Author Topic: Any point to international allocation?  (Read 1449 times)

PeterParker

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Any point to international allocation?
« on: June 03, 2021, 11:25:54 AM »
A lot of investment advice out there touting 20% or 33% of equities or portfolio or even more in International stocks in different forms.

I get the "proposed" logic --- it's a semi un-correlated asset to US stocks (wait, no it isn't, it's highly correlated) -- but anyway it will reduce overall variance in market performance year to year.
Thing is ... you have to go back to the 70s/80s to see any use for international stocks, at best. Ancient history. And even if you start a portfolio then .... the results are not good.

I know backtesting isn't the same as forecasting, by a longshot, but without any further speculative knowledge, let's assume that's what we'll use to test our theories.

I challenge anyone to show me a portfolio starting any time from 1980-present date, where a portfolio between Total US and Total International (or one of the big slices like Global Developed, Emerging, etc) .... outperforms 100% US in any meaningful fashion.

Yes, ultimately, the variance may be reduced slightly, for a medium tank in performance. The Sharpe ratio is crap outside of 100% into US. Maybe I'm missing something here. Maybe it really is the 60s, 70s, and 80s ... when we put on man on the Moon ... where this International stuff had some use in a portfolio.

bacchi

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Re: Any point to international allocation?
« Reply #1 on: June 03, 2021, 12:16:44 PM »
A lot of investment advice out there touting 20% or 33% of equities or portfolio or even more in International stocks in different forms.

I get the "proposed" logic --- it's a semi un-correlated asset to US stocks (wait, no it isn't, it's highly correlated) -- but anyway it will reduce overall variance in market performance year to year.
Thing is ... you have to go back to the 70s/80s to see any use for international stocks, at best. Ancient history. And even if you start a portfolio then .... the results are not good.

I know backtesting isn't the same as forecasting, by a longshot, but without any further speculative knowledge, let's assume that's what we'll use to test our theories.

I challenge anyone to show me a portfolio starting any time from 1980-present date, where a portfolio between Total US and Total International (or one of the big slices like Global Developed, Emerging, etc) .... outperforms 100% US in any meaningful fashion.

Yes, ultimately, the variance may be reduced slightly, for a medium tank in performance. The Sharpe ratio is crap outside of 100% into US. Maybe I'm missing something here. Maybe it really is the 60s, 70s, and 80s ... when we put on man on the Moon ... where this International stuff had some use in a portfolio.

Why 1980? Why not 1970 or 2001 or 2010?

EM and ex-US did great in the 00's. Look at 2002-2007 where EM/ex-US beat LC handily.

blob:https://www.callan.com/c3162d1f-4d1c-a841-8d2f-deec5ddbf948

A portfolio with VGTSX and EEM mixed in (50/10/40) performed better than a straight SPY portfolio from 1997-2015. In fact, from 1999-2010, 100% SPY only outperformed twice (2000 and 2008).

In other words, if you could predict the future and you were accumulating from 1997, all in for SPY would've worked out better if you planned to ER after 2015.

If you're withdrawing, and had been since 1997, pulling from EM in 2001 (-3%) is far more palatable than pulling from LC (-12%). Or 2005, where pulling from the +35% asset class is better for your portfolio than pulling from the +5% asset class.

Portfoliocharts shows a slightly greater return, with a slightly greater risk, for a 50/10/40 but I believe that uses 1970 data forward. I'm not sure how to restrict the dates on pcharts or pvisualizer.

« Last Edit: June 03, 2021, 12:36:47 PM by bacchi »

PDXTabs

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Re: Any point to international allocation?
« Reply #2 on: June 03, 2021, 03:18:38 PM »
I'm 45% ex-US because I sleep better at night with more diversification.

windytrail

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Re: Any point to international allocation?
« Reply #3 on: June 03, 2021, 05:24:00 PM »
I am 35% ex-US mainly because Vanguard says to do it, and I trust them. As @PDXTabs said, more diversification. There's also some who say that US stocks are overpriced currently, and international stocks are on sale, but I don't know enough to speculate on that.

Heliios

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Re: Any point to international allocation?
« Reply #4 on: June 03, 2021, 10:00:22 PM »
Consider this:

Vanguard's Total World Stock ETF (VT) contains almost all of the world's publicly traded stocks proportional to their market cap. According to Vanguard's website, by region allocation, North America accounts for a whopping 60% of the total fund. Europe is 17%, the Pacific (Japan, Korea, Australia) is just 12%, the remaining 11% is emerging markets (which I think includes BRIC). If we cut out Canada and Mexico, this means that the US alone is >55% of the total world market cap.

So let's assume that the US (VTI) keeps clipping along at a historical 10% annual return with dividends while the rest of the world (VXUS) remains at a dismal 4% return. This means after a decade, the US will be 68% of the world market cap, and after 30 years, the US will be about 87% of the world market cap.

