Souring on my International Equity allocation

[walkinwood]

I have a significant portion of my portfolio in international stock - almost all in Vanguards Total International Stock Index fund. My domestic stock allocation is mainly in Vanguard Total Stock Market Index.

I'm considering reducing my VTIAX exposure significantly and would like to hear your comments. Links to articles (non-paywall) on this topic are welcome too.


Here's my analysis:

The performance over the past 10 years and more has been dismal and has been a large drag on the portfolio.
Here's the total performance

Fund	YTD	5YR	10YR
VTIAX	-26.76	-.70	3.31
VTSAX	-24.89	7.59	11.34

Correlation: There is a strong correlation between the 2 funds. ie they rise and drop pretty much in sync when I view the long term price trends.

Globalization : There seems to be a reversal/stall in globalization which may mean that performance of these two funds may diverge in the future. On the other hand, that does not mean that, in absolute terms, VTIAX will outperform VTSAX by any meaningful amount. VTSAX already has a bunch of global stocks.

 

[38Chevy454]

My personal feelings? Stay where you are, only because the strong dollar now will eventually come down and that should be good for intl stocks. Selling out now just locks in your losses. The time to be out of intl was long past like 5-10 years ago. Yes my recommendation to stay sounds a bit like market timing.

Recall the Callan periodic table of investment returns chart where the various investment types are plotted each year? Well you can see that each year it changes. It's hard (IMHO near impossible) to pick the top investment type every year. Intl will have its day at some point, but who knows when.

 

[Midpack]

Globalization : There seems to be a reversal/[-]stall[/-] in globalization which may mean that performance of these two funds may diverge in the future. On the other hand, that does not mean that, in absolute terms, VTIAX will outperform VTSAX by any meaningful amount. VTSAX already has a bunch of global stocks.

I'm not a market timer and I'm comfortable with my domestic:foreign equity allocation. And deglobalization was already underway, accelerated by the pandemic and then the Ukraine war's impact on ag and energy. I don't think most people recognize we turned the globalization tide a few years ago.

If you're curious, read https://www.ranaforoohar.com/homecoming - outstanding reading.

 

[Safe Harbour]

I decided a couple years ago not rebalance into international any longer. I had 30% in international which included 5% in EM. Overtime that has shrunk as US continued to out perform. Today I'm down to 17%. I feel like this is a reasonable level for international but I'm still hesitant to rebalance in it even at this level. I'll probably let it continue as is unless it drops below 10%. I still don't see the rest of the world growing in the foreseeable future at the rate the US is and has grown. I have keep my equity allocation up. It has gone from 65% equities to 70% today. I find as I grow older and have more capital gains in my funds I am more hesitant to sell them. Also at my age and portfolio size 30% fixed income is all I need for years to come. So I don't feel I'm taking a significant portfolio risk. I wouldn't mind passing down the most appreciated stock funds with step up in basis some day. That said when stocks are at new highs I try and rebalance my Equity/Fixed as well as when stocks are at historic lows (that's not to say playing timing, it just rebalancing by selling relatively high and buying relatively low).

 

[bloom2708]

Do what you must. I had 20% Total International and sold in 2018.

I am one that thinks you get enough international exposure thru Total US.

No right answer. Do what is best for you. There are arguments for both sides.

 

[daylatedollarshort]

Conceptually, it seems like a good idea to be diversified and invested internationally. But I have the same issue looking at the actual performance returns. When I moved our stock funds around between accounts earlier this year I decided just to drop the international fund.

 

[walkinwood]

I'm not a market timer and I'm comfortable with my domestic:foreign equity allocation. And deglobalization was already underway, accelerated by the pandemic and then the Ukraine war's impact on ag and energy. I don't think most people recognize we turned the globalization tide a few years ago.

If you're curious, read https://www.ranaforoohar.com/homecoming - outstanding reading.

Thanks for the recommendation. I have it on hold at my library.


Would you feel comfortable sharing your foreign equity allocation? As part of equity allocation or portfolio?

 

[walkinwood]

My personal feelings? Stay where you are, only because the strong dollar now will eventually come down and that should be good for intl stocks. Selling out now just locks in your losses. The time to be out of intl was long past like 5-10 years ago. Yes my recommendation to stay sounds a bit like market timing.

