's not a reason not to do it, but it might explain why there's less cheerleading for holding international than e.g., indexing in general.

Again, as I stated in the beginning of this thread, I get that international logically makes sense, and indeed I moved a lot of money over last month after starting this thread.  But I was surprised by the lack of support for what seems like the rationally correct position.

Interest Compound

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Re: Has the time come to add international?
« Reply #37 on: August 11, 2016, 11:30:52 AM »
Don't fall into the trap of convincing yourself to hold less international stocks, because VTSAX companies also sell products internationally. Those same international stocks also sell products to the US, but does anyone ever make the argument that you aren't truly exposed to the US if you don't own international? These are all just rationalizations for a home-bias, to keep all your money in the US.

Interest Compound, you always provide a lot of useful information.

(1) Do you know the percentage of total world market cap that MSCI EAFE represents?  It's not "total international," so part of the reason I'm asking the question is to consider moving closer to the correct percentage of world market cap that it represents.

(2) As noted above, it is interesting to me that the view about investing to match world market cap is not held with nearly the same fervor that indexing is.  I don't know if that's because of a lack of evidence (which would seem surprising), but it includes comments by a lot of intelligent people.  As referenced in the Vanguard white paper, even their 20% recommendation was just a "better than most people are currently doing," although I don't think peak data got them to 50/50.  I'm not saying it's anything more than home bias, but in a world where numbers can be used to prove points, I'm surprised by the lack of ringing endorsement.  Could just be home bias--but a little surprising, right?

(3)  For whatever reason, international has seriously lagged US for a number of years.  While I'm less interested in the relatively short-term nature of that in the long-term investment horizon, it raises an interesting question.  Are the valuations just really off for one index or the other?  Or is there something different about the rest of world?  Specifically, if you take your efficient market hypothesis (which I buy) to its logical conclusion, wouldn't US companies and international companies of comparable size eventually move their products to the same markets (within a reasonable margin, anyway)?  If US companies aren't inherently any better than international companies, and they can both reasonably identify which markets are best, why would there be such a discrepancy in their performance over a 10+ year timeframe?  That's something I just haven't been able to logic out, unless the argument is that yes, US companies have been better, but maybe not going forward?

(4) Your analysis showing a US portfolio going to zero is with withdrawals, correct?  I'm in the "not needing that money for a while" phase, so I've focused less on volatility at this point.  That matters to me more post-retirement, although I know there are a bunch of posts about having the same investments pre-retirement, but we don't need to rehash that.  The one thing I understood is that over most 30-year periods, holding some percentage of international up to 50% has never increased returns by more than, e.g., a percentage point.  Is that correct?  It's not a reason not to do it, but it might explain why there's less cheerleading for holding international than e.g., indexing in general.

Again, as I stated in the beginning of this thread, I get that international logically makes sense, and indeed I moved a lot of money over last month after starting this thread.  But I was surprised by the lack of support for what seems like the rationally correct position.

1. Source:

Vanguard Total World Index Fund -

https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0628#tab=2



Source:

MSCI EAFE -

https://www.msci.com/eafe



Now we put them together:

Austria - 0.1%
Belgium - 0.5%
Denmark - 0.6%
Finland - 0.4%
France - 2.8%
Germany - 2.7%
Ireland - 0.1%
Israel - 0.2%
Italy - 0.7%
Netherlands - 1.0%
Norway - 0.2%
Portugal - 0.1%
Spain - 1.0%
Sweden - 1.0%
Switzerland - 2.9%
United Kingdom - 6.5%
Australia - 2.4%
Hong Kong - 1.2%
Japan - 8.1%
New Zealand - 0.1%
Singapore - 0.5%

Total estimated world market cap of MSCI EAFE: 33.01%

2. Not surprised. Most people are afraid of things foreign to them, and Survivorship Bias is one helluva drug.

3. A 10 year timeframe is nothing. Sometimes International wins, and sometimes Domestic wins. It all depends on when you're looking. Had you sat down in January 2014 and ran the numbers, you'd see International ahead since 1971! 43 years of International outperformance!



Instead you're looking at it today, just when Domestic crossed over and started winning:



It all depends on your timeline - when you're looking. You can't predict which country will outperform in the future, just like you can't predict which stock will outperform in the future. Heck, you can't even predict your own personal timeline! The only way to win this game, is to not play. Market-weight is the only thing that makes sense to me. If you want to start at market-weight as a baseline, then tilt towards a home-bias to account for currency fluctuations like Vanguard does, that sounds reasonable. But even then, Vanguard's all-in-one (Lifestrategy and Target Retirement) funds are currently 60/40 US/International...will that really make an appreciable difference from the market-weight 53.5/46.5 ?

