Author Topic: I don't want to invest internationally.  (Read 15142 times)

heybro

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I don't want to invest internationally.
« on: October 05, 2014, 05:39:17 PM »
Am I stupid?
I just don't want to invest internationally.  All those risks like "currency exchange" and "political uncertainty."  Plus, I read that the  S P 500 outperforms international indexes.  Sure, there may be a great opportunity, but I think I'd rather place my "aggressive growth" bucket in to small/mid cap.
Am I stupid?

wtjbatman

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Re: I don't want to invest internationally.
« Reply #1 on: October 05, 2014, 05:46:38 PM »
heybro, you're not stupid. It's perfectly legitimate to invest solely in the country that represents 50% of the world's market value, while avoiding currency risk (as you brought up), increased expense ratios/transaction fees, and liquidity risk in emerging markets. Plenty of people in much smaller countries invest a significant percentage of their portfolio in their home market and survive retirement. You'll be safe investing in the S&P 500 and some of the largest and most diverse companies in the world. And plenty of investors overweight mid and small cap to achieve higher returns.

Dodge

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Re: I don't want to invest internationally.
« Reply #2 on: October 05, 2014, 06:38:39 PM »
Am I stupid?
I just don't want to invest internationally.  All those risks like "currency exchange" and "political uncertainty."  Plus, I read that the  S P 500 outperforms international indexes.  Sure, there may be a great opportunity, but I think I'd rather place my "aggressive growth" bucket in to small/mid cap.
Am I stupid?

If international stocks outperformed the S&P 500 over the last few years, would you still feel this way?  If not, then you're just chasing recent performance.  The way I see it, why would I invest in Ford and Chevy and skip Honda, Toyota, and BMW?

sheepstache

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Re: I don't want to invest internationally.
« Reply #3 on: October 05, 2014, 06:56:36 PM »
But currency exchange goes both ways. Potential downsides and potential upsides.

cheapdad

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Re: I don't want to invest internationally.
« Reply #4 on: October 05, 2014, 07:29:32 PM »
I'm with you on investing American only.  I'm sure there are lost opportunities but I believe in America and feel safe investing here.  With all the wars and Isis and whatever going on now, I just feel better investing in America.  Plus America is unique geographically that keeps us safer than other countries from attack.  I feel better investing in America so that is what I do. Even if other countries have better returns, I will invest in America.  For added risk and gains I invest in mid caps or reits.

foobar

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Re: I don't want to invest internationally.
« Reply #5 on: October 05, 2014, 08:24:46 PM »
Am I stupid?
I just don't want to invest internationally.  All those risks like "currency exchange" and "political uncertainty."  Plus, I read that the  S P 500 outperforms international indexes.  Sure, there may be a great opportunity, but I think I'd rather place my "aggressive growth" bucket in to small/mid cap.
Am I stupid?

Political uncertainty and currency risks all seem like a good reason not to invest in the US. :) If you look at past history, the S&p 500 doesn't outperform international. It goes in cycle and whichever one is hot (currently US stocks, in the mid 2000s it was international) outperforms the other. Who knows if that trend will continue.

Placing a focused bet on one country is a high risk strategy. If you pick right, you get more cash. Pick wrong and you don't. You can decide if you want to do that versus go for an average performance. Food for thought. If you run trinity type retirement studies and you put ~25% of your money in international, you have a 4.3% SWR instead of a 4%. You can decide if an almost 10% increase is worth it or not.

Dodge

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I don't want to invest internationally.
« Reply #6 on: October 05, 2014, 08:30:03 PM »
Food for thought. If you run trinity type retirement studies and you put ~25% of your money in international, you have a 4.3% SWR instead of a 4%. You can decide if an almost 10% increase is worth it or not.

Fascinating! Source?

heybro

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Re: I don't want to invest internationally.
« Reply #7 on: October 05, 2014, 10:42:45 PM »
So in some years International is UP and in some years US is up.
OKAY, so...
If I am ONLY in US.  When it is up, I am buying high.  When it does down, I am buying low.  Buying low IS GOOD. 