Is this going to happen? Is the US really just going to take over the world? Admittedly, much of the earnings included in the US stock market belong to multi-national corporations. Maybe every company will decide to incorporate in the US?

Either way, I highly doubt that the ex-US market cap will go to 0%. Personally, I allocate for 15% VXUS with 70% VTI and 15% VXF. I realize that if I were truly being objective, I would just get 100% VT and my returns would be 2 - 4% lower for the last few decades. But stick to your investment plan...

tooqk4u22

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Re: Any point to international allocation?
« Reply #5 on: June 05, 2021, 04:30:19 AM »
Just like US companies have international revenues Int'l cos have US revenues.   

And as said above there is an argument about valuations combined with international is behind the US with the covid reopening.

As for VT, it's certainly easy but I would prefer and do use VTI and VXUS bc it allows you to rebalance which I think would help overall returns.

That said political/tax policies are not favorable internationally so that has been a drag on international returns.  Although the US is heading in that direction so it may not be as much of a factor going forward.

Radagast

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Re: Any point to international allocation?
« Reply #6 on: June 05, 2021, 01:28:02 PM »
US and international are least correlated over a periods of several years, like 5 or something, but you can only check correlations using daily, monthly, or yearly data.

Of course, if you were on top of a bubble, you would naturally conclude that anything not part of the bubble was a stupid investment. Not necessarily saying US is in a bubble, but you should first try to prove it is not before excluding international.

Reading: pdf found here:
https://www.aqr.com/Insights/Perspectives/The-Long-Run-Is-Lying-to-You

So it seems that US has performed international 4.4% annualized (A Lot!) since 1990. Of that, 1.1% has been explained by outperformance in fundamentals, and 3.3% has been explained by changes in valuation. In other words US stocks have been doing well mostly because people are willing to pay more for them, and people have been willing to pay more for them because they are doing well.

Also consider valuations. Say that US CAPE is currently 38 and international CAPE is 19. US is twice as high. Using the Rule of 72, in order for US to outperform international over the next 20 years it needs to grow 3.6% more every year over the next 20 years. Of course its trailing fundamentals are +1.1%, so if valuations remain constant we expect expect international to do +2.5% annualized better over the next 20 years. Unless US experiences supreme growth, or continues farther into a bubble, international would be worth including.

International was most useful 1960-1990 because it was a period of subdued US valuations and increasing international (Japan) valuations.

Bearded Pharmacist

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Re: Any point to international allocation?
« Reply #7 on: June 05, 2021, 07:32:01 PM »
Personally, I got rid of my international allocation about four years ago, and I never looked back.

My reason was simple: U.S. large cap companies basically ARE international companies already - they’re not called multinational corporations for nothing! So why not invest in what I think are the best of the best companies in the world?

That said, I also have a strong U.S. mid-cap and small-cap tilt and I don’t invest in bonds so my thinking on this topic likely differs from most - ultimately you’ve gotta do what works best for you not just financially but psychologically.

Simpleton

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Re: Any point to international allocation?
« Reply #8 on: June 05, 2021, 08:46:15 PM »
Bernie Sanders and AOC.

That is why you want exposure to other countries.

Mitigate the risk.

Telecaster

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Re: Any point to international allocation?
« Reply #9 on: June 06, 2021, 11:18:44 AM »
One thing to consider about international funds is the top holdings tend to be industrial/manufacturing type companies as opposed to the US which is more tech/financial.  So there is some sector diversification, which is my primary reason for holding international.  That said...

...In general, international companies aren't as good about returning money to the shareholders (in whatever form) as US companies so IMO it isn't really valid to compare PE ratios between US and ex-US companies.  Portfolio Visualizer tells me that since 1986 domestic stocks have pretty handily outperformed international, so there is that.  One thing to keep in mind is that if you do hold international, hold it in a taxable account if you can, that way you get credit for foreign tax paid. 

 
Bernie Sanders and AOC.

That is why you want exposure to other countries.

Mitigate the risk.

In most other countries Bernie Sanders and AOC would be center-right politicians. 

PDXTabs

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Re: Any point to international allocation?
« Reply #10 on: June 06, 2021, 01:57:26 PM »
In most other countries Bernie Sanders and AOC would be center-right politicians.

