International Stock Index %

[modhatter]

I thought doing a search would pull up some posts on this, but didn't seem to find any devoted to this subject.

With all that is going down in China and Europe now, it becomes difficult to want to allocate very much to this segment.(but I know things ultimately change) In doing some research on the subject it seems to say that holding international stocks evens out the volatility, but depending on the % held, not all times. Also, US stocks over time have out performed international more times than not.

Also when speaking of selecting a % to hold such as 20% - 40%, I am assuming they are speaking of the % of your equity holding, not your combined equity/bond holdings. Am I correct in that?

It would be interesting to hear your perspective on this, and how did you arrive at your number.

Here is one such article on the subject. http://www.vanguard.com/pdf/ISGGEB.pdf

 

[LOL!]

I just try to use world market cap percentages, so US varies around 50% and international around 50% of equities. So I have about half my equities in foreign ETFs and funds.

I only see good things going up in China and Europe now. Am I missing something?

 

[W2R]

It would be interesting to hear your perspective on this, and how did you arrive at your number.

When I rebalance, I'll be able to buy MORE shares for the money. Basically my international fund (VFWAX, Vanguard's FTSE All World Ex-US Index Fund) is on sale. I try not to sell when something is down, since that is not generally advisable. If/when I rebalance I'm buying it instead.

As for my number, I read a lot of books about asset allocation, and the advisable percentage of one's equities to hold in US vs international. I chose an asset allocation that kept my international percentage on the lower end, because I have more faith in the US government than most people do.

 

[RockyMtn]

12% of total assets and 20% of equities. No real science to it...just a level that I am comfortable with.

 

[braumeister]

12% of total assets and 20% of equities. No real science to it...just a level that I am comfortable with.

I use the same sort of ultra-sophisticated allocation formula.
Mine is 10% of portfolio, 17% of equities.

 

[easysurfer]

I keep an arbitrary 1/3 of my equities in a total international index. I've heard that historically, international outperforms US, but more reward brings more risk.

 

[RunningBum]

https://www.fidelity.com/viewpoints/investing-ideas/more-international-stock

US has historically beaten international, but this article has a chart that shows 70/30 rebalanced monthly beats both. Few people recommend or actually rebalance that often, and maybe this is a matter of finding a mixed scenario that actually outperforms both. I'd be interested to see how yearly rebalancing performed.

The article also shows a graph that would suggest that a swing back to international may be coming, IF historical trends are followed. And it might not be a big or long swing.

In any case, I think selling off in bad times is very similar to chasing high returns. Selling low is not usually a good idea. Though perhaps you may think that China is fundamentally broken and Europe is not over its credit issues in Greece, Portugal, etc., and an AA change is in order, since selling low is not a bad idea if it stays low.

 

[audreyh1]

I thought doing a search would pull up some posts on this, but didn't seem to find any devoted to this subject.

With all that is going down in China and Europe now, it becomes difficult to want to allocate very much to this segment.(but I know things ultimately change) In doing some research on the subject it seems to say that holding international stocks evens out the volatility, but depending on the % held, not all times. Also, US stocks over time have out performed international more times than not.

Also when speaking of selecting a % to hold such as 20% - 40%, I am assuming they are speaking of the % of your equity holding, not your combined equity/bond holdings. Am I correct in that?

It would be interesting to hear your perspective on this, and how did you arrive at your number.

Here is one such article on the subject. http://www.vanguard.com/pdf/ISGGEB.pdf

Yes - it's relative to your total equity holdings.

I hold about 20% of equity in international equity not matter what and it often goes opposite of US equity, so rebalancing one a year is common.

 

[target2019]

We went with 60% equities overall. 40% US equities overall.
That left me with 20% Int'l equities.
It was very easy to remember!

 

[Cobra9777]

I'm lighter than many on international... 15% of equities, 7% overall... but 50/50 emerging/developed. It's been a bad year thus far for emerging, but hopefully that means opportunity going forward. I'd like to double the international equity allocation to 15-20% overall, but that may take some time. I also hold international bonds, but it's currently only 9% of bonds, 3% overall, and mainly developed. I maintain a healthy skepticism about international stock and bond markets. But I'm warming.

 

[papadad111]

Not all international is created equal. Emerging versus mature. Etc.

I hold approx 15 percent of total portfolio in international. I prefer VTI but in risk-on situations there are some country specific ETFs which get played in small (3% or lower) increments.

Many USA stocks are very dependent on international performance given globalization, something like 70 percent of the SP500, so, it's not as easy as slicing and dicing just to say domestic vs international. Deeper analysis needed to determine true exposures.

 

[Telly]

About 30% of my equity is International... so with a 60/40 allocation, that makes International equity about 20% of the total portfolio.

