International investing, or not?

[OldShooter]

Quote:

Originally Posted by samm ... Retired Chartered Financial Analyst, MBA

So you can point me to some credible analysis, then? Not just contrived and trivial examples?

Re factor based investing agreed that is definitely newer, encouraged by the Fama/French 3-factor model and the demise of the CAPM 30 years ago. At this point I view it simply as a trend. Five or ten years of experience will tell us whether the concept has any value or not. History has shown us that in investing newer is always newer, but rarely better. The backtests are of course wonderful.

[kgtest]

Quote:

Originally Posted by VanWinkle I read 2 good articles this morning concerning the reasons to invest in foreign markets, or to invest only in the US. Compelling arguments for both are included in the linked articles below. https://humbledollar.com/2020/09/hap...her-ses-test_7 https://humbledollar.com/2020/09/ven...her-ses-test_7 The academics mostly promote International investing. I don't think it will make a big difference either way. VW

My own personal take, I've done fine so far without them...but did hold them early on in 2005-2015?? Decided at that point to manage our own money and have just index'd ETF with LargeCaps that IMHO span globally. SO if they are selling an AAPL phone all over the world, I am internationally diversified by virtue of that LargeCap business model.

I actually probably don't know of a single Large company listed on any of the US indexes that is solely operated with revenues internal to the US and no external exports or customers or offices.

Also, I am a patriot...no point looking outside the US if I do buy an equity, its not going to be something outside a US HQ. As an investor I realize some opportunity in theory is lost with this approach, but I would never know which small international company to bet on, nor do I care to wager on the big ones.

[Markola]

This conversation seems stuck in the inevitable Coke/Pepsi, Orthodox/Protestant, skins/shirts stalemate and now someone wants to make it all “Give me Google or give me death!” If the debate is who is more diversified, however, it is impossible to deny that:

Vanguard Total Stock Market (VTSAX) holds 3,529 U.S. stocks.

Vanguard Total International Index (VTIAX) holds 7,392 stocks.

Own both and you are exposed to 10,921 stocks.

Every investor can and will determine “what is enough international exposure” for themselves and probably do just fine if they buy and hold but simple addition does not lie.

[RobLJ]

I'm about 1/4 international (out of the stock allocation) and plan on diversifying/scraping some of the tech/large cap gains and some bonds to get up to 1/3, just as a risk hedge given the gains of large cap tech. I'm already close to the bottom allocation for stocks and at my all-time high in cash allocation, so that's the only diversification play I'm comfortable with (other than buying individual bonds and preferreds, but that takes a lot of work and I'm not there yet and I'm worried what DW would do if I kicked off.) This will take a year or so; I'll just inch my way and if we have a correction, I'll fund it out of cash and some of the bond funds.

I don't think it's 2000 all over again, but then it probably is for a few of the big tech sharks juicing the NASDAQ and S&P. I can't tell you or me which ones, unfortunately. I suspect several will continue to do well despite my skepticism--hell maybe all of them. There is a scenario that the market could just rotate into value and small cap, so I'm looking also at a 1-2% increase in small/mid value.

[VanWinkle]

Quote:

Originally Posted by Markola This conversation seems stuck in the inevitable Coke/Pepsi, Orthodox/Protestant, skins/shirts stalemate and now someone wants to make it all “Give me Google or give me death!” If the debate is who is more diversified, however, it is impossible to deny that: Vanguard Total Stock Market (VTSAX) holds 3,529 U.S. stocks. Vanguard Total International Index (VTIAX) holds 7,392 stocks. Own both and you are exposed to 10,921 stocks. Every investor can and will determine “what is enough international exposure” for themselves and probably do just fine if they buy and hold but simple addition does not lie.

I agree with your math. The question remains if it will make much of a difference over a 30 year retirement time line. I would not advocate either way as it seems to be a personal choice for many investors. I held 20-30% in international for 35 years, but have been out after tax loss harvesting my international fund in March. I did not go to cash, but reinvested it in a U.S. total stock fund. Diversification by number of stocks might be overkill in this case.

[Lsbcal]

Here is a chart of large cap international (VFWAX) versus the SP500. It's on a semilog scale so you can see when they converge and diverge and judge relative growth accordingly.