I just don't understand why it has to be so complicated.  Why not just pick US Total Stock Index or S/P 500 index.  To me, the goal is to put money in the stock market and dollar cost average to beat inflation.  Why does there have to be so many "alternate" places.  If I am going to go to a theme park, why don't I just go to the theme park.  Why do I have to go to the boat show "just in case" I don't like the Theme Park.  If I really feel that way, why not just go to the boat show.  In other words, no one invests 100 percent internationally.  So, why do it at all?

heybro

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Re: I don't want to invest internationally.
« Reply #8 on: October 05, 2014, 10:44:41 PM »
Am I stupid?
I just don't want to invest internationally.  All those risks like "currency exchange" and "political uncertainty."  Plus, I read that the  S P 500 outperforms international indexes.  Sure, there may be a great opportunity, but I think I'd rather place my "aggressive growth" bucket in to small/mid cap.
Am I stupid?

If international stocks outperformed the S&P 500 over the last few years, would you still feel this way?  If not, then you're just chasing recent performance.  The way I see it, why would I invest in Ford and Chevy and skip Honda, Toyota, and BMW?

If the S/P was down right now, I"d be buying like crazy.  Buy low and sell high, right?

surfhb

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Re: I don't want to invest internationally.
« Reply #9 on: October 06, 2014, 02:11:06 AM »
Not stupid but since you can't see what the future holds you're making a poor guess....maybe....possibly....who knows?  :)

IMO it's best to diversify and that means holding some international.   

heybro

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Re: I don't want to invest internationally.
« Reply #10 on: October 06, 2014, 02:20:37 AM »
Best to diversify?  But where does it stop?

How does holding international stocks actually help you?

This is the reason I have heard:
If the US Stock Market crashes, at least you will have your money in International Stock. [Of course International could go down at the same time.]
Problem is, I don't care if the US Stock Market crashes.  For one, if it did, I'd be able to buy stocks at record low prices.  For two, I'd never have more money than I could afford to lose in any stocks be in US or International.  Even if I did, I don't think "buying international stock" is my silver bullet to not losing anything.

What am I missing? 
« Last Edit: October 06, 2014, 02:22:11 AM by heybro »

RapmasterD

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Re: I don't want to invest internationally.
« Reply #11 on: October 06, 2014, 02:39:11 AM »
You're already investing globally when you buy an S&P 500 index, given that most companies on the index derive a significant portion of their revenues internationally. Read some quarterly financial statements where they talk about the impact of currency fluctuations on their performance. They're already diversified. As a former international investor I went US only a few years ago for one reason, simplicity. I don't compare international indexes. I really don't care. This is not the area where I get the most leverage.

Louisville

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Re: I don't want to invest internationally.
« Reply #12 on: October 06, 2014, 06:53:08 AM »
Where does diversification stop? The efficient frontier. If one buys some international stock and some US stock and some real estate and some so on, one is buying uncorelated assets. That's the point of diversification - holding uncorelated assets decreases volatility without hitting performance.
Now, how uncorelated US and world stocks are at this point in history can be debated.

Bernstien, a favorite around here:
http://www.amazon.com/Intelligent-Asset-Allocator-Portfolio-Maximize/dp/0071362363/ref=sr_1_1?s=books&ie=UTF8&qid=1412599853&sr=1-1&keywords=intelligent+asset+allocator


sheepstache

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Re: I don't want to invest internationally.
« Reply #13 on: October 06, 2014, 08:21:25 AM »
So in some years International is UP and in some years US is up.
OKAY, so...
If I am ONLY in US.  When it is up, I am buying high.  When it does down, I am buying low.  Buying low IS GOOD. 

But if you're also buying international then when you rebalance you buy whichever one is low. If they were 100% uncorrelated, that means you'd constantly be buying low. They're not completely uncorrelated, of course, that's just a simplified way of looking at the concept.

Bob W

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Re: I don't want to invest internationally.
« Reply #14 on: October 06, 2014, 09:00:06 AM »
Most of the S and P 500 companies that fly a US flag are international concerns.  Although some are relocating to avoid taxes.   So if you own companies like Coke,  IBM,  Apple,  Oracle,  Facebook,  3M,  etc.  you are diversified internationally.  But in my opinion you are simply going to have exactly average returns.   

