Author Topic: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade  (Read 40087 times)

milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #100 on: June 23, 2015, 05:39:18 PM »


It's kind of an obvious example of logical inconsistency.

If you agree with the 99% tax example, you agree there's no logical inconsistency.  You don't disagree with the logic of the argument, just the premise (and therefore conclusion).

I've already conceded that it is a theoretical possibility that a world could exist where the magnitude of negatives surrounding international investment could outweigh a 700 basis point disadvantage for domestic stocks based on valuation.

Practically, however, in the real world there is no way to make a credible argument for Bogle's 2 contentions that are consistent.

a1smith

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #101 on: June 23, 2015, 05:43:55 PM »
Do you base all your investing decisions on the last 6 months of returns?  If not, I'm not sure why those numbers are relevant.

No.

I do vary my US/Intl AA since as we've discussed the efficient frontier for US/Intl varies with time.  Right now, I have made the same change that Vanguard has made this year: 60/40 for stocks, 70/30 for bonds.  Since I recently made the change I have been looking at it on a shorter term basis than usual.  I do keep an eye on US vs Intl performance and also look at efficient frontier to make slowly time varying changes to my US/Intl AA.

Cycling Stache

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #102 on: June 23, 2015, 07:10:48 PM »
I've done everything "wrong" to date so that I can do one thing right--not time the market.

I sold a bunch of stock in 2013 to make a large down-payment to buy a house.  That cost me well over $100,000 in lost market gains.

I paid off that house in 2 years despite the fact that the interest rate was 3%.  That probably cost me another $50,000 in lost market gains.

I borrowed from my TSP account the maximum amount to finish paying off the house, then paid that off in May.  That cost me about $5000 in lost market gains.

I got a large HELOC and drained all my emergency savings.  The checking and savings accounts went to their lowest balance since high school.

Why?

Because now ever excess dollar goes to my Vanguard total market index fund account.  I don't think about whether the timing is good--indeed, I suspect the timing is not good.  But since I have no other place for my money to go, it goes to the market.  Extra money?  To the market.  Really?  Yes, to the market.  What about Greece?  I don't care--to the market.  20% drop coming?  Probably, but to the market.  Every single paycheck from now until retirement--all excess to the market. 

I know behavioral economics is my--and most people's--weakness.  By paying off my house to address the one psychological concern I knew would really bug me--not being able to afford a place to live, I now feel like every dollar is non-essential.  Of course I'd like to retire early, and I'm aiming to do so.  But deep down, I know that if my investments collapse, I still earn way more than I spend, and I'm still debt free.

That allows me finally to invest without caring too much.  And I'm optimistic that will make me a much better investor.  Because I won't time the market!

arebelspy

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #103 on: June 23, 2015, 07:23:37 PM »
I've already conceded that it is a theoretical possibility that a world could exist where the magnitude of negatives surrounding international investment could outweigh a 700 basis point disadvantage for domestic stocks based on valuation.

Practically, however, in the real world there is no way to make a credible argument for Bogle's 2 contentions that are consistent.

I feel like we're back to the a priori confusion--we must be using terms differently.  :)

You may think that there is no practical way to make an argument based on the world today that Bogle's two contentions are consistent, but that isn't a logical inconsistency.

A logical inconsistency is something like:
If A&B, then C
A&B, therefore penguin.

This case is more like if A&B, then C. A&B, therefore C. And you dispute A&B as being accurate (or saying both don't exist in the world today), and therefore saying it's logically/internally inconsistent.  It's not.

The point that I am making here is really one of internal consistency. 

This is the logical inconsistency.

If you find this to be internally consistent on St Jack's behalf, fair enough, but it's certainly not so on the basis of any rules of logic that I am aware of.

In such a world ... Bogle's reasoning would be sound.

In the actual reality based world, though, it is not.

It's kind of an obvious example of logical inconsistency.

That's what brooklynguy was pointing out.  Again, it may be a definition problem, like the a priori confusion from earlier.  But there is no logical or internal inconsistency.  Even if you disagree that his premises are true, Jack's reasoning is sound.
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milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #104 on: June 23, 2015, 08:33:10 PM »

I've already conceded that it is a theoretical possibility that a world could exist where the magnitude of negatives surrounding international investment could outweigh a 700 basis point disadvantage for domestic stocks based on valuation.

Practically, however, in the real world there is no way to make a credible argument for Bogle's 2 contentions that are consistent.

I feel like we're back to the a priori confusion--we must be using terms differently.  :)

You may think that there is no practical way to make an argument based on the world today that Bogle's two contentions are consistent, but that isn't a logical inconsistency.

