International Fund

[pb4uski]

And the decade before that? And next decade with a possible reversion to the mean and/or a devaluation of the US$?

It's really only possible to identify winning sectors in the rear view mirror. That's why I just buy everything.

I'm sort of "from Missouri" when it comes to international equities... if a category is a consistent loser for a decade then I'm out until it shows me it isn't a loser.

If I extend the timeframe to 20 years to include the prior decade (2000 - Mar 2020), it is still a loser... just less so... 2.2% vs 5.0%.

Even if I go back to 1996... it is still a loser... 3.6% vs 7.8%. In the last 25 years it had a good decade in the early 2000s... but otherwise it has consistently underperformed domestic equities.

 

[Scratchy]

Yup... definite recency bias.... consistent underperformance for the last decade!

2.1% vs 10.4%

Yes, it has become apparent to me that as long as I held international the recency bias argument was more likely than not going to be repeated until I died, which is not helpful. I've been shifting away from international gradually (not fast enough) over the last three years and have never regretted selling an international fund.

 

[COcheesehead]

An International allocation is a play on risk abatement not a play for performance. I personally think it is no longer necessary as there are other ways to mitigate risk.

 

[Scratchy]

Recency bias.

Either that or holding onto international is loss aversion bias. There's a heuristic for almost anything.

 

[Scratchy]

Did you miss Post #10 above?

Saw it. Tremendous graphic for how international has underperformed. Oh, unless you look back a few decades and pick just the right dates to buy and sell it.

At this point in time, no matter when you bought international in the past 24 years, you are behind compared to domestic and the further you go back the worse it is.

 

[Scratchy]

An International allocation is a play on risk abatement not a play for performance. I personally think it is no longer necessary as there are other ways to mitigate risk.

Agree. I came to the same conclusion and have been shifting from international to bonds and so far it's worked out great. Granted, the last 6 weeks have moved the needle in favor of bonds a lot.

 

[Markola]

Saw it. Tremendous graphic for how international has underperformed. Oh, unless you look back a few decades and pick just the right dates to buy and sell it.

At this point in time, no matter when you bought international in the past 24 years, you are behind compared to domestic and the further you go back the worse it is.

Ok, well, I’m out of arguments except that a) Vanguard has included both a high percentage of international stocks and bond index funds in their Target Date and Life Strategy funds. b) They are smarter than me and have better information, and c) when most people go sour on an asset class, it is probably a good time to be buying it. Speaking of timing, I try not to do it so will stay put. Good luck and YMMV.

 

[Scratchy]

Ok, well, I’m out of arguments except that a) Vanguard has included both a high percentage of international stocks and bond index funds in their Target Date and Life Strategy funds. b) They are smarter than me and have better information, and c) when most people go sour on an asset class, it is probably a good time to be buying it. Speaking of timing, I try not to do it so will stay put. Good luck and YMMV.

Those are good points, and you may very well be right.

I'm not in the financial field at all, so have simplistic views that may not be well grounded but in the end what I'm persuaded by are:

-my belief that the U.S. is unlikely to lag international by much but vice versa is not necessarily true.
-honestly I just can't stand to hold onto something that has underperformed by so much for so long
-my belief that for me bonds are a better vehicle for diversification than international equities

Thanks Markola for sharing your thoughts here and with me and good luck to both of us. I'd like to see a tie

 

[Markola]

+1. It might take 10-20 years to know!

 

[audreyh1]

If you are using international stocks as part of an AA and rebalancing, then you want to look at it on a year by year (rebalancing interval) basis, and there have been years in the past 20 when international equity has outperformed US equity. https://www.callan.com/wp-content/uploads/2020/01/Classic-Periodic-Table.pdf

 

[Markola]

Great point. Like, 2011, 2012, 2017, 2018. “Diversification is the only free lunch.”

 

[tdv2]

It just doesn't make sense to extrapolate the past into the future....both on outperforming and under-performing asset classes. All comes back to predicting the future which we all know is an impossibility because the world is not regular enough to learn rules. How international equities do over the next 10 years is unknowable. One thing for sure is that capital will continue to move around the planet to create wealth...the collective mind share of the world will see to it.

 

[enjoyinglife102]

Simple answer, sell the international fund and roll it into your total stock. Bogle said you don't need them and Buffet didn't include them in his 90% S&P 500, 10% treasuries recommended allocation for his heirs. Free advice from those two is good enough for me.

 

[atmsmshr]

IMHO - International stock outside of the G7 is going to really lag in the short term. Factors to consider:

- Primary world reserve currencies are the dollar, euro and yen. Countries outside of those zones have less monetary policy to exercise in order to minimize damage to their national economies.
- For example, expanding money supply in a developing nation's currency more directly affects inflation, currency devaluation, and makes it harder to service dollar denominated debts.
- While developed nation's economies contract, there is less demand for cheap goods manufactured in developing countries. While the USA has exported its inflation for decades with a current accounts deficit in goods, now the USA will export a large portion of unemployment. To China in particular. Which I am OK with.
- Look for a continuing drop in commodities. While oil looks like it may have found the bottom, wait for steel, rare earth metals, et al to start searching for the bottom.
- Nations outside of the G20 have less capable fiscal and monetary policy makers with fewer tools. Most of the worlds economies have much less margin of resilience. Although their populations travel less, the virus impact may be greater due to poor health care infrastructure and crowded living conditions. Think the working class in NYC is crowded and did not practice social distancing? Just wait for Brazil's terrible journey to get started.
- Supply chains are going to change. When policy makers and CEOs get around to it, suppliers will be closer to home and more diverse. Expect more tariffs to help drive this change. It is an inflationary predictor for USA. International companies will be at a disadvantage. The spread of globalization will stop for awhile, if not retreat.
- Political instability will increase as driven by health care collapse, commodity price collapse and food supply chain shortages. Today, India is starting to feel the effects of virus driven food shortages. Nigeria is getting their economy walloped by low oil prices. Bolivia produces lithium - with Tesla shut down, what is the impact on that country's ability to produce hard currency for world trade?

