Author Topic: International stocks... a good bet or not?  (Read 2522 times)

DieHard_772

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International stocks... a good bet or not?
« on: September 06, 2018, 12:47:08 PM »
Hey All,
I've been investing for a few years now, I have some IRAs and a HSA for me and my wife.
The IRAs are currently in Vanguard Target Date funds, which splits between US and International Stocks (and a bit of bonds).  The HSA is divided among Vanguard US, International, and bond funds.

Recently I have been noticing the negative returns on the international market as compared to the US market.
Looking back at some historical data from Vanguard funds, it also seems that US stocks have historically returned better than International.   (Or am i missing something? not an expert on it, just happened to look at a few Vanguard funds for comparison).

I'm guesstimating I am probably about 1/3 in International stocks right now.
I am wondering if in the future I may focus more on US stocks and less on International stocks.  What stops me from making a change right now is the thought that if I sell international stocks, I will probably regret it more when the International market goes back up than if I just hold what I got.
(Jason Zweig in his book "Your Money and Your Brain" talks about how humans tend to regret losing something they had more than NOT having something they never had).

What do you think about International stocks? Are my concerns too narrow, or outdated?  Are International stocks the way of the future?  (Of course, I know we can't know for sure which way the market is going to go).   Or simply another way to diversify?  Or is a more US-focused portfolio ideal?

 Ideas and feedback appreciated.
Thanks

tarheeldan

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Re: International stocks... a good bet or not?
« Reply #1 on: September 06, 2018, 01:03:51 PM »
There are some institutional/framework factors that make the US a favorable market to invest in (deep financial markets, property rights, etc.) and many argue that the fact that US companies have an international footprint mean you can go 100% domestic.

However, personally, I am optimistic that these institutional factors will improve abroad, and either way the US makes up about 54% of the total global stock market - so I don't want to miss out on the other 46%. In terms of performance:


appleshampooid

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Re: International stocks... a good bet or not?
« Reply #2 on: September 06, 2018, 02:06:41 PM »
Hey All,
I've been investing for a few years now, I have some IRAs and a HSA for me and my wife.
The IRAs are currently in Vanguard Target Date funds, which splits between US and International Stocks (and a bit of bonds).  The HSA is divided among Vanguard US, International, and bond funds.

Recently I have been noticing the negative returns on the international market as compared to the US market.
Looking back at some historical data from Vanguard funds, it also seems that US stocks have historically returned better than International.   (Or am i missing something? not an expert on it, just happened to look at a few Vanguard funds for comparison).

I'm guesstimating I am probably about 1/3 in International stocks right now.
I am wondering if in the future I may focus more on US stocks and less on International stocks.  What stops me from making a change right now is the thought that if I sell international stocks, I will probably regret it more when the International market goes back up than if I just hold what I got.
(Jason Zweig in his book "Your Money and Your Brain" talks about how humans tend to regret losing something they had more than NOT having something they never had).

What do you think about International stocks? Are my concerns too narrow, or outdated?  Are International stocks the way of the future?  (Of course, I know we can't know for sure which way the market is going to go).   Or simply another way to diversify?  Or is a more US-focused portfolio ideal?

 Ideas and feedback appreciated.
Thanks
This comes up every so often here and on any board. On Bogleheads it's a pretty frequent point of discussion. Long story short: US has performed better recently. International performed better for most of the 80s and 00s (which you can see in tarheeldan's graph).

Personally, I have 25% of my equity position in international. I find it to be a good diversifier, and past results aren't indicative of future performance. Really it's a personal decision. Some very smart people (e.g. Bogle, Buffet, JL Collins) have said they don't believe holding international is a net win. But on the other side, all of the big investment firms include international in their target-date funds.

Here's the most recent thread on the Boglehead forums. It's 20 pages, so strap in!
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=256423

DieHard_772

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Re: International stocks... a good bet or not?
« Reply #3 on: September 06, 2018, 02:12:19 PM »
There are some institutional/framework factors that make the US a favorable market to invest in (deep financial markets, property rights, etc.) and many argue that the fact that US companies have an international footprint mean you can go 100% domestic.

However, personally, I am optimistic that these institutional factors will improve abroad, and either way the US makes up about 54% of the total global stock market - so I don't want to miss out on the other 46%. In terms of performance:


Thanks for the ideas, @tarheeldan.  Your diagram does suggest better returns over all for US stocks, with notable exceptions. Obviously past performance is no indication of future results.
Vanguard Target Date funds seem to agree with you about taking advantage of international.  I see your point about the other 46%. Still collecting ideas.
« Last Edit: September 06, 2018, 02:29:05 PM by DieHard_772 »

DieHard_772

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Re: International stocks... a good bet or not?
« Reply #4 on: September 06, 2018, 02:16:48 PM »
Hey All,
I've been investing for a few years now, I have some IRAs and a HSA for me and my wife.
The IRAs are currently in Vanguard Target Date funds, which splits between US and International Stocks (and a bit of bonds).  The HSA is divided among Vanguard US, International, and bond funds.