As to WHY that number, well, I read a Int'l. range suggestion on multiple places back about 2003 or so. I think every time I have rebalanced, I have swapped some international up or down in the process, so international equity certainly isn't correlating US equity at +1.

I DO wonder sometimes how much of the difference is due to changing exchange rates, when converting from X to the USD. Then again, movement of exchange rates (if not manipulated too much), may just be an indicator of real value. That would make an interesting discussion topic... alas, I could not lead such a discussion, as I have little/no knowledge in that area.

 

[modhatter]

I'd also be interested in how many people slice and dice their international among regions vs. say Total International.

 

[hnzw_rui]

I'd also be interested in how many people slice and dice their international among regions vs. say Total International.

Not quite regions but split between multi-cap (SCHF), small/mid-cap (SCHC) and emerging (SCHE) in the 457. Low ER and no fees.

Roth just has a Target Retirement Fund.

 

[Senator]

I have 25% in my HSA, 15% in my 401K, and less in my IRAs, etc. Overall total is less than 10%.

The US market typically beats the international markets. You can find some international markets that beat the S&P periodically, but not consistently.

 

[GTFan]

Yes - it's relative to your total equity holdings.

I hold about 20% of equity in international equity not matter what and it often goes opposite of US equity, so rebalancing one a year is common.

I've got 30% of equity in int'l and Vanguard is now recommending 40%, but with the caveat that anything from 20-40% is what you want to help smooth out the bumps as audrey said.

 

[Bestwifeever]

No separate international or emerging markets funds here--there is a 6-ish percent within Wellington and Wellesley, which we have chunks of, and our S&P fund has of course many companies with global exposure as noted above. Our total bond fund has 7 percent in international dollar-denominated bonds.

 

[jazz4cash]

60% US Equity/ 12% International split 50/50 between Emerging and MSCI Index. The Fidelity.com GPS report shows allocation by continent.

Until last year, I followed the Bogle philosophy that US large cap included adequate international exposure for individual investors. Then I decided to add some international in a deliberate fashion and there was a thread on the forum that included a chart showing correlation of risk vs. reward for various levels of international exposure. I searched but could not find that thread.

The chart showed that ~30% of equities was the optimum allocation for internatonal (e.g. 15% for a 50/50 portfolio). Since I do not make large AA changes spontaneously, I am only at 12% but the performance has been awful ever since I bought in. I really wish I had just stuck with Bogle but I am holding my nose for now.

I hope someone can post a link to the thread with the chart.....

 

[hnzw_rui]

The US market typically beats the international markets. You can find some international markets that beat the S&P periodically, but not consistently.

Yup. I have international more for diversification and to lower overall portfolio volatility.

 

[REWahoo]

Yup. I have international more for diversification and to lower overall portfolio volatility.

I can agree with diversification, but my understanding is international equities are generally more, not less, volatile than US stocks. Have I missed something?

 

[mrfeh]

1/3 of our equities are ex-US.

Don't try to time the market. Choose a percentage that you're comfortable with and stick with it.

 

[RunningBum]

I can agree with diversification, but my understanding is international equities are generally more, not less, volatile than US stocks. Have I missed something?

In my link above it is shown that a 70/30 mix has a lower standard deviation that 100% of either. It's similar to how (IIRC) a 20/80 stock/bond portfolio has less volatility than 100% bonds, even though stocks are more volatile than bonds. Since they (often) don't go up or down at the same time and rate, one can offset the other.

 

[hnzw_rui]

I can agree with diversification, but my understanding is international equities are generally more, not less, volatile than US stocks. Have I missed something?

They're more volatile by themselves, yes. Combined with US equities and bonds in a portfolio, they may reduce overall portfolio volatility. The times when international is down may not coincide exactly with when the US market is down.

 

[Dash man]

Most companies in the Dow and S&P 500 have significant international exposure, so I limit my direct international investments to only about 5%. With the dollar so strong right now and commodities taking a beating, not to mention the debt issues in Europe and much of the world and the turmoil in other areas, I'm comfortable keeping most of my investments at home.


Sent from my iPhone using Early Retirement Forum

 

[slazenger]

I try to avoid "home-country bias" so for me, the starting point for US vs. international equities is each country's respective global GDP weighting. Roughly speaking, US is 50% of world GDP, give or take a few percent. Then I think the variable to look at is various valuation metrics, which all tend to say the same thing (such as price/book, price/sales, CAPE). US is near the top in valuation, so I think if anything, you underweight US and overweight beaten-down markets such as particularly European stock.

Using this approach, i'm roughly 2/3rds foreign, 1/3 domestic equities at the moment, not counting bonds.

Another thought I have here is that I personally feel a lot less nervous having my money spread all over the globe, in significant amounts, that I would having my money concentrated in just one country, US being no exception.