A USA based index fund will start to look good to me in the 3rd quarter this year.

In the long term? Well, we are all dead anyway.

 

[DrRoy]

I have found over time, the less international I have the happier I am.

After having had international equities for many years for "diversification", my experience was it was just a drag. I'm out until I see some light at the end of the dark tunnel for international equities.

Decades ago I had 10-15% in Int'l. In the early 2010's I saw that underperforming and I cut back to a token position mainly just for tracking. I had a FA back then and about two years later he advised that I ramp the Int'l back up since it was "due" to perform better. I do not claim to be clairvoyant but I did not do that and I am so glad now as it would have been a $ loser.

Vanguard Total International Stock Index (VGTSX) is Portfolio 1. Portfolio 2 is the S&P 500 Index Fund (VFINX).

View attachment 34553

If you look at the chart above (Attachment 34553), over the 23 years, Int'l only outperformed about 30% of the time. When it did so, the outperformance was moderate. When it underperformed, the difference was much greater.

 

[OldShooter]

It just doesn't make sense to extrapolate the past into the future....both on outperforming and under-performing asset classes. All comes back to predicting the future which we all know is an impossibility because the world is not regular enough to learn rules. How international equities do over the next 10 years is unknowable. One thing for sure is that capital will continue to move around the planet to create wealth...the collective mind share of the world will see to it.

+1 I agree completely. We have no home country bias in our portfolio.

That said, I think there are reasons to be optimistic about international equities right now; see my post #3.

Another question that occurs to me is this: Does anyone seriously think that over the next decade the US's role in the world economy will not diminish? Trump has shown the world that we are not a reliable customer and has shown China, in particular, that we are not a reliable vendor. Our historical use of our banking system to punish people we don't like has made the world hope for a scenario where the US dollar's role as a reserve currency is diminished. In addition to these self-inflicted wounds, many countries have economic growth rates that exceed ours. As I said, DW and I are not tilted towards or away from international equities, but I do not see the status quo as holding.

If this discussion continues, I would be very interested to know how, for posters with strong opinions either way, how much international travel you have done. I have wondered whether the "anti" bias is correlated with little or no personal experience with the world. Do the "wogs begin at Calais" as the British used to say?

 

[Scratchy]

+1

If this discussion continues, I would be very interested to know how, for posters with strong opinions either way, how much international travel you have done. I have wondered whether the "anti" bias is correlated with little or no personal experience with the world. Do the "wogs begin at Calais" as the British used to say?

Have a strong bias against international funds and it genuinely pains me to have to state that this has nothing to do with a lack of worldliness. I'm an immigrant to United States, and lived in Europe and Asia before coming to the United States as a teenager. If you believe your opinions on this subject are more valid because you are more worldly than those who disagree with you on this point, I hope you rethink this.

 

[OldShooter]

Have a strong bias against international funds and it genuinely pains me to have to state that this has nothing to do with a lack of worldliness. I'm an immigrant to United States, and lived in Europe and Asia before coming to the United States as a teenager. If you believe your opinions on this subject are more valid because you are more worldly than those who disagree with you on this point, I hope you rethink this.

Thanks for the response, even the snippy part.

 

[Scratchy]

You're welcome. For the record, I was not trying to be snippy. Considering the question you were posing, i thought I had done a reasonable job.

 

[pb4uski]

.... If this acontinues, I would be very interested to know how, for posters with strong opinions either way, how much international travel you have done. I have wondered whether the "anti" bias is correlated with little or no personal experience with the world. Do the "wogs begin at Calais" as the British used to say?

FWIW, I have traveled extensively and worked in Europe and South Korea... a part of that time helping non-US client companies list their shares in the US.

That doesn't mean there are not a whole lot of fine non-US companies... there certainly are... its just that IMO since I prefer to invest in index funds there is not a compelling need to go beyond US shores to get good investment returns and the diversification benefits of international equities have been disappointing.

Like I said in a prior post... I'm from Missouri on international equities... show me some decent performance and I'll be a believer but for now I am a skeptic.

 

[COcheesehead]

I have traveled extensively around the world and those experiences never crossed with my investment decisions. If they did, I would probably have even less than the 1% I have in international now. Most of the world doesn’t spend like we do.

 

[tdv2]

I have traveled extensively around the world and those experiences never crossed with my investment decisions. If they did, I would probably have even less than the 1% I have in international now. Most of the world doesn’t spend like we do.

Not sure how the statement "Most of the world doesn’t spend like we do" has anything to do with the Investing in International funds.

 

[COcheesehead]

Not sure how the statement "Most of the world doesn’t spend like we do" has anything to do with the Investing in International funds.

Think about it.

 

[tdv2]

Think about it.

I did. You mean the U.S. spends more on foreign goods with our huge current account deficit?

 

[COcheesehead]

I did. You mean the U.S. spends more on foreign goods with our huge current account deficit?

If that was the driver, why have my international allocations under performed repeatedly in comparison to the US over the last 20 years?

And I buy lots of Nestle capsules for my Nespresso. LOL