Recently I have been noticing the negative returns on the international market as compared to the US market.
Looking back at some historical data from Vanguard funds, it also seems that US stocks have historically returned better than International.   (Or am i missing something? not an expert on it, just happened to look at a few Vanguard funds for comparison).

I'm guesstimating I am probably about 1/3 in International stocks right now.
I am wondering if in the future I may focus more on US stocks and less on International stocks.  What stops me from making a change right now is the thought that if I sell international stocks, I will probably regret it more when the International market goes back up than if I just hold what I got.
(Jason Zweig in his book "Your Money and Your Brain" talks about how humans tend to regret losing something they had more than NOT having something they never had).

What do you think about International stocks? Are my concerns too narrow, or outdated?  Are International stocks the way of the future?  (Of course, I know we can't know for sure which way the market is going to go).   Or simply another way to diversify?  Or is a more US-focused portfolio ideal?

 Ideas and feedback appreciated.
Thanks
This comes up every so often here and on any board. On Bogleheads it's a pretty frequent point of discussion. Long story short: US has performed better recently. International performed better for most of the 80s and 00s (which you can see in tarheeldan's graph).

Personally, I have 25% of my equity position in international. I find it to be a good diversifier, and past results aren't indicative of future performance. Really it's a personal decision. Some very smart people (e.g. Bogle, Buffet, JL Collins) have said they don't believe holding international is a net win. But on the other side, all of the big investment firms include international in their target-date funds.

Here's the most recent thread on the Boglehead forums. It's 20 pages, so strap in!
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=256423

Thanks for the thread link, @appleshampooid.  This is excellent.

PDXTabs

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Re: International stocks... a good bet or not?
« Reply #5 on: September 06, 2018, 03:02:37 PM »
Some very smart people (e.g. Bogle, Buffet, JL Collins) have said they don't believe holding international is a net win. But on the other side, all of the big investment firms include international in their target-date funds.

To be more specific, Vanguard is really big on international, which is ironic if it is true that Bogle is apposed.

My portfolio is market cap weighted, so ~48% international.

DieHard_772

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Re: International stocks... a good bet or not?
« Reply #6 on: September 06, 2018, 03:44:40 PM »
@appleshampooid, the Boglehead thread is reminding me of important investing principles that may have slipped my mind.  There is the problem of chasing performance.  Also the problem of past performance not being an indication of future results.  A principle of good buy-and-hold investing is, as Jason Zweig wrote, 'I don't know and I don't care.' Not having to get stuck in the performance chase. 

On the other hand, several people on the thread mention the importance of sticking to your Investment Policy Statement.  If yours says to invest in International, stay the course.  If not, then get out of International.  Looking at my IPS, I see nothing about international vs. US.  Perhaps this is the time for me to adopt a long-term strategy on the issue.

For the time being, I think the Target Date strategy is working fine.  This discussion is helping to calm my nerves, and remind me "don't just do something... sit there!"

Retire-Canada

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Re: International stocks... a good bet or not?
« Reply #7 on: September 06, 2018, 05:50:30 PM »
I'm guesstimating I am probably about 1/3 in International stocks right now.

What do you think about International stocks? Are my concerns too narrow, or outdated?  Are International stocks the way of the future?  (Of course, I know we can't know for sure which way the market is going to go).   Or simply another way to diversify?  Or is a more US-focused portfolio ideal?

 Ideas and feedback appreciated.
Thanks

I'm 80% international or 30% outside North America. I'm fine with that allocation. Any one area/country of the world having negative returns is normal and nothing to be concerned about. I'm investing with a 50yr time horizon. I have no idea what part(s) of the world will do well over that period of time so I am invested in the whole planet.

If international stocks are down I'll buy more.

Whatever you decide on for your asset allocation you need to have enough confidence in it that a few years of poor returns in one asset class doesn't have you feeling like changing course. Stocks are volatile. That's just part of the equation you have to deal with if you want the returns they offer. By diversifying globally you are more likely to have a smoother ride over the years.

UndergroundDaytimeDad

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Re: International stocks... a good bet or not?
« Reply #8 on: September 07, 2018, 07:22:34 AM »
There are some institutional/framework factors that make the US a favorable market to invest in (deep financial markets, property rights, etc.) and many argue that the fact that US companies have an international footprint mean you can go 100% domestic.
To elaborate on this, just do a mental walkthrough of what Nike, Apple, Google, J&J, Exxon are selling and where their customers are.  The answer for all of these companies is "all kinds of stuff, all over the world", but they just happen to be US based companies.  Basically this boils down to global exposure with the protection of US property rights, rule of law, etc that protect your investment.  You are still exposing yourself to the growing markets in Brazil, Vietnam, India, etc, while not limiting yourself to companies who only sell in Brazil, Vietnam...

You can see strong gains in young upstart companies in smaller markets, but the better business case tends towards sticking with North American based holdings, at least for me. 

CorpRaider

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Re: International stocks... a good bet or not?
« Reply #9 on: September 07, 2018, 09:14:06 AM »
Right now?  A good bet.  (valuations, base rates, expected returns, etc...).  Most of the time?  A pretty good diversifier.

shinn497

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Re: International stocks... a good bet or not?
« Reply #10 on: September 07, 2018, 05:06:05 PM »
Some very smart people (e.g. Bogle, Buffet, JL Collins) have said they don't believe holding international is a net win. But on the other side, all of the big investment firms include international in their target-date funds.

