Author Topic: International Index Yes or No?  (Read 4632 times)

flyersman

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International Index Yes or No?
« on: May 24, 2017, 01:26:07 PM »
I currently have a 2 Fund Portfolio consisting of US Index and US Bonds.

In reading articles, Bogle mentioned he doesnt see the need for a International Fund in a portfolio.

Can anyone explain why they are for this or against.

I currently have FSTVX and FSITX.

solon

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Re: International Index Yes or No?
« Reply #1 on: May 24, 2017, 01:34:09 PM »
The main argument against international stocks is that they are already well-represented in an S&P 500 fund, or a Total Stock Market fund. The S&P 500 is by definition the 500 largest companies in the US - Apple, Amazon, Microsoft, etc. These companies derive a significant portion of their income from international sources.

Plus, there is the additional currency risk, which you don't face in an all-US fund.

If you were to add an additional international fund, you would probably be over-exposed to international risk. I don't own an international fund for these reasons.

Yankuba

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Re: International Index Yes or No?
« Reply #2 on: May 24, 2017, 01:54:25 PM »
I love Bogle, but the next 100 years could belong to countries other than the USA. Just because USA has outperformed the world recently doesn't mean it will be true forever.

16% of my equity is international - all index funds. Some is large cap emerging market and some is large cap Europe, Asia and the Far East. There are many wonderful foreign companies, why not own them?

steveo

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Re: International Index Yes or No?
« Reply #3 on: May 24, 2017, 04:24:20 PM »
My opinion is that if you are in the US it probably isn't required to have an international index. If you are overseas it probably is required.

In stating that most stock markets will perform pretty similarly. If the US market is up then most other markets are going to be up.

When it comes to the optimal approach. I like the approach of Lars Kroijer who recommends an international index tracker and a bond index fund domiciled in your own currency. https://www.youtube.com/watch?v=_chiIIxMGl0&list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK

Eric

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Re: International Index Yes or No?
« Reply #4 on: May 24, 2017, 05:00:18 PM »
Yes, you should hold international as part of a diversified portfolio.  You obviously already believe in indexing, so you've decided that owning the whole market is best.  So why stop at the national borders?  There are tons of great companies not headquartered in the US.  Why would you decide to own Apple but not Samsung, Johnson & Johnson but not Unilever, or Ford but not Toyota, etc?

I don't think the argument that US companies have a lot of international exposure holds much water, since plenty of international companies have a lot of US exposure as well.  Yet you never hear anyone recommending that one only needs to hold international.  Why not?  It's the exact same argument.

LAGuy

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Re: International Index Yes or No?
« Reply #5 on: May 24, 2017, 05:45:01 PM »
Jack Bogle isn't God.  He just invented the index fund.

To each their own.

I'm about 60% international and 40% US right now.

I think the main argument for international is diversification, diversification, diversification.  Take a look at the companies on the international indexes.  Most of these are large profitable well run companies just like US companies.  And many of these companies derive a significant portion of their revenue from US sources. Also one poster mentioned currency risk, well I think unhedged international gives currency diversification. 

I think that right now International is considered the stinker so people are avoiding it.  This could mean it's undervalued.  P/E ratios are much lower in International.

Love the mention that unhedged is the way to go. That's the way I do it as well just as you said, for the diversification. And with the dollar only recently off of its highs international looks even better. And really, why would you even need a hedged international fund? You can get basically the same effect by just reducing your international exposure and buying more domestic. I'm 60/40 US/International.

Retire-Canada

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Re: International Index Yes or No?
« Reply #6 on: May 24, 2017, 06:25:42 PM »
I'm in Canada:

- Canada 30%
- US 50%
- Developed Int'l 10%
- Emerging Int'l 10%

bassman2003

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Re: International Index Yes or No?
« Reply #7 on: May 24, 2017, 06:37:44 PM »
Yes, you should hold international as part of a diversified portfolio.  You obviously already believe in indexing, so you've decided that owning the whole market is best.  So why stop at the national borders?  There are tons of great companies not headquartered in the US.  Why would you decide to own Apple but not Samsung, Johnson & Johnson but not Unilever, or Ford but not Toyota, etc?

