International stocks question

[Tailgate]

My AA is 50/50. Of the stock AA, 25% is in Intl index fund VTIAX.

Haven't International stocks fallen out of favor with most due to poor performance? Seems to me that I recall recent comments from Buffett and others that US is the only place to be at this point in time. New report from Vanguard funds implies low growth in Intl sector in next few years.

My market knowledge is minimal and I've been a 'set and forget' investor... I'm just interested in thoughts of those more attuned to the financial sector. Any thoughts as to going all US?

 

[exnavynuke]

I haven't met anyone that could reliably predict future market performance so I maintain diversification across both US and foreign markets. Recent growth internationally has lagged the US, but international stock valuations are also quite a bit lower than US markets, so they could be a "good buy" at this point.

 

[2017ish]

Recurring topic of discussion. I start with buying the market in index funds--and market is roughly 50% US and 50% all else. (Small/value tilt is then added--but I also split that equally.)

Others only buy US or go somewhere in between 0 and 50%. What thesis, other than market noise, has changed since you decided to go 75% US/25% other? If you have good reason to change and are going to stick with that new position hereafter, you should make the move.

N.B. A japanese investor just prior to December 1989 would have reached your proposed conclusion based on the market performance over prior years. Oops. (And no, I'm not predicting 3 lost decades for US. )

 

[DEC-1982]

It's very hard to say whether international stocks will outperform US stocks.

Some of us think one should invest 100% in the US. I personally think this because
a) you can get all the diversification you need in the US stock market. Most large US firms have significant exposure to foreign markets.
b) the US is (arguably) one of the most dynamic countries in the world. In the long run, the stock market results should reflect the performance of the economy.
c) no currency exposure worries (although this can be taken care of)

But as you know there are others who think investing in foreign markets is wise, and there are some good reasons to do that. It's fair to say both sides make good arguments. So this is one of those personal decisions you have to make while considering the pros and cons.

I believe Mr Bogle (Vanguard founder) thinks like me (or I think like him) about investing 100% in the US. On the other hand, the company he founded, Vanguard, thinks otherwise.

My personal AA (not including pension) reflects my thinking on this issue.
Current AA: 65 US TSM 25 US TBM 10% Cash
Correction: Current AA: 65 US Stocks 25 US TBM 10% Cash; US Stocks include Health care fund

 

[Tailgate]

Others only buy US or go somewhere in between 0 and 50%. What thesis, other than market noise, has changed since you decided to go 75% US/25% other? If you have good reason to change and are going to stick with that new position hereafter, you should make the move.

Curiosity mostly.. interested in what those who ponder such issues think. My initial decision on stock AA was at a Vanguard advisor's recommendation.

 

[W2R]

Haven't International stocks fallen out of favor with most due to poor performance?

Oh, you mean because the share prices have dropped and they are "on sale" right now? So you have the opportunity to sell low and lose money?

This is why many of us simply choose an asset allocation and rebalance to that allocation. Among other advantages, an AA/rebalancing approach tends to result in buying low and selling high, rather than the reverse.

My AA calls for 12.5% VFWAX (FTSE All World, Ex US), an international fund. That's not high in the grand scheme of things. It has always been 12.5% and I'm not inclined to change anything.

 

[FiveDriver]

In my opinion, The International Stock Markets are a little too risky for my liking. The strong dollar will make selecting a foreign market even tougher. The best performers lately have been Russia, Argentina and Brazil....not exactly a confidence-inspiring group.

I will limit my International exposure to the SP500 Index Fund companies with Foreign Earnings. At this stage of the game, I'm into preserving capital.

 

[sengsational]

When I invest in emerging market international, and it goes down, I look at it as a donation to a country that needs a little help

 

[W2R]

When I invest in emerging market international, and it goes down, I look at it as a donation to a country that needs a little help

When I was about six, I told my father that when I grew up, I was going to pay off the national debt. I have decided to put that goal on the back burner.