Just go market-weight. Then you don't have to worry about rebalancing between them. They will automatically balance themselves :)

4. Yes, those are with withdrawals. There have only been 14 thirty-year periods between now and 1971 when international data (as far as I know) first became available. And they are all very much overlapping on each other. Even then, if it increased returns, and you aren't worried about volatility...why not?

Looking at some 30+ year time periods (through the end of 2015):

The money you invested in Jan 1971 - has made 10% a year
The money you invested in Jan 1972 - has made 9% a year
The money you invested in Jan 1973 - has made 10% a year
The money you invested in Jan 1974 - has made 11% a year
The money you invested in Jan 1975 - has made 10% a year
The money you invested in Jan 1976 - has made 10% a year
The money you invested in Jan 1977 - has made 10% a year
The money you invested in Jan 1978 - has made 9% a year
The money you invested in Jan 1979 - has made 10% a year
The money you invested in Jan 1980 - has made 9% a year
The money you invested in Jan 1981 - has made 10% a year
The money you invested in Jan 1982 - has made 10% a year
The money you invested in Jan 1983 - has made 9% a year
The money you invested in Jan 1984 - has made 10% a year
The money you invested in Jan 1985 - has made 8% a year

I'm not sure what you're expecting out of the stock market. Those are some pretty good numbers.

Cycling Stache

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Re: Has the time come to add international?
« Reply #38 on: August 11, 2016, 11:45:28 AM »
Interest Compound, excellent information.  I appreciate it. 

johnny847

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Re: Has the time come to add international?
« Reply #39 on: August 11, 2016, 11:15:47 PM »
Interest Compound, I just wanted to jump on here and say keep fighting the good fight. I used to be more vocal about how indexing is best and how multinational isn't international. And sometimes I'd argue for market weight US/lntl but not as often.

I got tired of this though as some people (and I'm not saying people in this thread specifically, but some people on this forum in general) just simply don't care what the facts are, don't realize the survivorship bias in the data they're looking at, etc.

Paul der Krake

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Re: Has the time come to add international?
« Reply #40 on: August 12, 2016, 12:47:39 AM »
For anybody here who keeps a fixed percentage of international, do you guys intend to drop the international allocation if it ever exceeds market weight? So for example, you hold 30% of your stocks as international, and by market cap, US increases to 75% of world stock markets, would you still hold your 30% international? Why or why not?
Hard questions like these are exactly why I have passed on international investing. I do not trust my judgment to stay the course for decades when there are so many variables. I fear I will reach a different allocation conclusion 5 or 10 years from now, maybe because of this great insight that I will have gained from living abroad (!), and rebalance at the worst possible time.

Keep it simple.



Re: American Exceptionalism

I do not buy that America is God's gift to the world, but there are a lot of hungry and ambitious people here. The can-do attitude is pervasive and there is are tens of millions on the waiting list, waiting to join universities and start companies. I have yet to experience anything like this elsewhere. Her soft power abroad is enormous and unmatched.

That being said, every empire in the history of the world has fallen at some point.

johnny847

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Re: Has the time come to add international?
« Reply #41 on: August 12, 2016, 04:58:09 AM »
For anybody here who keeps a fixed percentage of international, do you guys intend to drop the international allocation if it ever exceeds market weight? So for example, you hold 30% of your stocks as international, and by market cap, US increases to 75% of world stock markets, would you still hold your 30% international? Why or why not?
Hard questions like these are exactly why I have passed on international investing. I do not trust my judgment to stay the course for decades when there are so many variables. I fear I will reach a different allocation conclusion 5 or 10 years from now, maybe because of this great insight that I will have gained from living abroad (!), and rebalance at the worst possible time.

Keep it simple.

Oh man you've got me to step out of my shell (in contrast to my previous post)

But I don't think this issue should keep you from staying the course. You can set a course of just using market weight of US/Intl. Or if you want some home bias for whatever reasons (such as currency risk, which I think is justifiable) set your US/Intl split to say, US market weight + X% and Intl market weight - X%. If either of these would be negative you just force it to zero. But you probably shouldn't set X to a value such that it's actually likely that either of those numbers would be zero.

dandypandys

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Re: Has the time come to add international?
« Reply #42 on: August 12, 2016, 05:41:31 AM »
I just got done with Jim Collins book 'A simple path to Wealth' last night.
I liked it :) but am still a bit confused on a few issues.
He doesn't promote the use of international- mainly has the Bogle ethos that it is not needed. I however, read the  3-fund portfolio thread over on Bogleheads forum, https://www.bogleheads.org/forum/viewtopic.php?p=3007074&sid=8fe5892336ec3f36ac890cf15078a8c5#p3007074
 20% is the rec'd amount over there. I just set it to 20% of total, not of just my stocks though, because I never thought they meant of stocks... did they ? My companion math brain left the building -- how should it be?