A logical inconsistency is something like:
If A&B, then C
A&B, therefore penguin.

This case is more like if A&B, then C. A&B, therefore C. And you dispute A&B as being accurate (or saying both don't exist in the world today), and therefore saying it's logically/internally inconsistent.  It's not.

The point that I am making here is really one of internal consistency. 

This is the logical inconsistency.

If you find this to be internally consistent on St Jack's behalf, fair enough, but it's certainly not so on the basis of any rules of logic that I am aware of.

In such a world ... Bogle's reasoning would be sound.

In the actual reality based world, though, it is not.

It's kind of an obvious example of logical inconsistency.

That's what brooklynguy was pointing out.  Again, it may be a definition problem, like the a priori confusion from earlier.  But there is no logical or internal inconsistency.  Even if you disagree that his premises are true, Jack's reasoning is sound.

You were correct until your last sentence. Then you overreached.

There may be no logical inconsistency in philosophical terms, but jack's reasoning is far from sound. It's about 688 basis points from being sound.

And if you disagree with that premise, then try to make the case. Not based on a theoretical world in which there are different tax rates for foreign and domestic equities, but on the actual world we live in.

I've conceded the abstract point.  That ship has sailed. Now please, try to make a practical one.


a1smith

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #105 on: June 23, 2015, 09:10:33 PM »
A logical inconsistency is something like:
If A&B, then C
A&B, therefore penguin.

Not enough data presented to determine whether consistent or not.

If C=penguin then it is consistent!  :-)

milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #106 on: June 23, 2015, 09:15:57 PM »

A logical inconsistency is something like:
If A&B, then C
A&B, therefore penguin.

Not enough data presented to determine whether consistent or not.

If C=penguin then it is consistent!  :-)

Good point!

arebelspy

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #107 on: June 23, 2015, 10:34:22 PM »

You were correct until your last sentence. Then you overreached.

There may be no logical inconsistency in philosophical terms, but jack's reasoning is far from sound. It's about 688 basis points from being sound.

And if you disagree with that premise, then try to make the case. Not based on a theoretical world in which there are different tax rates for foreign and domestic equities, but on the actual world we live in.

I've conceded the abstract point.  That ship has sailed. Now please, try to make a practical one.

lol. It's like talking to a brick wall. It's okay to admit you're wrong sometimes.  :)

Especially because I think you two are in agreement with everything except semantics, but you don't want to be wrong about your use of "sound logic"/"logical inconsistency" so you refuse to admit it and try to change the point.  But I think you both agree that Jack's in error in his analysis.

Never mind. Have a good day miles. Feel free to post again if you have to have the last word, as seems to be the case. I'm done. :)
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milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #108 on: June 23, 2015, 11:29:39 PM »

You were correct until your last sentence. Then you overreached.

There may be no logical inconsistency in philosophical terms, but jack's reasoning is far from sound. It's about 688 basis points from being sound.

And if you disagree with that premise, then try to make the case. Not based on a theoretical world in which there are different tax rates for foreign and domestic equities, but on the actual world we live in.

I've conceded the abstract point.  That ship has sailed. Now please, try to make a practical one.

lol. It's like talking to a brick wall. It's okay to admit you're wrong sometimes.  :)

Especially because I think you two are in agreement with everything except semantics, but you don't want to be wrong about your use of "sound logic"/"logical inconsistency" so you refuse to admit it and try to change the point.  But I think you both agree that Jack's in error in his analysis.

Never mind. Have a good day miles. Feel free to post again if you have to have the last word, as seems to be the case. I'm done. :)

ARS

Whatevs dude.

I've already conceded the semantic point.  Feel free to read the thread again.  Sadly, neither you, Brooklyn, nor anyone else has been able to come up with a real world scenario in which Bogle's 2 contentions are in any way consistent.  My honest belief is that there's a good reason for this:  They aren't.

So for those keeping score at home here it is.

1. I have admitted that Bogles arguments are not technically "logically inconsistent."  Mea culpa.  Case closed.
2. No one has stepped up to the plate and even imagined a real world scenario in which his 2 claims are in any way consistent.  But since the absence of proof is not the proof of absence, I will concede, the case remains open.


brooklynguy

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #109 on: June 24, 2015, 05:01:29 AM »
You were correct until your last sentence. Then you overreached.

There may be no logical inconsistency in philosophical terms, but jack's reasoning is far from sound.