Personally I don't make a bet on international alone. In my retirement accounts I use a trend following method to put 40% of my equity assets into either the SP500, large cap international, or small cap international. It's been stuck in the SP500 for quite awhile. This has worked for the 11 years I've been doing this and backtests well from 1993 where my fund data starts. Actually I have some data going back to the 1970's where EAFE versus the SP500 backtests nicely on trend following.

This gets me out of the question of how exactly to allocate to international. But it should be done in a retirement account to remove tax issues and requires monthly updating and means doing some trading and .... well, it's not for most people.

[Ed_The_Gypsy]

Quote:

Originally Posted by Lsbcal Here is a chart of large cap international (VFWAX) versus the SP500. It's on a semilog scale so you can see when they converge and diverge and judge relative growth accordingly. Personally I don't make a bet on international alone. In my retirement accounts I use a trend following method to put 40% of my equity assets into either the SP500, large cap international, or small cap international. It's been stuck in the SP500 for quite awhile. This has worked for the 11 years I've been doing this and backtests well from 1993 where my fund data starts. Actually I have some data going back to the 1970's where EAFE versus the SP500 backtests nicely on trend following. This gets me out of the question of how exactly to allocate to international. But it should be done in a retirement account to remove tax issues and requires monthly updating and means doing some trading and .... well, it's not for most people.

Some will remember that I once bought the 50/50 argument. Got my head handed to me on a platter. [emoji3525]

[Lsbcal]

Quote:

Originally Posted by Ed_The_Gypsy Some will remember that I once bought the 50/50 argument. Got my head handed to me on a platter. [emoji3525]

If the trends hold between the SP500 and small cap international (VINEX is my choice) then I will be moving to the latter at the end of September. This would put me at 40% international. Haven't been in international since May 2018.

[RobLJ]

Interestingly, over the last 3 months, my European, Asian, (and biotech) funds have decisively outperformed the Vanguard S&P index fund. I have a 15% international/30 US allocation until I start claiming SS.
I sold off the China fund in January when I read about COVID in Wuhan but plan on buying it back in a week or two. It had a 5 year average return of 12.84%/

[Big_Hitter]

I rebalanced my k a few weeks ago and put 10% in intl to diversify - 50/10/40

[natetheb]

I have held both VEMAX and VTIAX since early 2018 and regret it. To date, both have failed to break even with the Late January 2018 high when I first invested into them. Anyways, they both seem to be tied to the US market. The go up when the SP500 goes up, just not nearly as fast as the SP500. I am very much looking forward to dumping both mutual funds as soon as I break even. (I was really close 2 weeks ago until the markets turned down again...)

[Markola]

Quote:

Originally Posted by natetheb I have held both VEMAX and VTIAX since early 2018 and regret it. To date, both have failed to break even with the Late January 2018 high when I first invested into them. Anyways, they both seem to be tied to the US market. The go up when the SP500 goes up, just not nearly as fast as the SP500. I am very much looking forward to dumping both mutual funds as soon as I break even. (I was really close 2 weeks ago until the markets turned down again...)

It’s a good thing that they aren’t completely correlated with the U.S. stock market. That’s kind of the point of owning international stock funds.

[OldShooter]

Quote:

Originally Posted by natetheb I have held both VEMAX and VTIAX since early 2018 and regret it. To date, both have failed to break even with the Late January 2018 high when I first invested into them. Anyways, they both seem to be tied to the US market. The go up when the SP500 goes up, just not nearly as fast as the SP500.

FWIW, IMO 2 years is a trader's horizon. Chasing sectors on a two year basis is, again IMO, a fool's errand, as quilt charts illustrate. Something like 10 years is an investor's horizon.

Quote:

Originally Posted by natetheb I am very much looking forward to dumping both mutual funds as soon as I break even. ...

Richard Thaler, in "Misbehaving" and Daniel Kahneman in "Thinking Fast and Slow" both discuss this behavior in the context of our significant human risk aversion. The general behavioral finance idea is the humans don't consider a loss to be a loss until they sell the item, so holding tenaciously, waiting for the item to "break even" is the result. You might enjoy the books, particualrly Thaler. They have helped me to understand my own behavior.

[natetheb]

Quote:

Originally Posted by Markola It’s a good thing that they aren’t completely correlated with the U.S. stock market. That’s kind of the point of owning international stock funds.