You ought to look at Switzerland.   Very nice businesses there.  IMHO you will have significantly better returns and also benefit from the currency exchange as time moves forward. 

Since the US is inflating currency and the Swiss have zero inflation, it might be of interest to you.  It is the most expensive country in the world and has the highest PCI.   


Dodge

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Re: I don't want to invest internationally.
« Reply #15 on: October 06, 2014, 09:57:33 AM »
I used to feel the same way, the S&P 500 does business internationally, I already have international exposure.  I did much research on this, and finally was convinced against this idea.  If Samsung ends up crushing Apple in mobile phones, causing Apple stock to drop 75% while Samsung's stock on the South Korean exchange soars, will it really matter that Apple also sells phones in China?

You mentioned in the other thread, that you're investing based on "gut instinct", and If you can't stand the heat of 100% stocks, why are you investing at all (something like that).  In this thread it seems you also have an all-or-nothing approach, "no one invests 100 percent internationally.  So, why do it at all?"

If you're serious about investing your life savings, I recommend at least reading Vanguard's white paper on "Considerations for investing in non-U.S. equities"

https://personal.vanguard.com/pdf/icriecr.pdf

There might be a valid justification to go 100% stocks, but these aren't it.
« Last Edit: October 06, 2014, 09:59:16 AM by Dodge »

milesdividendmd

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Re: I don't want to invest internationally.
« Reply #16 on: October 06, 2014, 12:48:29 PM »
You are not dumb.  Plenty of smart people have made similar arguments, including Jack Bogle.

But In my opinion you are mistaken.

First of all it is a stretch to say that the US has significantly outperformed the rest of the world over long time horizons.  The last 4 years have been ones of relative outperformance for the US stock market, but if you are a believer in reversion to the mean this should be a cause for concern, not celebration for owning a home field bias portfolio.

http://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&IntlStockMarket2=100&endYear=2013&annualAdjustment=0&portfolio3=Custom&initialAmount=10000&s=y&startYear=1972&portfolio2=Custom&portfolio1=Custom&annualOperation=0&TotalStockMarket1=100&mode=2

Second of all the idea that you are invested internationally while investing domestically because of multinational corporations has it exactly backwards in my view.  While you can buy exposure to the international market with expensive (at this time) american stocks you can equally buy exposure to the american market with relatively inexpensive international stocks.

I shade a little bit towards america (60/40) simply because for americans, domestic stocks are a little cheaper.

Here are my more complete thoughts  on this subject...

http://www.milesdividendmd.com/turning-japanese/

Enjoy



« Last Edit: October 07, 2014, 12:33:36 AM by milesdividendmd »

foobar

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Re: I don't want to invest internationally.
« Reply #17 on: October 06, 2014, 01:04:55 PM »
Food for thought. If you run trinity type retirement studies and you put ~25% of your money in international, you have a 4.3% SWR instead of a 4%. You can decide if an almost 10% increase is worth it or not.

Fascinating! Source?

I can't find the paper but here is a similiar one: http://raddr-pages.com/research/InternationalDiversificationImprovesSWR.htm . The idea is basically that the 70s are the rate limiting factor so if you shove in something that did better the than US large caps you can up the rate.

To help understand this, mess around with portfoliovisualizer. Since 1972, US(10.35) and international(10.44) have had pretty much the same return.But look at the following charts which show what happens if your taking 4.5%/yr out of 50/50 stock/bond portfolios (note if the data went back to 1966 it would be worse)

http://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&annualOperation=2&endYear=2013&initialAmount=10000&TotalBond3=50&TotalBond2=50&TotalBond1=50&IntlStockMarket2=50&IntlStockMarket3=25&portfolio3=Custom&portfolio2=Custom&portfolio1=Custom&TotalStockMarket3=25&TotalStockMarket1=50&annualAdjustment=500&startYear=1972

Note how the US guy goes bankrupt in 2008 while the international (30x of expenses) and diversified(~15 years of expenses) are still going strong. This isn't saying international is better than US. That is just a random timing thing of starting when the US was weak and international was strong. You either gamble you can make that call correctly or you diversify.