Uh, the last sentence was just another way of saying the same thing as the sentences before it.  "His reasoning is sound" means the same thing as "there are no errors in his logic" (which is true even if there are errors in his premises).

Sadly, neither you, Brooklyn, nor anyone else has been able to come up with a real world scenario in which Bogle's 2 contentions are in any way consistent. 

That's because, as I've said with every post, I agree with you that Bogle is wrong!  (Though I still wouldn't chose to characterize his opinions as not being consistent - I just think they are not both correct.)  As I said multiple times, I was merely making the limited point that his argument is not "logically inconsistent."  That's all.  You can't seem to take yes for an answer :)

milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #110 on: June 24, 2015, 10:01:29 AM »

You were correct until your last sentence. Then you overreached.

There may be no logical inconsistency in philosophical terms, but jack's reasoning is far from sound.

Uh, the last sentence was just another way of saying the same thing as the sentences before it.  "His reasoning is sound" means the same thing as "there are no errors in his logic" (which is true even if there are errors in his premises).

Sadly, neither you, Brooklyn, nor anyone else has been able to come up with a real world scenario in which Bogle's 2 contentions are in any way consistent. 

That's because, as I've said with every post, I agree with you that Bogle is wrong!  (Though I still wouldn't chose to characterize his opinions as not being consistent - I just think they are not both correct.)  As I said multiple times, I was merely making the limited point that his argument is not "logically inconsistent."  That's all.  You can't seem to take yes for an answer :)

This is beyond frustrating and we are obviously just talking past each-other despite both of our best efforts.

I don't know how else to say it.

I have conceded that I was not semantically accurate when I said Bogle was logically inconsistent, because one can Imagine a scenario such as your 99% tax scenario in which his logic makes perfect sense.

The point that I have always been making is that in the world as it actually exists it is indefensible to argue the valuations matter to the tune of 700 basis points a year, and then to argue that it is also unwise to diversify internationally because it costs 12 basis points a year when international equities are at their long-term average valuation, and thus should be expected to have average returns going forward long-term. (I.e. using Bogle's logic, they should be expected to outperform domestic stocks by about 700 basis points a year based on valuation alone.)

Ie Where is the missing 700 basis point disadvantage to international diversification?

Whether or not you agree with me about international diversification is immaterial. The question is whether or not anyone can come up with a credible scenario in which Bogle's logic makes sense numerically.

It is an open question.

brooklynguy

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #111 on: June 24, 2015, 11:14:04 AM »
This is beyond frustrating and we are obviously just talking past each-other despite both of our best efforts.

I don't know how else to say it.

I have conceded that I was not semantically accurate when I said Bogle was logically inconsistent, because one can Imagine a scenario such as your 99% tax scenario in which his logic makes perfect sense.

The point that I have always been making is that in the world as it actually exists it is indefensible to argue the valuations matter to the tune of 700 basis points a year, and then to argue that it is also unwise to diversify internationally because it costs 12 basis points a year when international equities are at their long-term average valuation, and thus should be expected to have average returns going forward long-term. (I.e. using Bogle's logic, they should be expected to outperform domestic stocks by about 700 basis points a year based on valuation alone.)

Ie Where is the missing 700 basis point disadvantage to international diversification?

Whether or not you agree with me about international diversification is immaterial. The question is whether or not anyone can come up with a credible scenario in which Bogle's logic makes sense numerically.

It is an open question.

Ok, I will try again, because my point was that Bogles opinions are logically consistent (even though I disagree with them) in the real world as it actually exists, and the fantasy hypothetical was only intended to illustrate why that is so.

These are Bogles contentions, as I understand them:

 - The US equity markets are currently highly valued, such that they will return little to nothing over the next decade.

- Using the same valuation methodology used to reach the above conclusion, foreign equity markets are relatively undervalued (again, I dont think Ive ever read Bogle make this point, but Im sure he would agree with it, because it is indisputable on its face).

 - Nevertheless, US investors should avoid investing in foreign markets, because [insert host of reasons] (I inserted some illustrative examples of these reasons in my first post, including cost, but as you point out, cost cannot be the primary reason, or even all that important of a reason, because the cost differential is relatively small.  So the other (mostly qualitative) reasons must be more important e.g., better governmental stability, more efficient and transparent capital markets, superior legal, regulatory and accounting regimes, etc. - and they collectively outweigh the potential outsized returns that valuations would suggest foreign markets have to offer.  Or, said differently, the expected risk-adjusted return of foreign markets is not higher than the US.)

The argument in bullet # 3 (which is based on reality, not hypotheticals) is not inconsistent with the arguments in bullets 1 and 2.  That was the only point I was making.

