International Fund

[Navigator]

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Originally Posted by jimbee Over the past 23 years, U.S. kicked the tar out of international using Vanguard funds VTSMX for domestic and VGTSX for international. Do you have a citation or link for your 50 year U.S. vs. foreign stock assertion? This topic is interesting. Thank you.

Here is something from Fidelity:

https://www.fidelity.com/viewpoints/...nvesting-myths

I’ve seen the chart they show in several other places, but am not sure where the original data comes from.

[Markola]

Quote:

Originally Posted by Navigator Here is something from Fidelity: https://www.fidelity.com/viewpoints/...nvesting-myths I’ve seen the chart they show in several other places, but am not sure where the original data comes from.

Excellent article. Anyone who reads that and still thinks there’s some inherent, permanent advantage to U.S. stock returns needs to make better arguments than we’ve seen on this string. Vanguard has a nearly identical white paper.

[jimbee]

Quote:

Originally Posted by Navigator Here is something from Fidelity: https://www.fidelity.com/viewpoints/...nvesting-myths I’ve seen the chart they show in several other places, but am not sure where the original data comes from.

Thanks, good article. If I'm interpreting the table in the myth 2 section correctly, the S&P 500 Total Return Index obliterated the MSCI ACWI ex-USA Index used for foreign stocks. 11.3% vs. 10.3% annualized return over 50 years is a significant difference.

[audreyh1]

Quote:

Originally Posted by jimbee Thanks, good article. If I'm interpreting the table in the myth 2 section correctly, the S&P 500 Total Return Index obliterated the MSCI ACWI ex-USA Index used for foreign stocks. 11.3% vs. 10.3% annualized return over 50 years is a significant difference.

What the table in myth 2 shows you is that by having a rebalanced AA of 70% US stocks and 30% international stocks, you achieved the same 11.3% return as US only, but at considerably lower standard deviation in volatility. It’s this latter part that people are missing.

Quote:

Reality: International stocks in combination with US. stocks have historically lowered long-term risk in a stock portfolio, compared with an all-US portfolio. That's because historically, the performance of US and international stocks has not typically been perfectly correlated,1 which thereby reduces risk. Fidelity’s research on strategic allocation indicates that a range of between 30 to 50% exposure to international markets, as a percentage of total equity, can help provide an appropriate level of diversification and enhanced portfolio risk-adjusted returns in a multi-asset class portfolio. Also, the absolute return of the globally balanced portfolio is almost level with that of the all-US portfolio, despite the recent multiyear rally in US stocks. And given the cyclicality of US and foreign stock returns, history suggests their relationship could revert to its historical norms at some stage.

[Markola]

Yes, the value of having some assets zig while others zag. It’s also exactly what we have, i.e. 30% of our equity index portfolio in international, thanks to our target date funds and Vanguard PAS advice, so I feel good about that. Also, the graphic in Myth 1, with its data through 2018, makes me feel prepared.

[jimbee]

Quote:

Originally Posted by audreyh1 What the table in myth 2 shows you is that by having a rebalanced AA of 70% US stocks and 30% international stocks, you achieved the same 11.3% return as US only, but at considerably lower standard deviation in volatility. It’s this latter part that people are missing.

Yep, that too, although many people ballast their portfolio with fixed investments, so they may not notice.

[audreyh1]

Quote:

Originally Posted by jimbee Yep, that too, although many people ballast their portfolio with fixed investments, so they may not notice.

If people are holding more than one equity class as part of their AA, they generally rebalance between them, otherwise what’s the point?

[jimbee]

Quote:

Originally Posted by audreyh1 If people are holding more than one equity class as part of their AA, they generally rebalance between them, otherwise what’s the point?

I mean they won't notice a one or two point additional change in the standard deviation of their equity holdings. They'll just see it as volatile or not.

[audreyh1]

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Originally Posted by jimbee I mean they won't notice a one or two point additional change in the standard deviation of their equity holdings. They'll just see it as volatile or not.

If they designed their AA portfolio based on some research and understanding of the benefits of owning and rebalancing multiple asset classes and how they can reduce volatility, they will notice. If they just took someone else's cookie cutter allocations and use them, they probably won't notice much. Probably also got frustrated with high quality bonds "low yield" and decided going mostly high yield bonds was a better option. Lots of folks seem to pick an AA and then grumble about how some components underperform, and don't look at how things work as a whole or which asset classes are highly correlated and not highly correlated.

I have totally noticed when some years international funds outperformed domestic and vice versa, and rebalanced between them.

[jimbee]

Quote:

Originally Posted by audreyh1 If they designed their AA portfolio based on some research and understanding of the benefits of owning and rebalancing multiple asset classes and how they can reduce volatility, they will notice.

Yes they would. Now how many people do you think actually do that? I would guess way less than half.

Quote:

Originally Posted by audreyh1 If they just took someone else's cookie cutter allocations and use them, they probably won't notice much. Probably also got frustrated with high quality bonds "low yield" and decided going mostly high yield bonds was a better option. Lots of folks seem to pick an AA and then grumble about how some components underperform, and don't look at how things work as a whole or which asset classes are highly correlated and not highly correlated.

A lot of people do exactly that.

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Originally Posted by audreyh1 I have totally noticed when some years international funds outperformed domestic and vice versa, and rebalanced between them.

You pay closer attention than most people.

[OldShooter]

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Originally Posted by jimbee ... You pay closer attention than most people.

I don't pay any attention at all, believing that chasing hot sectors is likely to be skating to where the puck used to be.

We own essentially all the world's investable stocks, market cap weighted. No need to rebalance; that's automatic given the type of portfolio it is. No need to pay much attention at all, really. Just watch it grow at a few basis points less than the overall world market grows.