Note that international isn't the only thing that ups your rate.  Overweighting small caps (both international and US) will also bump you up a few tenths of a point. And of course you can look at the recent valuation studies and take a couple points off for current market levels:)





soccerluvof4

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Re: I don't want to invest internationally.
« Reply #18 on: October 06, 2014, 04:22:43 PM »
Diversify, Diversify, Diversify!!

heybro

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Re: I don't want to invest internationally.
« Reply #19 on: October 07, 2014, 01:46:13 AM »
OH boy, I am going to keep firmly to my International Stock - 25% currently.
Thank You all You staches!  Anyone need a good trim?  Apes groom each other to bond socially.  Let me at you! hehe

Kaspian

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Re: I don't want to invest internationally.
« Reply #20 on: October 07, 2014, 02:17:02 PM »
Diversify, Diversify, Diversify!!

Amen!  From 2000 to 2013, international equities outperformed US equities 10 of 14 times.  71% of the time.  Yeah, you should probably stay away from that.  :/

flashpacker

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Re: I don't want to invest internationally.
« Reply #21 on: October 07, 2014, 11:47:06 PM »
Wow this is an enlightening thread. I had been thinking the same way as the OP but that backtest data is pretty compelling.

pom

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Re: I don't want to invest internationally.
« Reply #22 on: October 08, 2014, 12:41:40 AM »
It is an international game out there for companies. Long gone is the time where competition was local.

Dodge mentionned it earlier, Apple competes with Samsong, a diversified investor will want to buy both.


soccerluvof4

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Re: I don't want to invest internationally.
« Reply #23 on: October 08, 2014, 04:42:54 AM »
Here is a good write up by a dividend investor on international exposure for your read

http://www.dividendgrowthinvestor.com/   Is international overrated? is the name of the article. Lists a few of the companies exposure in the S&P 500 and there Exposure rate. Think you will be surprised.

foobar

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Re: I don't want to invest internationally.
« Reply #24 on: October 08, 2014, 06:57:19 AM »
Here is a good write up by a dividend investor on international exposure for your read

http://www.dividendgrowthinvestor.com/   Is international overrated? is the name of the article. Lists a few of the companies exposure in the S&P 500 and there Exposure rate. Think you will be surprised.

And it works the other way. Buy european stocks and you get a lot of US exposure. But you get different political and currency exposure. The article has one of the big myths about international exposures: diversification will help you during crashes (2007-early 2009). Stock diversification has not helped in the past and probably will not in the future during big crashes. It does help during extend periods of underperformance though.

If I had to pick out a stocks and buy them on foreign exchanges then yeah I might stick buying international. When all it requires is writing a check to vanguard, it is hard to pass up the opportunity to do so. Yes there will be 10 year periods where it underperforms US only. There will also be 10 year periods when it out performs. Over the next 50 years, odds are they will about equal out.

acroy

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Re: I don't want to invest internationally.
« Reply #25 on: October 08, 2014, 07:48:38 AM »
45% + of S&P500 revenue is generated outside US of A

http://www.marketwatch.com/story/sp-500-is-the-best-international-play-2011-02-01

stick with 'Domestic' investment and you're still heavily diversified in offshore markets :)

Bob W

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Re: I don't want to invest internationally.
« Reply #26 on: October 08, 2014, 08:13:11 AM »

Rather than gauging future returns by looking at the past, it is better to look to the future.   Get out your crystal ball and determine which investments will have the greatest return in the future.  Then invest in those.   This is pretty simple really.   Buffet bought a stake in Bank of American when it had crashed 5 years ago at around 7.  Today it is around 16.  Boom. 

Regarding the Samsung vs Apple theory.  There is no doubt Samsung will come out ahead.  Samsung designs, markets and manufactures.  Apple is a design and marketing firm with outlandishly overpriced toys.  Their latest gadgets are a watch and "oh yeah, let's make a bigger screen phone like Samsung did 2 years ago."   

So there is absolutely no doubt that Samsung is the winner.   I don't track them so I don't know the stock prices but Samsung is probably not a buy as their victory would be baked in. 