As a card carrying member of the SNP and someone that caucused for Sanders in 2016, I reject this position. The Green New Deal includes a job guarantee and AOC is a prominent supporter of MMT. This puts them, or at least those policies, well left of center even in Europe.

https://en.wikipedia.org/wiki/Green_New_Deal
https://www.americanactionforum.org/research/the-green-new-deal-scope-scale-and-implications/

EDITed to add - although I would agree with you on 2016 Sanders being a moderate in Europe, but 2020 Sanders has tacked way farther left. Perhaps he doesn't want anyone to get to his left.
« Last Edit: June 06, 2021, 02:05:36 PM by PDXTabs »

Scandium

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Re: Any point to international allocation?
« Reply #11 on: June 07, 2021, 11:44:32 AM »
Considering the absolutely dysfunctional US congress that has been unable to legislate on any major challenge for 12+ years, even with one party in majority, and one of two parties being a conspiracy minded death-cult run by a disgraced, senile old man? No I don't think I'll put all my eggs on this being the future of our planet, or able to produce anything except short term profit (for a few).

celerystalks

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Re: Any point to international allocation?
« Reply #12 on: June 07, 2021, 01:34:00 PM »

In most other countries Bernie Sanders and AOC would be center-right politicians.

Uhhm... no.

They might seem be closer to the center of the left due to more extreme leftist politicians in other countries getting elected through the parliamentary processes.  But they would still be firmly on the left.

The left engages and supports identity politics and views people as members of their identity group.
The right rejects identity politics and views people as individuals.
The alt-right (which is vanishingly small in the current U.S. political landscape) also engages in identity politics and views people as members of their identity group but in opposition to the left.

Both Bernie and AOC are on the left due to their acceptance of identity politics and for the fact that they are obviously not part of the alt-right.
« Last Edit: June 07, 2021, 01:36:24 PM by celerystalks »

PDXTabs

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Re: Any point to international allocation?
« Reply #13 on: June 07, 2021, 06:32:10 PM »
Considering the absolutely dysfunctional US congress that has been unable to legislate on any major challenge for 12+ years, even with one party in majority, and one of two parties being a conspiracy minded death-cult run by a disgraced, senile old man? No I don't think I'll put all my eggs on this being the future of our planet, or able to produce anything except short term profit (for a few).

This is similar to my take as well. I don't care if you're a Rand Paul conservative or an AOC liberal, I don't see how you can look around and think that this system is functioning. As a slight aside: Remy: Trump-Biden Debate Rap, and I'm posting that libertarian video as a liberal voter, because they're right, at least on the lack of discourse and the level of dysfunction.

But the politics is maybe slightly OT, except to say that you wouldn't have wanted all of your eggs in one basket for too long in any part of recorded history. I can't see the future, but the USA is not risk free. What would happen to markets if someone managed to set off a dirty bomb in DC, NYC, or San Francisco? Nothing good. A really bad solar flare seems like it would hit developed economies worse than developing ones, etc. Even the pacific northwest megaquake seems like it could substantially disrupt tech in the USA at this point.
« Last Edit: June 07, 2021, 07:50:22 PM by PDXTabs »

FrugalToque

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Re: Any point to international allocation?
« Reply #14 on: June 19, 2021, 09:35:30 AM »

In most other countries Bernie Sanders and AOC would be center-right politicians.
The left engages and supports identity politics and views people as members of their identity group.
The right rejects identity politics and views people as individuals.

Just so we're clear, if we're going to engage in honest discussion, we shouldn't draw strawmen as our opponents.

I could just as easily say,
"Only the right engages in identity politics, attempting to engage white heterosexuals, southerners, farmers and other groups to their side, while the left engages in real broad-based issues like job security, healthcare, pollution and fair elections."

See how easy that is?

"We're logical and pragmatic and work for everyone!  You're emotional and divide people with fear to score votes!"

Everyone thinks that about themselves.

For myself, I'm Canadian and extremely left by American standards, and yet I don't "view people as members of their identity group".  I view them as individual humans, each with different needs.  While those needs are definitely affected by their race, gender, religion, etc., that's hardly a defining part of the philosophy.  It's more about everyone pitching in to help everyone else.

Toque.

celerystalks

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Re: Any point to international allocation?
« Reply #15 on: June 19, 2021, 11:57:31 AM »
@FrugalToque Thank you for the comments.


In most other countries Bernie Sanders and AOC would be center-right politicians.
The left engages and supports identity politics and views people as members of their identity group.
The right rejects identity politics and views people as individuals.

Just so we're clear, if we're going to engage in honest discussion, we shouldn't draw strawmen as our opponents.

I could just as easily say,
"Only the right engages in identity politics, attempting to engage white heterosexuals, southerners, farmers and other groups to their side, while the left engages in real broad-based issues like job security, healthcare, pollution and fair elections."

See how easy that is?


I am engaging in honest conversation.  I am expressing my sincere opinion and my point of view just as others are allowed to do on here.  I wasn't making a strawman.  As I understand it the defining characteristic of the left, today, is their use of identity politics and viewing people primarily as members of their identity group.  And the defining characterizing of the right is the rejection of identity politics.  But I also agree that there is a very small contingent of the alt-right which does engage in identity politics in opposition to the left.  But this contingent is vanishingly small and is not representative of the major right.