Now, again, I disagree with the argument in bullet # 3.  I think Bogle is wrong to take an active investment approach in the selection of geographic markets to invest in, for the same reasons that he advocates taking a passive investment approach in the selection of stocks within the selected market it is extremely difficult to know which ones will prove to be the best picks in the future.  Bogles argument is betting that the US will continue to outperform in the future based on circumstances that exist today.  Someone taking the same approach a century ago would have avoided investing in the US and put all their eggs in the British Empire.  So, for the same reasons that Bogle advocates buying the market instead of trying to pick winners among individual stocks, I believe it makes sense to diversify internationally instead of trying to pick winners among geographic markets.  So I agree with you, and disagree with Bogle, but not because I see an inconsistency in the three bullet points above instead, its because I disagree with the argument being made in bullet # 3.  Make sense?

milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #112 on: June 24, 2015, 11:41:04 AM »
What does not make sense is where the 688 basis point per annum deficit in performance comes from.

Is better government stability worth 500 basis points a year, and if so why has the U.S. outperformed more stable governments with longer histories like Britain?

I'm asking you to make a specific credible case for where this performance deficit is to be made up.

Try to make the case. It ain't easy. (Which is my point precisely)

Make sense?


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brooklynguy

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #114 on: June 24, 2015, 12:19:10 PM »
What does not make sense is where the 688 basis point per annum deficit in performance comes from.

Is better government stability worth 500 basis points a year, and if so why has the U.S. outperformed more stable governments with longer histories like Britain?

I'm asking you to make a specific credible case for where this performance deficit is to be made up.

Try to make the case. It ain't easy. (Which is my point precisely)

Make sense?

Well, I think Bogle's answer would have to be either that (i) you can't use the same valuation methodology to predict future returns in the U.S. and in other markets on an apples-to-apples basis (because of reasons like the accounting discrepancies referenced earlier in this thread, or some other reason) or (ii) yes, governmental stability plus the sum total of all the other reasons Bogle has for preferring the U.S. (whatever those are) are worth at least 688 basis points a year.  If the valuation methodology of choice alone indicated enormous expected returns in the Republic of Wadiya, for instance, that wouldn't necessarily be a good reason to invest in that market, because the expected risk-adjusted return (reflecting all the known risks) is still low.

But this is all devil's advocacy, because, again, I disagree with Bogle on the foreign investment point, and I also disagree that ten-year-forward returns can necessarily be predicted with any reasonable certainty based on any valuation methodology.

https://www.youtube.com/watch?v=ZjibEkDoXQc

Which one am I:  the Dude, or John Goodman?

milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #115 on: June 24, 2015, 12:38:20 PM »

What does not make sense is where the 688 basis point per annum deficit in performance comes from.

Is better government stability worth 500 basis points a year, and if so why has the U.S. outperformed more stable governments with longer histories like Britain?

I'm asking you to make a specific credible case for where this performance deficit is to be made up.

Try to make the case. It ain't easy. (Which is my point precisely)

Make sense?

Well, I think Bogle's answer would have to be either that (i) you can't use the same valuation methodology to predict future returns in the U.S. and in other markets on an apples-to-apples basis (because of reasons like the accounting discrepancies referenced earlier in this thread, or some other reason) or (ii) yes, governmental stability plus the sum total of all the other reasons Bogle has for preferring the U.S. (whatever those are) are worth at least 688 basis points a year.  If the valuation methodology of choice alone indicated enormous expected returns in the Republic of Wadiya, for instance, that wouldn't necessarily be a good reason to invest in that market, because the expected risk-adjusted return (reflecting all the known risks) is still low.

But this is all devil's advocacy, because, again, I disagree with Bogle on the foreign investment point, and I also disagree that ten-year-forward returns can necessarily be predicted with any reasonable certainty based on any valuation methodology.

https://www.youtube.com/watch?v=ZjibEkDoXQc

Which one am I:  the Dude, or John Goodman?

Fair enough.

And I will just posit that Bogle doesn't really believe that accounting discrepancies, governmental variability and currency risk constitute a 688 basis point per annum advantage in expected returns for domestic over foreign equities.

Impossible to prove that to be the case though.


arebelspy

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #116 on: June 24, 2015, 12:45:05 PM »
https://www.youtube.com/watch?v=ZjibEkDoXQc

I thought of that one, but this seemed more fitting to me by this point:
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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #117 on: June 24, 2015, 01:03:29 PM »
Cycling Stache, that was a great post.  I basically made all the same "mistakes" that you made, and now have a paid-off house with everything going "to the market!" on blindfolded autopilot.  Oh well, at least its a lot less stressful this way :)

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #118 on: June 24, 2015, 01:46:46 PM »
https://www.youtube.com/watch?v=ZjibEkDoXQc

Which one am I:  the Dude, or John Goodman?