 

[NW-Bound]

Where's that Callan Periodic Table of Investment Returns? Oh, here it is.

It shows that Emerging Market returned 34.54% in 2005, 32.59% in 2006, 39.78% in 2007.

In the same 3 years, developed international stocks returned 13.54%, 26.34%, and 11.17%.

Also in the same 3 years, the S&P returned 5.82%, 20.81%, and 1.99%.

It shows that it is not true that the US market is always the winner.

 

[exnavynuke]

Here's your table through 2015

 

[FiveDriver]

The years 2005 thru 2007 were perhaps the wonder years for Emerging Markets. Not really a valid metric in current times. Note how rapidly that little apricot colored box slides to the bottom of the Callan Table.

A look at the chart of, say Vanguard or Fido's Emerging Market Fund shows them relatively flat over the past 2 to 3 years. Tumultuous years Internationally to be sure, but going forward doesn't appear to offer any more stability.

 

[exnavynuke]

The years 2005 thru 2007 were perhaps the wonder years for Emerging Markets. Not really a valid metric in current times. Note how rapidly that little apricot colored box slides to the bottom of the Callan Table.

A look at the chart of, say Vanguard or Fido's Emerging Market Fund shows them relatively flat over the past 2 to 2 years. Tumultuous years Internationally to be sure, but going forward doesn't appear to offer any more stability.

I don't think anyone has ever claimed that emerging markets were stable. Not a great idea for a 60 year old retiree to have a significant portion of their portfolio in such investments, but often quite a reasonable proposition for someone a decade or two away from retirement to have a decent chunk of money invested in higher volatility investments like emerging markets and small or mid-cap stocks.

 

[FiveDriver]

Agree with exnavynuke. The OP said he has 25% in VTIAX....that was half of his Equity AA. That's a heavy bet.

 

[NW-Bound]

The S&P 500 does not travel to the boundaries, but also fluctuates significantly from the center. There is volatility everywhere, and it is just a matter of degree.

So, embrace volatility. I have always tried to make use of it. Buy and rebalance if you do not want to time it. Heh heh heh...

 

[FiveDriver]

The S&P 500 does not travel to the boundaries, but also fluctuates significantly from the center.

What does this even mean ?? What is this -- Bad Haiku Wednesday ??

Here's my poem....

International
Investing is full of risk.
Use with extreme care.

 

[ikubak]

I hold some international, about 15%. The stronger dollar has hurt the performance of the international stocks. The euro has gone from 1.35 down to 1.05 versus the dollar in the past 5 years. However, I stick with Intl for the diversification and foreign stocks are, in general, less expensive than US stocks right now in terms of P/E, price/book, better dividend, so I am OK holding them. Eventually the worm will turn and when you get the double whammy of higher international valuations with a declining dollar, you can see some substantial gains. So you take the good with the bad. Dollar up....travel internationally and enjoy. Dollar down...international stocks have a tailwind. And just for fun, the Big Mac index shows the dollar about 25% overvalued versus the euro. So go to europe and chow down. Or better yet, go to Mexico where the peso is undervalued versus the dollar by over 50% according to the Big Mac index.

Semper Gumby - Always Flexible.

 

[Winemaker]

I read yesterday a couple of things without remembering sources.

Carlos Slim is down 16 billion this year, and one can rent a full size Mercedes out of Mexico City Airport for $1.00/day. Does this mean it time to invest in Mexico?

 

[ikubak]

I read yesterday a couple of things without remembering sources.

Carlos Slim is down 16 billion this year, and one can rent a full size Mercedes out of Mexico City Airport for $1.00/day. Does this mean it time to invest in Mexico?

I would avoid driving in Mexico City if you value your health and sanity.

 

[NW-Bound]

What does this even mean ?? What is this -- Bad Haiku Wednesday ??.

I was referring to the Callan table showing the deviations of the S&P not being as bad as that of EM which bounced from top to bottom, but nothing is rock steady.