What other crystal ball no brainers do folks reading this see today?  Anything a screaming buy? 

milesdividendmd

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Re: I don't want to invest internationally.
« Reply #27 on: October 08, 2014, 09:33:21 PM »


Rather than gauging future returns by looking at the past, it is better to look to the future.   Get out your crystal ball and determine which investments will have the greatest return in the future.  Then invest in those.   This is pretty simple really.   Buffet bought a stake in Bank of American when it had crashed 5 years ago at around 7.  Today it is around 16.  Boom. 

Regarding the Samsung vs Apple theory.  There is no doubt Samsung will come out ahead.  Samsung designs, markets and manufactures.  Apple is a design and marketing firm with outlandishly overpriced toys.  Their latest gadgets are a watch and "oh yeah, let's make a bigger screen phone like Samsung did 2 years ago."   

So there is absolutely no doubt that Samsung is the winner.   I don't track them so I don't know the stock prices but Samsung is probably not a buy as their victory would be baked in. 

What other crystal ball no brainers do folks reading this see today?  Anything a screaming buy?

This is great advice if you can predict the future.

Unfortunately you probably cannot pick the future.

Broad diversification (Including international exposure)is a good idea even if you cannot predict the future.

It's also easy to look backwards and define what the good stock picks were. All evidence suggests that it is not so easy to determine what the good stock picks will be in the future.

dragoncar

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sb_NoVA

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Re: I don't want to invest internationally.
« Reply #29 on: October 09, 2014, 01:11:49 AM »
Food for thought. If you run trinity type retirement studies and you put ~25% of your money in international, you have a 4.3% SWR instead of a 4%. You can decide if an almost 10% increase is worth it or not.

Fascinating! Source?

I can't find the paper but here is a similiar one: http://raddr-pages.com/research/InternationalDiversificationImprovesSWR.htm . The idea is basically that the 70s are the rate limiting factor so if you shove in something that did better the than US large caps you can up the rate.

To help understand this, mess around with portfoliovisualizer. Since 1972, US(10.35) and international(10.44) have had pretty much the same return.But look at the following charts which show what happens if your taking 4.5%/yr out of 50/50 stock/bond portfolios (note if the data went back to 1966 it would be worse)

http://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&annualOperation=2&endYear=2013&initialAmount=10000&TotalBond3=50&TotalBond2=50&TotalBond1=50&IntlStockMarket2=50&IntlStockMarket3=25&portfolio3=Custom&portfolio2=Custom&portfolio1=Custom&TotalStockMarket3=25&TotalStockMarket1=50&annualAdjustment=500&startYear=1972

Note how the US guy goes bankrupt in 2008 while the international (30x of expenses) and diversified(~15 years of expenses) are still going strong. This isn't saying international is better than US. That is just a random timing thing of starting when the US was weak and international was strong. You either gamble you can make that call correctly or you diversify.

Note that international isn't the only thing that ups your rate.  Overweighting small caps (both international and US) will also bump you up a few tenths of a point. And of course you can look at the recent valuation studies and take a couple points off for current market levels:)

Thanks!  Very informative.

daverobev

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Re: I don't want to invest internationally.
« Reply #30 on: October 10, 2014, 06:26:45 PM »
The US is arguably the only country where you don't need to invest 'internationally'.

Why? You're getting so many multinationals already.

There is still currency risk - when the USD is very strong, KO's profits are down when repatriated.

There's no reason not to buy internationally. But don't think you don't have worldwide exposure just by investing in the S&P500.

foobar

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Re: I don't want to invest internationally.
« Reply #31 on: October 11, 2014, 11:41:17 AM »
The US is arguably the only country where you don't need to invest 'internationally'.

Why? You're getting so many multinationals already.

There is still currency risk - when the USD is very strong, KO's profits are down when repatriated.

There's no reason not to buy internationally. But don't think you don't have worldwide exposure just by investing in the S&P500.

How did have a ton of multinationals (Sony, Canon, Honda, Toyota, Mitsubishi,...) who were getting most of their sales overseas for global exposure work out for the Japanese investor in 1989? Given the slow growth in the US and the huge currency risk (see how much the dollar had been devalued over the previous 20 years) why would any sane person invest in the US instead of nice Japanese stocks?:)

The basic premises is wrong. Sure international stocks have political and currency risks. Guess what? US stocks have the same risk. In the US you load all your political in currency risk into 1 country instead of 40. It might work out. It might not. But it is a risk you can protect yourself against. And no the US underperforming doesn't mean the rest of the world does (see the 70s or early 2000).