I'm flexible.  :)  Whatever tickles your fancy.  This exchange just reminded me of that scene.

Although it's tough to beat Reb's gif.

a1smith

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #119 on: June 24, 2015, 03:03:01 PM »
...., and then to argue that it is also unwise to diversify internationally because it costs 12 basis points a year when international equities are at their long-term average valuation, ....

Actually, it only costs 9 additional basis points a year to invest in international equities.

VTI - 0.05% ER
VT - 0.17% ER   which gives you 12 basis points.  However, VT is 51.2% US stocks; 9 of the top 10 holdings are US. Only Nestle is in the top 10.
VXUS - 0.14% ER gives you a 9 basis point difference.  It is 100% international.

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #120 on: June 24, 2015, 03:24:02 PM »
...., and then to argue that it is also unwise to diversify internationally because it costs 12 basis points a year when international equities are at their long-term average valuation, ....

Actually, it only costs 9 additional basis points a year to invest in international equities.

VTI - 0.05% ER
VT - 0.17% ER   which gives you 12 basis points.  However, VT is 51.2% US stocks; 9 of the top 10 holdings are US. Only Nestle is in the top 10.
VXUS - 0.14% ER gives you a 9 basis point difference.  It is 100% international.

I would argue that VT is the only of those 3 that is internationally diverified.  VTI has no non US equities, and VXUS has no US equities.  Diversifying internationally does not mean divesting from the US entirely.

arebelspy

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #121 on: June 24, 2015, 03:32:58 PM »
Couldn't you do 50% VTI and 50% VXUS and thus average the ERs to get a 0.095% overall ER, which is only costing you 4.5 basis points above the domestic only?
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a1smith

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #122 on: June 24, 2015, 03:36:28 PM »
...., and then to argue that it is also unwise to diversify internationally because it costs 12 basis points a year when international equities are at their long-term average valuation, ....

Actually, it only costs 9 additional basis points a year to invest in international equities.

VTI - 0.05% ER
VT - 0.17% ER   which gives you 12 basis points.  However, VT is 51.2% US stocks; 9 of the top 10 holdings are US. Only Nestle is in the top 10.
VXUS - 0.14% ER gives you a 9 basis point difference.  It is 100% international.

I would argue that VT is the only of those 3 that is internationally diverified.  VTI has no non US equities, and VXUS has no US equities.  Diversifying internationally does not mean divesting from the US entirely.

It is the only one of the three that is diversified on its own.  I use VTI and VXUS to diversify; that way I can choose the US/Intl AA that I desire.  Right now, I am using 60/40 US/Intl, same as Vanguard.

So, my effective ER is (0.6)(0.05%) + (0.4)(0.14%) = 0.086%.  Therefore, as mentioned, it costs 9 additional basis points a year to invest in international equities.  To invest in a diversified portfolio with the US/Intl AA I want only costs an additional 3.6 basis points.

In fact, using VTI and VXUS you can create an equivalent VT that has lower expense ratio.  VTI has 51.2% US.  So, if you buy 51.2% VTI and 48.8% VXUS you only pay 0.094% which saves you 7.6 basis points of expense ratio.

a1smith

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #123 on: June 24, 2015, 03:37:53 PM »
Couldn't you do 50% VTI and 50% VXUS and thus average the ERs to get a 0.095% overall ER, which is only costing you 4.5 basis points above the domestic only?

We cross-posted.  Great idea, eh?  :-)

milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #124 on: June 24, 2015, 03:42:48 PM »
Couldn't you do 50% VTI and 50% VXUS and thus average the ERs to get a 0.095% overall ER, which is only costing you 4.5 basis points above the domestic only?

Sure you could, And I don't understand off hand why VT is more expensive than VXUS at all.  Since VT is > 50 % US equities (the cheaper side of the equation) shouldn't it be cheaper than VXUS?

Either way, it only makes Bogle's argument all the harder to defend!

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #125 on: June 24, 2015, 03:47:00 PM »
Regarding VXUS, 19 countries make up >90% of the portfolio.  I am comfortable investing in all of these countries.

With respect to the previous comment regarding Turkey's accounting, Turkey only makes up 0.3% of VXUS so I am not concerned.