Recall the Callan periodic table of investment returns chart where the various investment types are plotted each year? Well you can see that each year it changes. It's hard (IMHO near impossible) to pick the top investment type every year. Intl will have its day at some point, but who knows when.

Thanks for reminding me about the Callan periodic table of investment returns.

 

[mrfeh]

Recall the Callan periodic table of investment returns chart where the various investment types are plotted each year? Well you can see that each year it changes. It's hard (IMHO near impossible) to pick the top investment type every year. Intl will have its day at some point, but who knows when.

+100

You can't draw conclusions based on a 10 year period. Even though the last 10 years has been rough, ex-US beat US in the 00's IIRC.

Diversify.

 

[Dtail]

Do what you must. I had 20% Total International and sold in 2018.

I am one that thinks you get enough international exposure thru Total US.

No right answer. Do what is best for you. There are arguments for both sides.

Same here. Sold my 25% stake in 2018 and have not regretted it.

 

[Kork13]

I've not totally abandoned international stocks, but I've definitely reduced their place in our portfolio. I've been investing since college in 2006, which was basically the trail end of the last time international stocks have actually outperformed U. S. stocks. 15+ years has been enough waiting for me to stop holding my breath. Here's a good, simple depiction.

I used to keep 25% allocated to international stocks. It's now been reduced to 10%, with the residual going to additional US stocks plus some REITs.

 

[Quattro73]

It has always struck me that active investing MIGHT be more suitable for some international exposure. I personally think that there are great international companies, but indexing in whole countries and their risks or potential for lackluster performance due to differing operating environments, governance, and accounting regs etc. I dunno.

Just pick me a 100 of the best companies.

I dunno maybe that is dumb.

I guess I could backtest some old active funds against the index if I wasn’t lazy.

 

[tulak]

I went from 40% to 20% international a few years ago, after a decade of underperformance.

Sometimes I think I should bail completely, even though I want some diversification.

 

[Spanky]

I went from 40% to 20% international a few years ago, after a decade of underperformance.

Sometimes I think I should bail completely, even though I want some diversification.

I feel the same way. It is hard to maintain faith in international stocks after so many years of underperformance or poor returns.

 

[COcheesehead]

I have 2% in international now. After years of devoting assets to international with nothing but under performance, I see no diversification advantage.

 

[NW-Bound]

Though I like to diversify and get back to a higher international stock AA (at 6.8% now), I want to see a compelling rationale to do so.

I want to know that there's something more than "what goes down must come back up". No, very often what goes down stays down or goes lower.

 

[JBTX]

I’m at roughly at world market weight and continue to stay that way. Seems to me buying high and selling low isn’t a good strategy. Inevitably there will be sectors/countries, etc that overperform, and others that underperform.

The US is something like 60% of world market weight. Do we think that will continue to grow indefinitely? Is there a limit? 70%? 80%?

 

[target2019]

In the accumulating years new money was invested 2:1 US:Int'l.

When I converted 401(k) money to R-IRA it ended up 5.5:1 approximately. I will slowly rebalance that to 5:2 or similar. Overall equity (US & Int'l), I hope, will rise from 50% to 60% in a few years.

Some luck occured during the conversion, as I ended up for a short time with all cash before the recent downturn.

 

[Exchme]

I keep some international as insurance. US stocks are priced for long term outperformance vs. most other countries. If something changes and the US fails to deliver, then US holdings would have to be marked down very substantially.

At least that's the theory - in practice, lackluster international performance has been very expensive insurance.

 

[JBTX]

I guess the question you have to ask yourselves if today was 1980, after a lackluster decade of stock performance, poor prospects for American industry and a rising Japan, would you have held or sold US stocks?

 

[COcheesehead]

I guess the question you have to ask yourselves if today was 1980, after a lackluster decade of stock performance, poor prospects for American industry and a rising Japan, would you have held or sold US stocks?

I would have bought a ton of non callable CDs paying 13%-14%. LOL. We are in a similar situation right now with high inflation and high rates. Fixed income is the place to be now.

 

[NW-Bound]

I would have bought 30-year Treasuries paying 15%.

See: https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart

 

[MarieIG]

I have some international exposure. Less than I used to have for the simple reason that it has devalued at a faster rate than the rest of my portfolio. Sooooo, I supposed I could say I have reduced my exposure to international. And no, I'm not selling domestic equities to buy more international equities which are loosing money even faster than my domestic equities. In other words, I'm not rebalancing. Obviously, YMMV.