Mighty-Dollar

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Re: I don't want to invest internationally.
« Reply #32 on: October 13, 2014, 03:54:35 AM »
Am I stupid?
I just don't want to invest internationally.  All those risks like "currency exchange" and "political uncertainty."  Plus, I read that the  S P 500 outperforms international indexes.  Sure, there may be a great opportunity, but I think I'd rather place my "aggressive growth" bucket in to small/mid cap.
Am I stupid?
About 41% of S&P revenue is international.  So in that sense you are diversified internationally. Maybe that's why Warren Buffet says to buy an S & P 500 index fund to represent your stock bucket (perhaps VOO) and be done with it!

foobar

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Re: I don't want to invest internationally.
« Reply #33 on: October 13, 2014, 03:52:03 PM »
Am I stupid?
I just don't want to invest internationally.  All those risks like "currency exchange" and "political uncertainty."  Plus, I read that the  S P 500 outperforms international indexes.  Sure, there may be a great opportunity, but I think I'd rather place my "aggressive growth" bucket in to small/mid cap.
Am I stupid?
About 41% of S&P revenue is international.  So in that sense you are diversified internationally. Maybe that's why Warren Buffet says to buy an S & P 500 index fund to represent your stock bucket (perhaps VOO) and be done with it!

Maybe Warren says it because he is giving a quick sound bite answer:).  Sure 41% of revenue is international. Does that mean the US can't drastically trail international stocks? Here would be my answer.:)

http://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&annualOperation=2&endYear=2007&initialAmount=10000&IntlStockMarket2=50&portfolio3=Custom&portfolio2=Custom&portfolio1=Custom&TotalStockMarket2=50&TotalStockMarket1=100&annualAdjustment=400&startYear=2003

Long term (i.e. over the next 10 average 30 year rolling periods ) I expect the results to be about the same (+-.5%). But given I am exposed to the sequence of risks of one period, I want to diversify against that risk. Odds are it will not make or break retirement either way. But why take that risk?

blackomen

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Re: I don't want to invest internationally.
« Reply #34 on: December 17, 2014, 01:26:47 PM »
Most companies in the S&P500 derive their earnings from abroad..  so you're already exposed to the world economy.  Put up to 20% of your equities in an international or emerging markets fund if it makes you feel any better but I'll admit I have very little invested in actual international stocks and indices.

Jack

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Re: I don't want to invest internationally.
« Reply #35 on: December 17, 2014, 02:06:39 PM »
To decide whether to diversify internationally, I think it's helpful to first ask the question "why should you diversify at all?"

The traditional answer to that, of course, is "you should diversify because you can't (or at least, don't) know enough about each company to decide which will perform best."

So, what does that imply the analogous answer would be for international diversification? "You should diversify internationally because you can't (or at least, don't) know enough about each country to decide which will perform best."

The question is, do you believe that?

rmendpara

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Re: I don't want to invest internationally.
« Reply #36 on: December 17, 2014, 02:33:25 PM »
Am I stupid?
I just don't want to invest internationally.  All those risks like "currency exchange" and "political uncertainty."  Plus, I read that the  S P 500 outperforms international indexes.  Sure, there may be a great opportunity, but I think I'd rather place my "aggressive growth" bucket in to small/mid cap.
Am I stupid?

Investing in general is more about managing risk than maximizing returns. If I had tens of millions of dollars like Jack Bogle, or any other rich person, and I wanted a hands-free way of managing my wealth, I would probably take a similar approach and simply invest in US indices. I think Bogle was the one who made the comment regarding US vs Intl stock performance. Trust me, with a net worth of >50 million, dividends of 2% alone are making him over 1 million per year. So long as the US doesn't blow up, he's doing just fine.

For us regular people who need to take a more active approach in managing risk, it's much more important to diversify. By mixing in reasonable allocations to other investments (intl stocks, us bonds, intl stocks, alternatives, etc), you are giving up little long term returns while also having a lot less overall volatility in your portfolio value.