Country   Allocation   Cumulative
Japan   17.0%   17.0%
United Kingdom   14.8%   31.8%
Canada   6.6%   38.4%
Switzerland   6.2%   44.6%
France   6.1%   50.7%
Germany   5.9%   56.6%
China   5.2%   61.8%
Australia   4.9%   66.7%
Korea   3.1%   69.8%
Taiwan   3.1%   72.9%
Hong Kong   2.7%   75.6%
India   2.2%   77.8%
Spain   2.2%   80.0%
Sweden   2.1%   82.1%
Netherlands   2.0%   84.1%
Italy   1.8%   85.9%
South Africa   1.6%   87.5%
Brazil   1.5%   89.0%
Denmark   1.2%   90.2%

clifp

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #126 on: June 24, 2015, 04:07:18 PM »
Regarding VXUS, 19 countries make up >90% of the portfolio.  I am comfortable investing in all of these countries.

With respect to the previous comment regarding Turkey's accounting, Turkey only makes up 0.3% of VXUS so I am not concerned.

Country   Allocation   Cumulative
Japan   17.0%   17.0%
United Kingdom   14.8%   31.8%
Canada   6.6%   38.4%
Switzerland   6.2%   44.6%
France   6.1%   50.7%
Germany   5.9%   56.6%
China   5.2%   61.8%
Australia   4.9%   66.7%
Korea   3.1%   69.8%
Taiwan   3.1%   72.9%
Hong Kong   2.7%   75.6%
India   2.2%   77.8%
Spain   2.2%   80.0%
Sweden   2.1%   82.1%
Netherlands   2.0%   84.1%
Italy   1.8%   85.9%
South Africa   1.6%   87.5%
Brazil   1.5%   89.0%
Denmark   1.2%   90.2%

I think your confidence maybe misplaced. I'd say that only the Scandinavian countries, Germany, and the Commonwealth countries, have level of financial reporting that is standard for US companies. Obviously, Enron, many banks, and variety of other companies show that that isn't a guarantee. The higher level of transparency and credibility lowers the risk of investing in US equities and justifies a higher P/E for US companies.  This is in addition to the ofter higher growth prospect of US (especially tech) companies compared to their European counterparts.

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #127 on: June 24, 2015, 04:34:49 PM »
Sure you could, And I don't understand off hand why VT is more expensive than VXUS at all.  Since VT is > 50 % US equities (the cheaper side of the equation) shouldn't it be cheaper than VXUS?

A fund's expense ratio (at least at Vanguard) isn't just some number plucked out of the air based on what the fund managers think they can get away with. It's the expenses of running the fund divided by the assets within the fund. Many fund expenses are fixed, and do not scale linearly with the growth of the fund. Thus, bigger funds will tend to have lower ERs because of the basic mathematical truth that occurs when the denominator in a fraction grows.

Total fund assets:
VTI: $410.8B
VXUS: $166.8B
VT: $7.3B

Since VT is still just a little baby, it suffers from a higher ER. As it grows, its ER should come down.

milesdividendmd

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #128 on: June 24, 2015, 04:40:08 PM »
Sure you could, And I don't understand off hand why VT is more expensive than VXUS at all.  Since VT is > 50 % US equities (the cheaper side of the equation) shouldn't it be cheaper than VXUS?

A fund's expense ratio (at least at Vanguard) isn't just some number plucked out of the air based on what the fund managers think they can get away with. It's the expenses of running the fund divided by the assets within the fund. Many fund expenses are fixed, and do not scale linearly with the growth of the fund. Thus, bigger funds will tend to have lower ERs because of the basic mathematical truth that occurs when the denominator in a fraction grows.

Total fund assets:
VTI: $410.8B
VXUS: $166.8B
VT: $7.3B

Since VT is still just a little baby, it suffers from a higher ER. As it grows, its ER should come down.

Great explanation.  Makes perfect sense.  Thanks.

a1smith

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #129 on: June 24, 2015, 08:51:40 PM »
Regarding VXUS, 19 countries make up >90% of the portfolio.  I am comfortable investing in all of these countries.

With respect to the previous comment regarding Turkey's accounting, Turkey only makes up 0.3% of VXUS so I am not concerned.