True, but as a young investor I am frustrated by the extremely poor performance of International vs. the US market. Additionally, when I back test all the way to 2008 or so, the international market flip-flops better performance, when adjusting the starting year only, when compared to a Total Bond Fund while the SP500 continues to outrun both. Since these investments are in a taxable account and I am too the point where chance of reward doesn't outweigh the risk, I am ready to jump ship.

Quote:

Originally Posted by OldShooter FWIW, IMO 2 years is a trader's horizon. Chasing sectors on a two year basis is, again IMO, a fool's errand, as quilt charts illustrate. Something like 10 years is an investor's horizon.

I don't disagree. Originally, I was planning on holding these investments for a couple more years, but a bit of a "work related" windfall has motivated us to move these taxable investments into something lower risk (e.g. total bond fund/tax-free bond fund) to be able to use for a large down payment when the opportunity presents itself.

[winyaz]

I haven't seen any mention of valuations. Because the US has outperformed the past decade, international is now the better value. Here is a page discussing current valuations and estimated future annual returns. Such estimates have little value over the next year or two but do tend to have value over a decade or so.
https://www.gurufocus.com/global-market-valuation.php#

[The HalfBreed]

When the ECP / EU decided to lower their rates like the US did, I changed my TSP slightly. Going from 100% C fund (S & P 500) to 80% C fund, and 10% / 10% S and I (International)
Over the last 3-4 years, the C fund has excelled, whereas the S lagged behind the majority of the time, and the I fund fell behind. To date, over the last 3-4 years, the percent gain is

C Fund - 25.4% Gain
S Fund - 9.49% Gain
I Fund is -2.2% (Negative 2.2%)

These numbers are from a "Static Position" I took 3-4 years ago, so it's comparing the numbers then, to the gains now....a 3-4 year period.
i.e....what I put into the I fund then is now down by -2.2%, etc TODAY.

I've also held Dodge & Cox International Fund - DODFX for the last 9-10 years, and it's down 18.44% YTD (although the return so far is +8.43% YTD)
I am HIGHLY disappointed in DODFX and will sell it ASAP when shares are over $40+

I've been reading for tooo long that oversea market will pick up, and I'm getting tired of waiting, I'm almost 66, and have been retired since age 57 (2012)

These large Multi Nationals in the C Fund do well enough, and as the old saying goes,
"If you've won the game, quit playing", so I'll be moving to shore up and conserve assets in 3-4 years if I'm still around.

I'll keep the TSP I fund, but dump the DODFX asap.
YMMV

[FlaGator]

I'm not going to dig out the stats again, but my experience with international fund performance over 25+ years has been abysmal. IIRC, holding to a 50/50 US/Intl stock exposure cost me several hundred thousand $$ over the last 5 years and performance across any sub-sector (EM, Small cap) over the last 25+ years was below the US market.

That said, volatility with that allocation was reduced, but I finally realized volatility is not a major concern given my short and intermediate bond exposure.

Rather than take it to -0-, I trimmed Intl back to 20% or so, just in case I'm wrong

[VanWinkle]

Quote:

Originally Posted by winyaz I haven't seen any mention of valuations. Because the US has outperformed the past decade, international is now the better value. Here is a page discussing current valuations and estimated future annual returns. Such estimates have little value over the next year or two but do tend to have value over a decade or so. https://www.gurufocus.com/global-market-valuation.php#

Interesting read, thanks for the link!!

[AtlasShrugged]

Quote:

Originally Posted by OldShooter I think the articles do a reasonable job of laying out the "what ifs." It would be interesting to know what the author's portfolio looks like. In terms of forecasting the future, I find the regression to the mean and the probable decline of the dollar to be reasons for optimism. But nobody can predict.

I got an email from Early Retirement this morning and saw this thread.

I am the author of those articles. My allocation between U.S. and international stocks is one that is appropriate for me based on my goals, financial position, risk tolerance, and perspectives on diversification. My intention was to write two neutral articles to help others make that same decision for themselves. I do not know what is right for anyone else.

[VanWinkle]

Quote:

Originally Posted by AtlasShrugged I got an email from Early Retirement this morning and saw this thread. I am the author of those articles. My allocation between U.S. and international stocks is one that is appropriate for me based on my goals, financial position, risk tolerance, and perspectives on diversification. My intention was to write two neutral articles to help others make that same decision for themselves. I do not know what is right for anyone else.

Thanks for the interesting article Rick!! They did spur some interest here.