To be more specific, Vanguard is really big on international, which is ironic if it is true that Bogle is apposed.

My portfolio is market cap weighted, so ~48% international.

Betterment is also market cap weighted so i am in the same boat as you!

Retire-Canada

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Re: International stocks... a good bet or not?
« Reply #11 on: September 07, 2018, 06:03:59 PM »


Seems like a good time to post one of these charts showing asset class returns over time.

Cache_Stash

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Re: International stocks... a good bet or not?
« Reply #12 on: September 07, 2018, 06:14:20 PM »
Hey All,
I've been investing for a few years now, I have some IRAs and a HSA for me and my wife.
The IRAs are currently in Vanguard Target Date funds, which splits between US and International Stocks (and a bit of bonds).  The HSA is divided among Vanguard US, International, and bond funds.

Recently I have been noticing the negative returns on the international market as compared to the US market.
Looking back at some historical data from Vanguard funds, it also seems that US stocks have historically returned better than International.   (Or am i missing something? not an expert on it, just happened to look at a few Vanguard funds for comparison).

I'm guesstimating I am probably about 1/3 in International stocks right now.
I am wondering if in the future I may focus more on US stocks and less on International stocks.  What stops me from making a change right now is the thought that if I sell international stocks, I will probably regret it more when the International market goes back up than if I just hold what I got.
(Jason Zweig in his book "Your Money and Your Brain" talks about how humans tend to regret losing something they had more than NOT having something they never had).

What do you think about International stocks? Are my concerns too narrow, or outdated?  Are International stocks the way of the future?  (Of course, I know we can't know for sure which way the market is going to go).   Or simply another way to diversify?  Or is a more US-focused portfolio ideal?

 Ideas and feedback appreciated.
Thanks

Why would you invest a third of your saving into international?  That make no sense at all.  The US market has historically been better,  The US consumes 25% of the world's GDP and produces 25% with 5% of the population.  Do the math.

Radagast

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Re: International stocks... a good bet or not?
« Reply #13 on: September 07, 2018, 06:17:30 PM »
Posted at same time as R-C.

Another great depiction from Siamond at Bogleheads. I suspect people would not have been asking about 100% US so much as recently as 2012.

Or this:

Viking Thor

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Re: International stocks... a good bet or not?
« Reply #14 on: September 07, 2018, 09:34:00 PM »
Posted at same time as R-C.

Another great depiction from Siamond at Bogleheads. I suspect people would not have been asking about 100% US so much as recently as 2012.

Or this:

past performance does not indicate or guarantee future results, if it did then it wou!d be extremely easy to pick the best investments. Also international stocks are now a much greater value to earnings where as U.S are at historic highs. It's very possible international could outperform over the next 20-30 years, so many savvy investors choose to diversify.

Grog

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Re: International stocks... a good bet or not?
« Reply #15 on: September 08, 2018, 12:45:50 AM »
I am an European investor in a country with a tax treaty with the US (Switzerland). It doesn't matter how I slice it, if I buy VTI (total us stocks) I can get the fully dividend reimbursed. That means my TER is 0.04 %. With minimum commission to buy on IB (like 40 cents per transaction)

Any other ETF /country, if you include tax withholding L1/L2 it just makes for a larger TER of 0.2/0.3 % with VT.

So I'm going the opposite direction and invest as much as possible in the US. The developed market follow the same pattern more or less anyway.

I guess us citizen should look at the same stuff. I imagine international dividend suffer from 15-30% withholding which increase TER considerably

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Kalergie

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Re: International stocks... a good bet or not?
« Reply #16 on: September 08, 2018, 11:10:59 AM »
I am an European investor in a country with a tax treaty with the US (Switzerland).

Very interesting. How does this work? You claim it back when you file at the end of the year? Say you only earned dividends (no employment income or others), do you get the entire dividend withholding tax back or is there some sort of minimum Swiss tax?

harvestbook

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Re: International stocks... a good bet or not?
« Reply #17 on: September 08, 2018, 12:17:58 PM »
I just rebalanced from Total US into emerging markets. It hurt, and that's how I know it was the right thing to do. The fact that all these recent discussions makes me second-guess is enough reason to not do anything different than I was doing, back when I was dumber and happier and not reading lots of US vs. International threads.

Grog

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Re: International stocks... a good bet or not?
« Reply #18 on: September 08, 2018, 02:58:24 PM »
I am an European investor in a country with a tax treaty with the US (Switzerland).

Very interesting. How does this work? You claim it back when you file at the end of the year? Say you only earned dividends (no employment income or others), do you get the entire dividend withholding tax back or is there some sort of minimum Swiss tax?
They reduce the total tax amount due by the tax withhold by the irs. So 15% of the dividend.

US investor need to be careful on this because other countries have higher dividend. I never did the calculation for an US investor but an international ETf may have an hidden ter increase of 0.30-0.5% of dividend withholding.


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