If you don't care about volatility... then feel free to do as you wish.

a1smith

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Re: I don't want to invest internationally.
« Reply #37 on: March 09, 2015, 10:52:44 PM »
The issue is owning companies that are based abroad, not owning US companies that derive some of their earnings from abroad.

As mentioned by Louisville in a post above, it is all about the efficient frontier.  By owning assets in US and abroad that are uncorrelated you maximize return and minimize volatility by owning 70% US / 30% international.  See http://www.bogleheads.org/wiki/Domestic/International for more discussion.  The 70/30 split is what most people use.  The 70/30 split varies with time.

Again, as mentioned by Louisville, there is a lot of discussion about whether or not international stocks are really uncorrelated anymore since there is so much global trade and interrelationships between countries.

Regarding 50% of the market being in the US -- that means 50% of the market is outside of the US.  Why ignore half of the global stock market?

Here is some really good data from the bogleheads link above:

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

Pretty compelling reason to invest abroad, I think.

Edit - I was just playing around with the efficient frontier plotter on PortfolioVisualizer and the efficient frontier curve is much different depending on what time period you choose.  The Bogleheads article uses 1970-2008 and that gives you around 70/30 split while maximizing return and reducing volatility.  However, if you look at 1992-2014 then you can minimize volatility by using 80/20 split but CAGR decreases from 9.43% to 8.83%.  So, for this time period you don't minimize volatility and maximize return simultaneously.

So, it looks like the minimum volatility (risk) point is about the same (70/30 to 80/20) but the maximum return point shifted from 70/30 to 100/0.  Here is where the crystal ball comes into play: what will the efficient frontier curve look like for future time periods?

See https://www.portfoliovisualizer.com/efficient-frontier?s=y&mode=1&assetClass1=TotalStockMarket&startYear=1992&verticalAxis=2&assetClass2=IntlStockMarket&fromOrigin=false&endYear=2014
« Last Edit: March 09, 2015, 11:43:16 PM by a1smith »

innerscorecard

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Re: I don't want to invest internationally.
« Reply #38 on: March 10, 2015, 12:08:27 AM »
The more worrying thing is that you changed your seemingly strong opinion so quickly. The most important in long-term investing based on asset allocation through index funds is staying the course and sticking to your plan, whatever it is. If you jump in and our based on what people say at the time (which is based on the fashion of the week), you'll get slaughtered.

Wolf359

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Re: I don't want to invest internationally.
« Reply #39 on: March 10, 2015, 10:04:11 AM »
Best to diversify?  But where does it stop?

How does holding international stocks actually help you?

This is the reason I have heard:
If the US Stock Market crashes, at least you will have your money in International Stock. [Of course International could go down at the same time.]
Problem is, I don't care if the US Stock Market crashes.  For one, if it did, I'd be able to buy stocks at record low prices.  For two, I'd never have more money than I could afford to lose in any stocks be in US or International.  Even if I did, I don't think "buying international stock" is my silver bullet to not losing anything.

What am I missing?
What if the S&P 500 doesn't crash?  What if it merely underperforms for a decade? 

I'm sure you've seen the data about stocks rarely having a 10-year period where they lose money.  You may also have seen the data that says that the long-term return for US stocks has been 7%.  However, you can't combine the two statements (US stocks will return 7% over the next 10 years.)  Does losing a decade of compounding have any effect on your plans?

If you put money into US stocks, foreign stocks, and treasuries 10 years ago, the foreign stocks would have outperformed for the first 3 years.  Treasuries were ahead for about 5 years.  US stocks only pulled ahead about 2 years ago.  US stocks have been in a bull market for 6 years, but it took four years to reach a point where it overcame its losses from 2008.  If you had a balanced portfolio on all three, you would have good returns with less volatility. 

Diversification doesn't prevent you from losing money.  It decreases volatility.  What's the impact of a lower standard deviation?  For example, St. Louis and Honolulu are cities with the same average temperature.  Honolulu's temperatures have a much lower standard deviation than St. Louis.  Which is the more pleasant city weather-wise?  Since they have the same average temperature, would you consider them to be in the same climate?