I have 20% bonds
Vanguard Total Stock Mkt Idx Adm 60%
Vanguard Dvlp Mrkts Indx Admrl 15%
Vanguard Emerging Mkts Stock Idx Adm 5%

Radagast

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Re: Has the time come to add international?
« Reply #43 on: August 12, 2016, 09:10:06 AM »
I just got done with Jim Collins book 'A simple path to Wealth' last night.
I liked it :) but am still a bit confused on a few issues.
He doesn't promote the use of international- mainly has the Bogle ethos that it is not needed. I however, read the  3-fund portfolio thread over on Bogleheads forum, https://www.bogleheads.org/forum/viewtopic.php?p=3007074&sid=8fe5892336ec3f36ac890cf15078a8c5#p3007074
 20% is the rec'd amount over there. I just set it to 20% of total, not of just my stocks though, because I never thought they meant of stocks... did they ? My companion math brain left the building -- how should it be?

I have 20% bonds
Vanguard Total Stock Mkt Idx Adm 60%
Vanguard Dvlp Mrkts Indx Admrl 15%
Vanguard Emerging Mkts Stock Idx Adm 5%
That is 25% which is pretty close to 20%. Higher is likely to be better if the future is somewhat like the past, so I wouldn't reduce it. Plus you get to use nice round numbers.

dandypandys

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Re: Has the time come to add international?
« Reply #44 on: August 12, 2016, 09:30:46 AM »
Thanks! That is great, I kinda wanted 25% anyway :) There def is a thing about nice round number.
« Last Edit: August 12, 2016, 09:33:55 AM by dandypandys »

Cycling Stache

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Re: Has the time come to add international?
« Reply #45 on: August 12, 2016, 11:18:47 AM »
I transferred another 10% over to the I fund effective today, so that will put me at approximately 30% international for my total portfolio, which is close to the 33% MSCI EAFE world cap, and still gives me a little home bias.

Still not perfectly rational, but close enough that I feel comfortable with the set up for now. 

Thanks, Interest Compound.

I will say that when I mentioned it to a friend, he immediately sent me the Bogle and Buffett comments from last year about not needing international.  Even though a close read of the Bogle comments shows that they don't make much sense (e.g., possible concerns about Britain and Japan, but those should be priced in), it was still a little tough to block out.

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Re: Has the time come to add international?
« Reply #46 on: August 12, 2016, 12:57:11 PM »
Your thread made me think about this previous thread started by hodedofome:
http://forum.mrmoneymustache.com/investor-alley/meb-faber-which-asset-allocation-model-is-best/msg1091087/#msg1091087

Basically, you could go blue in the face deciding which asset allocation is the "best" and there's a very good chance you'll choose incorrectly when you look back at your investments in 30+ years. Once you are "diverse enough" final tweaking of 10% vs 20% in this or that doesn't really change the outcome. Now that you've switched 20% of your assets to international you should keep it that way until you have a major shift in either your risk category or your working category.

+1

Not that it should matter to you do but I have ~50% of my equity allocation in international :)

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Re: Has the time come to add international?
« Reply #47 on: August 14, 2016, 07:51:56 AM »
So I can invest in Vanguard's Total Stock Market index at a .05% expense ratio, and the Total International Index at a .12% expense ratio, both are lower than the Total World Market Index fee expense ratio. I'll just weight the Domestic to International index funds myself, and get the lower expense ratio as a result.

johnny847

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Re: Has the time come to add international?
« Reply #48 on: August 14, 2016, 12:14:27 PM »
So I can invest in Vanguard's Total Stock Market index at a .05% expense ratio, and the Total International Index at a .12% expense ratio, both are lower than the Total World Market Index fee expense ratio. I'll just weight the Domestic to International index funds myself, and get the lower expense ratio as a result.

Yup. This is what I do. And you're actually more diversified this way because the sum of the two funds own more companies than total world, but honestly this marginal extra diversification is not worth much.
What is an appreciable advantage to balancing us and international manually is you can tax loss harvest them individually. Suppose international markets take a big hit. Now US and international markets have a decent correlation so the US markets would probably fall too, but suppose it's not by much. Not so much that you can actually tax loss harvest your US funds. But you can still tax loss harvest international.
If you held total world in this situation your chances of being able to tax loss harvest are far lower (obviously it depends what the exact numbers are here).