Don't fall into the trap of convincing yourself to hold less international stocks, because VTSAX companies also sell products internationally. Those same international stocks also sell products to the US, but does anyone ever make the argument that you aren't truly exposed to the US if you don't own international? These are all just rationalizations for a home-bias, to keep all your money in the US.
Interest Compound, you always provide a lot of useful information.
(1) Do you know the percentage of total world market cap that MSCI EAFE represents? It's not "total international," so part of the reason I'm asking the question is to consider moving closer to the correct percentage of world market cap that it represents.
(2) As noted above, it is interesting to me that the view about investing to match world market cap is not held with nearly the same fervor that indexing is. I don't know if that's because of a lack of evidence (which would seem surprising), but it includes comments by a lot of intelligent people. As referenced in the Vanguard white paper, even their 20% recommendation was just a "better than most people are currently doing," although I don't think peak data got them to 50/50. I'm not saying it's anything more than home bias, but in a world where numbers can be used to prove points, I'm surprised by the lack of ringing endorsement. Could just be home bias--but a little surprising, right?
(3) For whatever reason, international has seriously lagged US for a number of years. While I'm less interested in the relatively short-term nature of that in the long-term investment horizon, it raises an interesting question. Are the valuations just really off for one index or the other? Or is there something different about the rest of world? Specifically, if you take your efficient market hypothesis (which I buy) to its logical conclusion, wouldn't US companies and international companies of comparable size eventually move their products to the same markets (within a reasonable margin, anyway)? If US companies aren't inherently any better than international companies, and they can both reasonably identify which markets are best, why would there be such a discrepancy in their performance over a 10+ year timeframe? That's something I just haven't been able to logic out, unless the argument is that yes, US companies have been better, but maybe not going forward?
(4) Your analysis showing a US portfolio going to zero is with withdrawals, correct? I'm in the "not needing that money for a while" phase, so I've focused less on volatility at this point. That matters to me more post-retirement, although I know there are a bunch of posts about having the same investments pre-retirement, but we don't need to rehash that. The one thing I understood is that over most 30-year periods, holding some percentage of international up to 50% has never increased returns by more than, e.g., a percentage point. Is that correct? It's not a reason not to do it, but it might explain why there's less cheerleading for holding international than e.g., indexing in general.
Again, as I stated in the beginning of this thread, I get that international logically makes sense, and indeed I moved a lot of money over last month after starting this thread. But I was surprised by the lack of support for what seems like the rationally correct position.
1. Source:
Vanguard Total World Index Fund -
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0628#tab=2Source:
MSCI EAFE -
https://www.msci.com/eafeNow we put them together:
Austria - 0.1%
Belgium - 0.5%
Denmark - 0.6%
Finland - 0.4%
France - 2.8%
Germany - 2.7%
Ireland - 0.1%
Israel - 0.2%
Italy - 0.7%
Netherlands - 1.0%
Norway - 0.2%
Portugal - 0.1%
Spain - 1.0%
Sweden - 1.0%
Switzerland - 2.9%
United Kingdom - 6.5%
Australia - 2.4%
Hong Kong - 1.2%
Japan - 8.1%
New Zealand - 0.1%
Singapore - 0.5%
Total estimated world market cap of MSCI EAFE: 33.01%
2. Not surprised. Most people are afraid of things foreign to them, and Survivorship Bias is one helluva drug.
3. A 10 year timeframe is nothing. Sometimes International wins, and sometimes Domestic wins. It all depends on when you're looking. Had you sat down in January 2014 and ran the numbers, you'd see International ahead since 1971! 43 years of International outperformance!
Instead you're looking at it today, just when Domestic crossed over and started winning:
It all depends on your timeline - when you're looking. You can't predict which country will outperform in the future, just like you can't predict which stock will outperform in the future. Heck, you can't even predict your own personal timeline! The only way to win this game, is to not play. Market-weight is the only thing that makes sense to me. If you want to start at market-weight as a baseline, then tilt towards a home-bias to account for currency fluctuations like Vanguard does, that sounds reasonable. But even then, Vanguard's all-in-one (Lifestrategy and Target Retirement) funds are currently 60/40 US/International...will that really make an appreciable difference from the market-weight 53.5/46.5 ?
Just go market-weight. Then you don't have to worry about rebalancing between them. They will automatically balance themselves :)
4. Yes, those are with withdrawals. There have only been 14 thirty-year periods between now and 1971 when international data (as far as I know) first became available. And they are all very much overlapping on each other. Even then, if it increased returns, and you aren't worried about volatility...why not?
Looking at some 30+ year time periods (through the end of 2015):
The money you invested in Jan 1971 - has made 10% a year
The money you invested in Jan 1972 - has made 9% a year
The money you invested in Jan 1973 - has made 10% a year
The money you invested in Jan 1974 - has made 11% a year
The money you invested in Jan 1975 - has made 10% a year
The money you invested in Jan 1976 - has made 10% a year
The money you invested in Jan 1977 - has made 10% a year
The money you invested in Jan 1978 - has made 9% a year
The money you invested in Jan 1979 - has made 10% a year
The money you invested in Jan 1980 - has made 9% a year
The money you invested in Jan 1981 - has made 10% a year
The money you invested in Jan 1982 - has made 10% a year
The money you invested in Jan 1983 - has made 9% a year
The money you invested in Jan 1984 - has made 10% a year
The money you invested in Jan 1985 - has made 8% a year
I'm not sure what you're expecting out of the stock market. Those are some pretty good numbers.