The argument that the right is engaged in identity politics is a canard of the left.  But it is believable because the left has carved off many minority groups and sexual groups based on their intensive efforts using identity politics.  The left-overs would then appear to be the characteristic straight, white, Christian, etc..  But this is not because the right is specifically targeting and attracting these individuals that fall into these categories.  It is because the left targeted other identity groups and subtracted them.  And of course, when the right tries to make the argument that they are not engaged in identity politics but reject it, the left points to the alt-right.  There's your strawman.

Quote
"We're logical and pragmatic and work for everyone!  You're emotional and divide people with fear to score votes!"

Everyone thinks that about themselves.

Not sure the argument you are making here.  But it seems to be a: "pox on both your houses!" type argument.  I consider this to be not well informed and likely a product of your own political leanings.

Look, I have always been an independent voter.  I have voted for candidates from both parties in the past. However, in my opinion the left, in recent years, has become violent and intolerant.  And the right is accepting of discourse, debate, and differences of opinion. 

Quote
For myself, I'm Canadian and extremely left by American standards, and yet I don't "view people as members of their identity group".  I view them as individual humans, each with different needs.  While those needs are definitely affected by their race, gender, religion, etc., that's hardly a defining part of the philosophy.  It's more about everyone pitching in to help everyone else.

Toque.

If you do in fact view people primarily as individuals and not members of their identity group then perhaps you should engage in some honest research into the differences between the left and right, today, and determine whether you still fall on the left. Many people who considered themselves to be liberals, in the classical sense, because they cherish individual liberty, personal responsibility, freedom of speech, respect for traditional western values and institutions, have discovered that they are no longer on the left in the left-right divide.  This is because the left have moved hard into identity politics, has replaced personal responsibility with claiming victimhood status based on identity group affiliation, has become very intolerant of speech they disagree with, and has sought to tear down  (i.e. deconstruct, dismantle) western values and traditions.

An obvious example of the intolerance of the left and their embrace of identity politics and social justice from your home country of Canada has played out in recent years concerning bill C-16 and Dr. Jordan Peterson's argument against its passage. And then the subsequently, the Lindsay Shepherd affair at Wilfred Laurier University exposed that the left does indeed intend to use the bill to silence opinions that they disagree with and which run counter to their social justice narrative. 

Cool Friend

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Re: Any point to international allocation?
« Reply #16 on: June 19, 2021, 12:57:02 PM »
What does any of that Youtube-addled dipshittery have to do with international allocation?

EvenSteven

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Re: Any point to international allocation?
« Reply #17 on: June 19, 2021, 03:45:44 PM »
What does any of that Youtube-addled dipshittery have to do with international allocation?

If I'm following along correctly, Jordan Peterson recommends a diet composed of only two things: (1) Beef, and (2) massive quantities of benzodiazepines. US based companies have this sector covered, so there is no need for international investments.

Telecaster

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Re: Any point to international allocation?
« Reply #18 on: June 19, 2021, 05:43:22 PM »
They might seem be closer to the center of the left due to more extreme leftist politicians in other countries getting elected through the parliamentary processes.  But they would still be firmly on the left.

The left engages and supports identity politics and views people as members of their identity group.
The right rejects identity politics and views people as individuals.
The alt-right (which is vanishingly small in the current U.S. political landscape) also engages in identity politics and views people as members of their identity group but in opposition to the left.

So are you in the group that puts people into groups or in the other group that puts people into groups?

PDXTabs

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Re: Any point to international allocation?
« Reply #19 on: June 19, 2021, 11:11:13 PM »
Also, the left in the US is 100% about identity politics. Everything is about race in American politics - 100% driven by the left and MSM. Its kind of baffling to me that some of you are debating that. Anyone paying the slightest bit of attention to MSM can see it.

I agree, as a liberal, that the left in the USA has gotten super involved in identity politics to their detriment. I just don't think that the right isn't also just as guilty.

Also, every chance I get I like to post The Coming Collapse by Truthdig, not for the doom and gloom but the very succinct observations about the Democratic party. But again, I don't think that Trump's GOP (or Strom Thurmond, etc) are any better.

bacchi

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Re: Any point to international allocation?
« Reply #20 on: June 19, 2021, 11:48:54 PM »
It's always amusing when people complain about the MSM and how liberal it is without realizing that the most widely watched news source in the US is Foxnews, making it the mainstreamiest of the MSM.

MustacheAndaHalf

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Re: Any point to international allocation?
« Reply #21 on: June 20, 2021, 05:40:24 AM »
What does any of that Youtube-addled dipshittery have to do with international allocation?

... confident Comrad Bernie and the Bar Tender (could be a sitcom title) are far left of even our left.

Also, the left in the US is 100% about identity politics.
This is not the politics section.  You are ignoring the topic, and making this about your own political views rather than international investing.