International investing, or not?

[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]

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]

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]

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]

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.

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]

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.

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]

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]

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]

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.

 

[sengsational]

My international allocation includes a lot in the emerging market category. I don't make a lot of charitable donations, but that position makes up for it

 

[VanWinkle]

My international allocation includes a lot in the emerging market category. I don't make a lot of charitable donations, but that position makes up for it

 

[OldShooter]

... 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 stopping by. The point of being curious about your portfolio comes from Nassim Taleb's query: "Don't tell me what you think; show me your portfolio." His context is generally the pundits who advocate one or another strategy or stock purchase. Here, your articles talked about the tradeoffs in a fairly neutral way, so the question becomes "What did he decide based on the tradeoffs?"

Anyone here who would take any one person's personal portfolio as a recommendation simply hasn't been paying attention.

(FWIW I have described our portfolio here before. It's 75/25 with 90+% of the equity holdings in world stocks on a cap-weighted basis, principally VTWAX. This is not based on a lot of tradeoff analysis. It is based on my inability to predict the future and Dr. Fama's repeated recommendation: "We have to hold the market portfolio." To do anything else, IMO, is to bet on sectors, which generally does not go well for long term investors.)

 

[AtlasShrugged]

Thanks for stopping by. The point of being curious about your portfolio comes from Nassim Taleb's query: "Don't tell me what you think; show me your portfolio." His context is generally the pundits who advocate one or another strategy or stock purchase. Here, your articles talked about the tradeoffs in a fairly neutral way, so the question becomes "What did he decide based on the tradeoffs?"

Anyone here who would take any one person's personal portfolio as a recommendation simply hasn't been paying attention.

(FWIW I have described our portfolio here before. It's 75/25 with 90+% of the equity holdings in world stocks on a cap-weighted basis, principally VTWAX. This is not based on a lot of tradeoff analysis. It is based on my inability to predict the future and Dr. Fama's repeated recommendation: "We have to hold the market portfolio." To do anything else, IMO, is to bet on sectors, which generally does not go well for long term investors.)

Thanks for a civil response. I think too many U.S./International conversations descend into contentious debates that go round and round in circles. I have no interest in participating in that kind of exercise.

I am not advocating anything other than people think for themselves and decide what's right for them given their particular circumstances.

In your case, that's a healthy allocation to international stocks. That's great.

For someone else, that might not be the right answer.

I'd rather remain neutral because there is no one right answer for everyone.

 

[Markola]

Thanks for writing the thoughtful articles and it’s nice to have the author comment. Sadly, I’m going to guess your position is the same about the other things we love to debate endlessly around here, myself included, i.e. when to take SS, whether to pay off the mortgage and who’s better, Vanguard or Fidelity? Finally, if you’d please help us sort out whether to buy an electric car or not, we’d be ever so grateful. On the other hand, this forum might then collapse, which would be too bad. Cheers!

 

[garya505]

I have to confess I didn't read ALL the posts in this thread. After reading about 100 threads on this topic (most of which were on the BH forum) I've heard all the various opinions and I've come to realize that there is no simple answer. A lot of people just throw up their hands and allocate 20% of their equity side to foreign stock.

I think some of it depends on your age (or horizon). If you're 30 years old, maybe a 60/40 US/foreign split makes sense, because you have a very long horizon. On the other hand, if you're in your 60s like me, it could be a long time before that strategy might pay off and you might not even see it. Now, factor in that you probably reduced your equity allocation to maybe 30-40% at retirement, and it may not make a big difference anyway. It's kind of like value investing. It makes sense, but when will it pay off?

That said, I don't hold much international stock. While I can see the periods of outperformance by international, looking at history, US outperforms maybe 60% of the time. Like others have said, "get most of it right and don't make any big mistakes".

 

[GR111]

I admit I have neglected the small bit of international equities we have. We acquired them years ago and I rarely look at them. Currently we have FEZ, TSP I Fund, JAWWX, and ENB - combined less than 5% of the total portfolio.

I plan to swap JAWWX and ENB out for Something like VXUS and increase international exposure out to 20%. The world is getting smaller making me feel the need for more diversification. Life and investing has been great in the US, however as the old saying goes, even this can change.

Great articles and comments. Thanks.

 

[Closet_Gamer]

20% international in my portfolio for the diversification, mean reversion, currency and rebalancing opportunities already discussed.

One thing I have been considering more is the implicit bias I, and I suspect many other US investors, are carrying into a new era.

For a long time, there was a view (in many ways correct) that the US did big, high value innovation and the rest of the world did lower value manufacturing and optimization. This was compounded by what Tom Friedman pointed out in "The World is Flat"...other economies were held back by various versions of socialism, despotism, cultural risk aversion, etc. which gave us a hidden advantage. Secular democracy & capitalism, it turns out, are very good ideas -- even if practiced imperfectly.

The US still does big league innovation and I think maintains a real but dwindling cultural/economic structure advantage.

China and other countries are flattening the world and really stepping up on big league innovation of their own. We can question the security/ethics concerns behind WeChat, Hauweii, foriegn developed vaccines, and the like. But there is no denying that other countries are well and truly in the game of big league innovation. A huge amount of software development occurs in other countries. Ditto for biotech. Same for energy. It is inevitable that more major innovation will come from these billions of people who are increasingly free to compete and innovate as they see fit. TikTok is a harbinger of things to come.

IMO, the relative % of disruptive innovation that emerges from non-US companies is likely to increase. Which may create another significant reason to own international stocks.

 

[Lsbcal]

Currently I have 40% of our equity in small cap international and the rest in the US equity. Specifically VINEX Vanguard International Explorer. SCZ is an etf that behaves similarly. VINEX is up 10% since August 1st.

 

[Koolau]

I use VTWAX for intl. diversity beyond that in my US-centric indexes. YMMV