Value: Domestic vs International stock index; Fidelity index fund differences

[YoungStache]

Is the international stock index undervalued?

The US stock index is at all-time highs while international is down from its last all-time high in December of 2017. I would like to regularly invest more capital but am unsure if I should weigh it more towards international now. International also has a higher dividend yield.

Also, does anyone invest in or know the best Fidelity international stock index fund? FSPSX (ER 0.035%) vs FTIHX (ER 0.06%) vs FZILX (ER 0.0%).

[Scortius]

I've always been interested in this question as well. Given that expected future returns are priced in, there's an idea that the future of international stocks (especially emerging ones) are expected to be poor. But, then there's the saying 'be greedy when others are fearful" and vice versa, and it seems like the the international market may be pricing in a very pessimistic future due to the recent dominance of the US market. If the US takes a bit of a hit, people may turn to international just by default as it becomes relatively more attractive.

There's also a number of good charts showing the cyclical nature of international vs. domestic performance. It seems to have a consistent level of oscillation.



Seems like you'd want to keep a decent distribution of each and make sure to rebalance semi-regularly at that (assuming of course that anything we see can ever be predictive in any way).

[Buffaloski Boris]

Here’s a tool. This website provides a snapshot of most world markets and allows you to compare them using average CAPE ratios, PE, and several other metrics. The US market is pricey. In my view there is more room for growth in international markets. Will they grow more relative to the US? I sure hope they do.

Overall, I think equities are expensive right now. IMHO it’s a good time to be diversified across countries and asset classes. Then again, it’s always a good time to be diversified.

https://www.starcapital.de/en/research/stock-market-valuation

[pecunia]

Seems like a long term trend that the rest of the world is rising faster.  Just look at China.  For those in for the long haul, international may make more money.

[Rob_bob]

Well since Jan. 2008 the CAGR of Vanguard Stock Total Market fund, VTI, is 8.98%
$10,000 would have grown to $27,854.

For Vanguard All World EX US, VEU, the CAGR is 1.81% and $10k grew to $12,381.

I have owned VTI since 2007 and only have seen my position in the Black a few months at a time here and there, mostly it's a few % in the Red.

Maybe the world markets will outperform the U.S. markets in the future, I hold VEU for diversification...as much as it pains me LOL.

https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults

[pecunia]

Which is better for diversification bonds or buying international index funds?  The chart given earlier shows when the US is bad that international may not be quite so bad.  Would the long term return be better than the bond thing?  More risk, but maybe better return?

[MustacheAndaHalf]

You can look at four categories of iShares ETFs to see growth vs value, and U.S. vs international.

US growth (IUSG)  p/e 26
US value (IUSV)    p/e 16
int'l growth (EFG)  p/e 21
int'l value (EFV)    p/e 11

There's a wide gap (according to etfdb data) between growth and value.  There's a smaller gap between U.S. and international.  To me, it looks like a good time to ensure you're holding at least 20% international - more if you're comfortable.  Note even if the stocks are in the same country as you, you don't have any better chance of predicting their future performance.  So the "home country bias" is a bit of an illusion, based on familiarity.

That said, China and U.S. have been very comparable in performance the past 3 years:

MCHI (MSCI China)  +48% over 3 years
IVV  (MSCI S&P 500) +49% over 3 years

Stock performance tends to be more volatile than bond performance, which means diversifying to international ETFs or mutual funds is more important than diversifying bonds.