Country   Allocation   Cumulative
Japan   17.0%   17.0%
United Kingdom   14.8%   31.8%
Canada   6.6%   38.4%
Switzerland   6.2%   44.6%
France   6.1%   50.7%
Germany   5.9%   56.6%
China   5.2%   61.8%
Australia   4.9%   66.7%
Korea   3.1%   69.8%
Taiwan   3.1%   72.9%
Hong Kong   2.7%   75.6%
India   2.2%   77.8%
Spain   2.2%   80.0%
Sweden   2.1%   82.1%
Netherlands   2.0%   84.1%
Italy   1.8%   85.9%
South Africa   1.6%   87.5%
Brazil   1.5%   89.0%
Denmark   1.2%   90.2%

I think your confidence maybe misplaced. I'd say that only the Scandinavian countries, Germany, and the Commonwealth countries, have level of financial reporting that is standard for US companies. Obviously, Enron, many banks, and variety of other companies show that that isn't a guarantee. The higher level of transparency and credibility lowers the risk of investing in US equities and justifies a higher P/E for US companies.  This is in addition to the ofter higher growth prospect of US (especially tech) companies compared to their European counterparts.

Let me add a little more detail to my statement -  I am comfortable investing with Vanguard in all of these countries since I believe they have people familiar with all of the vagaries of investing in the countries the fund owns stock in.

I removed the countries you listed and these remain:  Japan, Switzerland, France, China, Korea, Taiwan, Hong Kong, Spain, Netherlands, Italy, Brazil.

Looking at one of your previous posts . . .

I'll also say that I'm one of the least conservative investors on the forum: individual securities, microcap stocks, peer to peer lending, hard money loans, real estate, angel investment, VC funds, margin loans, shorting stocks, leverage closed end funds, structured investments, junk bonds, virtually every type of option.  Other than day trading, and buying options on VIX futures,  there is pretty much nothing that I haven't bought or sold over the decades. I am also much closer to a perma bull than perma bear.

Do you think that all of these types of investing in the US are less risky than passive investing in the foreign countries that remain?  I agree that some of the remaining countries have growing pains (especially China) but Japan, Switzerland, France?



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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #130 on: June 24, 2015, 11:52:24 PM »

Regarding VXUS, 19 countries make up >90% of the portfolio.  I am comfortable investing in all of these countries.

With respect to the previous comment regarding Turkey's accounting, Turkey only makes up 0.3% of VXUS so I am not concerned.

CountryAllocationCumulative
Japan17.0%17.0%
United Kingdom14.8%31.8%
Canada6.6%38.4%
Switzerland6.2%44.6%
France6.1%50.7%
Germany5.9%56.6%
China5.2%61.8%
Australia4.9%66.7%
Korea3.1%69.8%
Taiwan3.1%72.9%
Hong Kong2.7%75.6%
India2.2%77.8%
Spain2.2%80.0%
Sweden2.1%82.1%
Netherlands2.0%84.1%
Italy1.8%85.9%
South Africa1.6%87.5%
Brazil1.5%89.0%
Denmark1.2%90.2%

I think your confidence maybe misplaced. I'd say that only the Scandinavian countries, Germany, and the Commonwealth countries, have level of financial reporting that is standard for US companies. Obviously, Enron, many banks, and variety of other companies show that that isn't a guarantee. The higher level of transparency and credibility lowers the risk of investing in US equities and justifies a higher P/E for US companies.  This is in addition to the ofter higher growth prospect of US (especially tech) companies compared to their European counterparts.

Let me add a little more detail to my statement -  I am comfortable investing with Vanguard in all of these countries since I believe they have people familiar with all of the vagaries of investing in the countries the fund owns stock in.

I removed the countries you listed and these remain:  Japan, Switzerland, France, China, Korea, Taiwan, Hong Kong, Spain, Netherlands, Italy, Brazil.

Looking at one of your previous posts . . .

I'll also say that I'm one of the least conservative investors on the forum: individual securities, microcap stocks, peer to peer lending, hard money loans, real estate, angel investment, VC funds, margin loans, shorting stocks, leverage closed end funds, structured investments, junk bonds, virtually every type of option.  Other than day trading, and buying options on VIX futures,  there is pretty much nothing that I haven't bought or sold over the decades. I am also much closer to a perma bull than perma bear.

Do you think that all of these types of investing in the US are less risky than passive investing in the foreign countries that remain?  I agree that some of the remaining countries have growing pains (especially China) but Japan, Switzerland, France?

I think it's hilarious that any of us would imagine that we have the ability to judge the health of other countries capital systems/accounting practices enough to pick winners and losers.

Have at it boys!

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #131 on: June 25, 2015, 09:13:04 AM »
I think it's hilarious that any of us would imagine that we have the ability to judge the health of other countries capital systems/accounting practices enough to pick winners and losers.

Have at it boys!

That's exactly why I'm perfectly happy letting VXUS do it for me; I don't have the inclination, time, experience, or resources to do international investing myself and be adequately diversified.