Right now foreign stocks appear poised to do better than US stocks.  Europe is engaging in Quantitative Easing.  The US dollar is high, and the US market has been in a bull market for 6 years.  That means that there's more upside to European equities than US equities.  If the Fed increases rates, more money will flow to the US, pushing the dollar up higher.  A high dollar is bad for US exports.

Will this actually play out?  I have no clue.  But I have positions in international, US, and treasuries no matter which way things go.

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Re: I don't want to invest internationally.
« Reply #40 on: March 10, 2015, 10:39:51 AM »
Given how convenient Vanguard has made it to invest internationally, I think it's crazy to not have at least some portion of your long-term equities invested in a diversified international fund. I don't think the US will go through a period like Japan has, but who knows? Why take that risk? I'd rather own the globe, for less volatility and less concentrated risk. If the US has a financial crisis, it is also likely to affect our ability to have employment-based income. I'd like to separate those risks a little. Sure, a US financial crisis will definitely impact the globe to some extent, but the exact nature of the crisis could mean that the international markets are less affected by it.

You could simply own the total international. Or if you are worried about political risk, etc, the developed markets fund is a quasi- international version of the 500 index fund (yes it has more stocks, but still very heavily weighted on the giant companies like Nestle, Novartis, Roche, Shell, Toyota, etc).

FastStache

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Re: I don't want to invest internationally.
« Reply #41 on: March 10, 2015, 11:06:08 AM »
Best to diversify?  But where does it stop?

How does holding international stocks actually help you?

This is the reason I have heard:
If the US Stock Market crashes, at least you will have your money in International Stock. [Of course International could go down at the same time.]
Problem is, I don't care if the US Stock Market crashes.  For one, if it did, I'd be able to buy stocks at record low prices.  For two, I'd never have more money than I could afford to lose in any stocks be in US or International.  Even if I did, I don't think "buying international stock" is my silver bullet to not losing anything.

What am I missing?
This set of thinking if fine and dandy when your portfolio is small, but not when it's large. If you have say 1 million invested and a crash happens, buying a few more shares at a discount isn't going to make a big difference.

So if you are diversified you could dump some out of the international into the domestic stocks which would likely be more beneficial then just buying at a discount.

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Re: I don't want to invest internationally.
« Reply #42 on: March 10, 2015, 12:52:52 PM »
The more worrying thing is that you changed your seemingly strong opinion so quickly. The most important in long-term investing based on asset allocation through index funds is staying the course and sticking to your plan, whatever it is. If you jump in and our based on what people say at the time (which is based on the fashion of the week), you'll get slaughtered.

Yes indeed.

a1smith

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Re: I don't want to invest internationally.
« Reply #43 on: March 10, 2015, 07:30:12 PM »
The more worrying thing is that you changed your seemingly strong opinion so quickly. The most important in long-term investing based on asset allocation through index funds is staying the course and sticking to your plan, whatever it is. If you jump in and our based on what people say at the time (which is based on the fashion of the week), you'll get slaughtered.

I'm not sure if you were directing this comment to me . . .  but if so, I currently have around 70/30 US/international.  I haven't changed it much for years.  The edit in my post was to present additional data, not change my opinion; I guess I should have been clear about that.  Having seen that data and also playing around with Vanguard's ETF asset allocator today (they have 70/30 split for stocks, 80/20 split for bonds) I am thinking about maybe changing it to 80/20.  I will research it more and may change it in a few months time.  As I said, the efficient frontier varies with time.

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Re: I don't want to invest internationally.
« Reply #44 on: March 10, 2015, 08:29:04 PM »
Most of the S and P 500 companies that fly a US flag are international concerns.  Although some are relocating to avoid taxes.   So if you own companies like Coke,  IBM,  Apple,  Oracle,  Facebook,  3M,  etc.  you are diversified internationally.  But in my opinion you are simply going to have exactly average returns.   

You ought to look at Switzerland.   Very nice businesses there.  IMHO you will have significantly better returns and also benefit from the currency exchange as time moves forward. 

Since the US is inflating currency and the Swiss have zero inflation, it might be of interest to you.  It is the most expensive country in the world and has the highest PCI.
This.

You are already exposed to international gains by owning multinational companies... that just happen to be based in the US. :)