I don't think the argument that US companies have a lot of international exposure holds much water, since plenty of international companies have a lot of US exposure as well.  Yet you never hear anyone recommending that one only needs to hold international.  Why not?  It's the exact same argument.

This, times a million!  I use the Toyota vs Ford (or other US manufacturer) all the time when discussing this.  There are a lot of fantastic companies outside the US I want to own.  Also, for some reason on this board (and others), we talk a lot about 'past gains do not guarantee future results", but somehow that stops when it comes to US vs international.  I don't predict the future, but I would honestly be surprised if US gains outpace international over the next 10-20 year period, similar to how the US has outpaced international over a similar time period recently.   The point is though, we don't know.  I do think it's interesting that Vanguard has upped their international % in many of their target date and balanced funds.  Used to be 70/30, now 60/40.  So maybe Jack Bogle doesn't own much international, but the massive company he founded has much different ideas.

PDXTabs

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Re: International Index Yes or No?
« Reply #8 on: May 24, 2017, 09:48:45 PM »
25% of my equities portfolio is in an index fund that Fidelity offers in my 401(k) that is designed to track the MSCI All Country World Index ex-U.S. Index.

MaaS

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Re: International Index Yes or No?
« Reply #9 on: May 24, 2017, 10:21:47 PM »
Yes, you should hold international as part of a diversified portfolio.  You obviously already believe in indexing, so you've decided that owning the whole market is best.  So why stop at the national borders?  There are tons of great companies not headquartered in the US.  Why would you decide to own Apple but not Samsung, Johnson & Johnson but not Unilever, or Ford but not Toyota, etc?

I don't think the argument that US companies have a lot of international exposure holds much water, since plenty of international companies have a lot of US exposure as well.  Yet you never hear anyone recommending that one only needs to hold international.  Why not?  It's the exact same argument.

Completely agreed.

Another benefit is that when the US and international markets diverge in valuations (i.e. now) there's an opportunity to rebalance back to your desired allocation, meaning you naturally sell high buy low.

NorthernBlitz

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Re: International Index Yes or No?
« Reply #10 on: May 25, 2017, 05:27:26 AM »
I think it probably depends on the value of your portfolio.

If diversifying means you don't have enough for admiral shares (or equivalent @ not Vanguard), I'd go all US. By this logic, if you were weighted 50/50, you'd need at least $20k. If you were 80/20, you'd need at least $50k.

I'd been struggling with this decision over the last year or so and eventually added international into my portfolio. My target allocation is 65/25/10 for US/int/bonds.

flyersman

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Re: International Index Yes or No?
« Reply #11 on: May 28, 2017, 10:29:54 PM »
Thats for the great replys.

Can you explain what you mean by taking a hedged vs unhedged position with domestic to international Ratio?

Currently I am rebalancing my portfolio around 80 / 20 (equity to bonds).

Equities will be split around 70% (FSTVX - https://fundresearch.fidelity.com/mutual-funds/summary/315911800) and 30% (FTIPX - https://fundresearch.fidelity.com/mutual-funds/summary/31635V653) in my taxable account & Roth IRA. Holding BSPIX and PTTRX in my 401K.


PizzaSteve

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Re: International Index Yes or No?
« Reply #12 on: May 29, 2017, 10:28:15 AM »
One of the arguements against international derives from differences in governance models leading to uncertainty of actual performance for some of the less developed regions, primarily on the dimensions of accounting and shareholder rights.

So, since US companies cover the globe and are regulated in ways that match US investor expectations, it is likely one is buying something closer to what they understand.  An international index contains some equities with murkier substance.

That said, global audit firms and International Financial Reporting Standards (IFRS, the global successor to GAAP, Generally Accepted Accounting Principles, the old US standard) are making hwadway to normalize the playing field.  In Bogle's prime, global firms outside of Europe and Japan had very hard to determine worth, since markets were less effective at governance.  This is changing, but still somewhat the case.