And, if some of the companies go belly up VXUS is invested in 5888 stocks so the impact should be minimal.

Vanguard Total International Stock ETF (VXUS) - Portfolio & Management

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #132 on: June 25, 2015, 10:01:14 AM »
If you are comfortable investing in Brazil at the moment you are either a) a crazed maniac, b) a genius, or c) not paying attention.

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #133 on: June 25, 2015, 10:59:08 AM »
If you are comfortable investing in Brazil at the moment you are either a) a crazed maniac, b) a genius, or c) not paying attention.

If you think you can successfully predict the future performance of a cap weighted Brazil index you are either;

1. Overconfident
2. Foolish
3. All of the above

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #134 on: October 22, 2015, 09:29:38 PM »
Not sure if this has been posted elsewhere or not but felt this was an appropriate thread to resurrect.

Video of Christine Benz discussing this topic with Jack Bogle last week.

http://www.morningstar.com/cover/videocenter.aspx?id=718639

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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #135 on: October 22, 2015, 10:46:25 PM »
Not sure if this has been posted elsewhere or not but felt this was an appropriate thread to resurrect.

Video of Christine Benz discussing this topic with Jack Bogle last week.

http://www.morningstar.com/cover/videocenter.aspx?id=718639

Thanks for posting that video.  So in Bogles own word's he feels that international markets are not worth investing in because there are less investor protections, Foreign contrie's have unique risks, and the US is more innovative.  Essentially he's pedaling US exceptionalism.  Which is funny because in Japan all of the home field bias investor's believe in Japanese exceptionalism, and Germans believe in German exceptionalism, etc...

So on one hand he calculates forward US returns using Dividend yield, expected earnings growth, and valuation, but he discounts the role of valuation in international markets because of all or these gestalt feelings about non US economies that are completely non quantitative. 

It just strikes me as an obvious example of one man's cognitive bias.  We all have them, even Jack.


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Re: Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #136 on: October 23, 2015, 09:11:19 AM »
It just strikes me as an obvious example of one man's cognitive bias.

At the risk of triggering an infinite loop of semantical debate, I don't see how this is an example of cognitive bias, which Wikipedia defines as follows:

Quote from: Wikipedia
A cognitive bias refers to a systematic pattern of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion.

As I said in response to your first post in this thread claiming that Bogle is irrational for concurrently believing that the U.S. equity market is overvalued and that investors should not diversify outside the U.S.:

There is no logical inconsistency in Bogle's argument.  Now, I'm not saying I agree with it (because I don't - I think it's a smart idea to diversify internationally), but there are a host of reasons why one could believe (with logical consistency) that it makes sense to passively invest in the U.S. to the exclusion of foreign markets (some of which I find more compelling than others), including, but not limited to, the following:

- it costs less
- the U.S. has the world's most robust and transparent equity markets
- the U.S. has more established governmental and legal institutions
- U.S. investments will expose U.S.-resident investors to less currency risk

Bogle advocates for an active investment approach when it comes to selecting the jurisdiction in which to invest even though he advocates for a totally passive investing approach when it comes to investing within that selected jurisdiction.  As I said, I don't completely buy his argument (because in doing so you're basically betting that the reasons for preferring the U.S. will persist into the future), but there is no logical inconsistency in holding both opinions simultaneously.

You and I may both disagree with Bogle about the advisability of taking a strictly active investment approach in the selection of one's universe of investment jurisdictions, but there is nothing irrational or illogical about (and therefore no cognitive bias in) believing that one should take such an approach even if you simultaneously believe that one should take a strictly passive investment approach when selecting investments within that universe.

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Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade
« Reply #137 on: October 23, 2015, 10:25:31 AM »
Brooklyn, as fun as it was to debate the semantics of "logical inconsistency" I don't think I have it in me to go for pages on the accuracy of my use of cognitive bias.

Needless to say I believe my use was accurate.

Home field bias fits very neatly into the category of cognitive biases, based on the definition you have shared.

In my view Bogle's argument is a text book example of homefield bias as it is practiced all over the world.

It is striking how he completely ignores his own model for expected returns as soon as he moves from us to international equities.

He doesn't argue that earnings growth will be less internationally, or that PE multiples are any less likely to revert to the mean, or that expenses are different. He just completely ignores his own model.

And this observation has nothing to do with whether you or I disagree with Bogle about international diversification. This has to do with Bogle's own internal inconsistency.
« Last Edit: October 23, 2015, 11:05:35 PM by milesdividendmd »