Look at the S&P growth. That includes companies like Facebook, Amazon, etc... This sector has had a good run the last few years. Look a few years back, and it was not always the case.

PS. It all comes down to this: people are free to invest as they see fit. And if one puts it all under the mattress, of into Krugerrands, that is his choice. One is free to chose his poison. Some like a cocktail of poisons.

 

[FiveDriver]

Thanks for clarifying that NW-Bound. I didn't know you were referring back to Callan.

I'm risk-averse at this stage. The International Market doesn't owe me a thing....I made a nice chunk of change using Fido's Overseas Fund back in '85 when Reagan made his move on the Dollar. Rarely are the Entrance & Exit Ramps so clearly marked.

At this time, I'll take whatever International exposure that FUSVX and FSTVX can provide and be happy.

The OP asked us for our thoughts and I see that there are many perspectives to offer.

 

[RobLJ]

What you said. Right now internationals, compared to US, are priced comparatively cheap. The dollar is a significant issue, but there are funds available that hedge currencies--my largest foreign bond fund does so which smooths out volatility due to the dollar strength issues (and also restrains gains when the dollar falls). I'm 1.5% short on international in the allocation (65% stocks, with 20% international/45% US) so I added to the Euro fund yesterday.

I hold some international, about 15%. The stronger dollar has hurt the performance of the international stocks. The euro has gone from 1.35 down to 1.05 versus the dollar in the past 5 years. However, I stick with Intl for the diversification and foreign stocks are, in general, less expensive than US stocks right now in terms of P/E, price/book, better dividend, so I am OK holding them. Eventually the worm will turn and when you get the double whammy of higher international valuations with a declining dollar, you can see some substantial gains. So you take the good with the bad. Dollar up....travel internationally and enjoy. Dollar down...international stocks have a tailwind. And just for fun, the Big Mac index shows the dollar about 25% overvalued versus the euro. So go to europe and chow down. Or better yet, go to Mexico where the peso is undervalued versus the dollar by over 50% according to the Big Mac index.

Semper Gumby - Always Flexible.

 

[nash031]

30% of my 85% Equity AA is international. I'm buying more VTIAX/I fund right now than VTSAX/C+S funds because growth in VTSAX is better than VTIAX. This means I don't rebalance, rather, I'm buying VTIAX while it is "low" (read: underperforming) and less VTSAX while it's "high". I think this is the purpose of passive investing, and I am comfortable with my ~25% overall exposure to VTIAX and I fund in TSP.

Seems like this is kind of question that's more likely to come up with International markets underperforming US markets, and people looking for excuses to dump more money into the US market. While international investing is "riskier" than US for a lot of reasons, so is pouring money into markets that may be overcooked.

Find an AA you're comfortable with and stick with it.

 

[Boho]

Hey, I do that!

Here's something relevant to this thread despite the title of the article. Is There a Case for Actively Managed Funds?

While the S&P benchmark outperforms a large majority of domestic active funds, a similar comparison with international active funds shows stronger performances and, in some cases, long-term benchmark-beating results.

My first fund was an index fund that tracked the S&P, then I started adding managed funds for more diversity, most of which had international securities.

 

[nash031]

Here's something relevant to this thread despite the title of the article. Is There a Case for Actively Managed Funds?

That quote is essentially meaningless. "In some cases, actively managed US funds outperform benchmarks as well." You just have to find one, and find it when it's still going to outperform. The problem, of course, is that you're always acting on historical information, and funds don't perform based on that... For example, some funds outperform for long periods because of a talented manager, but then that person leaves, and the fund goes on the heap of underperformers, and now you're stuck with it, fees and all. For most of us, matching the benchmark cheaply is easier and preferable to doing all this work in hopes of beating the benchmark for some period of time. The odds that you're going to do it consistently enough to markedly beat an indexer are very low, and get lower as fees and loads erode away... if you're an active trader, which you seem to be, taxes will eat away even more.

Good luck!