International Investing....why?

[ncbill]

No international for me.

As others have posted international index funds have proven to be heavily correlated with US index funds.

Plus, I simply don't trust company financial reporting ex-USA.

There are too many ways for firms to hide bad news when their financial reporting doesn't have to conform to GAAP, e.g. Korean Chaebols.

 

[RetiredHappy]

When ML managed our funds, they had 20% in international. My son likes international market, so while I manage his account, I haven't touched those positions. For the rest of our accounts, we have reduced international positions through time but we still have about 12 to 15% in the other accounts.

 

[indiajust]

Perhaps something that has been missing from the discussion: sector analysis. Austria is overwhelmingly financial, helping out with funding the transformation of the former soviet bloc to capital and growth. Brazil is petroleum and soybeans, beef and pork. I don't think of international as a valid descriptor anymore. I buy country funds or individual stocks explicitly for their sector and business expertise.

Chopping the financial universe into us/them might have had merit in the 80's, but not so much today.

I am unwilling to lump my Finland/Sweden/Norway in with Brazil, South Africa, and Korea.

I suspect the US financial repression around the dollar and debt and fiat currency might have a thumb on the scale as well. So there is a choice of hedged/unhedged with currency. I prefer to handle this issue with gold/silver/BTC/commodity exposure as a 5% insurance policy. But there are many other ways.

 

[indiajust]

If you look into the sector weights, and you see Australia is little more than a mining colony from a financial perspective, it makes sense that their fortunes come and go with commodity demands for steel coal and copper.

US is more banking finance tech and health care. When and if those sectors falter...

My current bet is on a slow reversion to the mean. So I do carry quite a bit of exposure, but it is chosen to match sectors and areas I think will do well.

A brief example: Coke. KO in the US is grossly overpriced. KOF in Mexico was much more favorable and they use real sugar, not that processed corn syrup. You can buy coke bottlers all over the world.

 

[Lorenzo]

OP here. For us broad-market index investors, talking about investments in individual countries or in sectors heavily weighted toward some countries is of no interest. For you active investors, it's another matter. Have at it.

For 30+ years, in my various 401ks and rollover IRAs I have always held around 15% or 20% in one of those broad "international" funds, because it seemed like it was a pillar of the conventional diversification wisdom dating back to at least the early 1990s. And during the 2000s, when emerging economies were booming, it looked like a very good idea. But it seems like in today's globalized economy there are a number of people here who take the view, as @ncbill succintly put it a few posts above, "international index funds have proven to be heavily correlated with US index funds."

For a broad-market indexi investor like me, I just no longer see the utility. Someone mentioned that a broad international fund could still play a role in diversification if there were some unforeseen event that could shake the US economy more than others. Maybe.

 

[FloridaJim57]

I got out of international funds years ago. "Too much can go wrong in too many places and not enough return".

 

[sengsational]

There are too many ways for firms to hide bad news when their financial reporting doesn't have to conform to GAAP, e.g. Korean Chaebols.

I agree that there can be more slight of hand / corruption in some other countries. They do have to play by some rules or they'd get shut out, but the rules are probably looser than the US in many places.


There's an economic freedom index published by the Heritage Foundation that ranks how easy or hard the various governments around the world make it to do business. Here's a link to an article about the latest rankings and how one advisor chooses to interpret the results https://www.marottaonmoney.com/2024-index-of-economic-freedom-update/

 

[gcgang]

https://www.gmo.com/americas/research-library/the-great-paradox-of-the-u.s.-market_viewpoints

While most here believe nobody knows nuthin about future returns, above is a link to Jeremy Grantham’s outlook. He basically says International is slightly overvalued, while USA is EXTREMELY overvalued, at the highest 1% ever seen. Like Buffet, he is more positive on Japan.

 

[HI Bill]

https://www.gmo.com/americas/research-library/the-great-paradox-of-the-u.s.-market_viewpoints

While most here believe nobody knows nuthin about future returns, above is a link to Jeremy Grantham’s outlook. He basically says International is slightly overvalued, while USA is EXTREMELY overvalued, at the highest 1% ever seen. Like Buffet, he is more positive on Japan.

I trust VG's forecasts more than others, but they've been conservatively wrong for a while. US markets are propped up by the IRA and 401(k) investors. Every two weeks, every one of them makes a purchase, likely of an ETF or MF they chose a long time ago, without regard to its value or PE ratio. This, along with the Fed's previously low interest rates, have pumped up the market beyond reasonable prices.

Now that I understand IPOs, I understand that owning a stock share means that the company sold it long ago, likely to a bank or broker to raise cash, for likely much less than you paid for it. The actual performance of the company behind the stock is much less important than the investors' opinion of the company (look at Tesla). If the company's management or employees hold a large portion of the stock, they have more motivation to keep the stock high.

Short story for me is, a stock's value is like that of real estate. It's worth exactly what someone's willing to pay, and has little to nothing to do with its future growth potential, or what it cost to build. About 20 years ago, I gave up on wanting the market to make economic sense and sound decisions. I decided to play the game to my benefit. Hope it works out in the end....!

 

[big-papa]

When it comes down to it I wish I didn’t have international funds because I’m very tired of dealing with the foreign tax credit on my taxes.

I was fortunate because I was able to have all my international funds in my IRA...

Cheers.

 

[RunningBum]

I was fortunate because I was able to have all my international funds in my IRA...

Cheers.

That means you are paying taxes to foreign governments, with no way to get a credit back for them on your US tax return.

Earlier I said I had some intl in my IRA. I checked and I don't. I think I figured out pretty quickly that I had a 7-8% foreign tax drag on that fund. That's like a really really bad expense fee.

 

[Closet_Gamer]

International...I keep it because I'm supposed to.

It does serve as a currency hedge. If the world ever gives up on UST debt or the greenback as the reserve currency, your international holdings will become very valuable.

In the meantime, I make myself feel better by owning VYMI which at least puts out a nice dividend.

 

[Eucerin]

30 years ago I had a discussion with a veteran investor about international exposure in the portfolio, He expressed that there are enough foreign exposure in US funds, therefore there is no need to intentionally allocate foreign funds in the portfolio. With that in mind that I have been avoiding int'l funds until I met with this forum and Bogleheads. I have 7% in my portfolio now, not huge. It hasn't done much to the overall growth, maybe just let it sit there

 

[Eucerin]

I know many people hold Vanguard Wellesley fund in their portfolio which has foreign equity and bond exposure too

 

[tulak]

I’ve let my international drift down over the years, from a high of 40% of equities to about 18% right now. This drift has happened naturally, by not buying international and better performance of US equities.

But I might be more proactive soon, selling a chunk of international to buy another step in my TIPS ladder.