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  • Why International?

    As you learn, you'll start asking yourself "why did the 500 index fund beat the total international fund over the last 15 years?" And what you'll discover is that US stocks outperformed international stocks over that time period. That is not the case for many other time periods. - The White Coat Investor
    So this has been a question of mine. Why hold an international based equity in your portfolio? If the US stocks haven’t been a consistent outperformed or pace setter, why did John Bogle recommend not having it as part of a portfolio? I understand his rational in his book, the little book of common sense investing. But I’ve wondered why WCI and Physician on FIRE would include it in their portfolios?
    Last edited by Peds; 04-21-2020, 07:05 AM.

  • #2
    past performance doesn't predict future performance....who says that the united states will outperform the rest of the world for the next 30-50 years? it's all about diversification

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    • #3
      Originally posted by OwnSaladDressing View Post
      So this has been a question of mine. Why hold an international based equity in your portfolio? If the US stocks haven’t been a consistent outperformed or pace setter, why did John Bogle recommend not having it as part of a portfolio? I understand his rational in his book, the little book of common sense investing. But I’ve wondered why WCI and Physician on FIRE would include it in their portfolios?
      You can take it several ways. As JBME mentioned, it can and does add diversification. On the other hand, enough US companies are global that you can actual get international exposure holding just US companies. There's no right or wrong answer.

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      • #4
        I'll let PhysicianOnFIRE and WCI answer for themselves but it comes down to diversification vs reward- For me, I'm willing to give up on the small chance the US outperforms International for the rest of my investing horizon (30+ years hopefully) and accept a possible slightly overall lower portfolio return if that happens. I'd rather hedge my bets and diversify a little with international, along with bonds and Reits- it's just my comfortable asset allocation. Which is personal-others surely will disagree with me on this. In WCI's "150 portfolios better than yours" I believe one of them was 100% VTSAX. You should also familiarize yourself with this https://www.callan.com/wp-content/up...odic-Table.pdf before deciding for yourself.

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        • #5
          Originally posted by OwnSaladDressing View Post

          So this has been a question of mine. Why hold an international based equity in your portfolio? If the US stocks haven’t been a consistent outperformed or pace setter, why did John Bogle recommend not having it as part of a portfolio? I understand his rational in his book, the little book of common sense investing. But I’ve wondered why WCI and Physician on FIRE would include it in their portfolios?
          As US companies have expanded internationally they are exposed to international risk and thus the total stock market US will tend to correlate with international performance more. Does it correlate perfectly? No. The correlation has been increasing over time, reducing the diversification benefit. But you still get diversification benefit from imperfectly correlated asset classes.

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          • #6
            international yes or no? is the dead horse that's been beaten over and over again especially on bogleheads

            there are reasonable arguments on both sides, you just have to make your own informed decision

            recommend reading Vanguard's white paper https://www.vanguard.com/pdf/ISGGEB.pdf

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            • #7
              After this COVID mess is over, I suspect the rest of the world will be harder hit than the US and thus the expected returns as things improve could outpace the US as well. But you know what they say about predictions, particularly ones about the future...

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              • #8
                https://www.whitecoatinvestor.com/fo...veloped-assets

                I'm with you, OwnSalad. Since 1998, the trend toward global diversification continues to diminish. The US markets have outperformed developed internationals for 20 years. The Callan chart fools one into seeing trivial dispersions as some equalizing balance. John Bogle was right.

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                • #9
                  Probably some Japanese investors in the 1980's were thinking the same thing.

                  On the one hand this question is rhetorical. On the other hand, there's a slight opening for a legitimate answer. I don't have a good answer to satisfy people on this board who are likely smarter than me. Let me answer with another possible rhetorical question. Should everyone in the world with internet access just open an online brokerage account and just invest total US stock market?

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                  • #10
                    I appreciate all of your input. Up until recently I have gone the 1/3, 1/3, 1/3 split of Vanguard Total US stock, Total International Stock, and Total US Bond. So I cant even say that I only invest in US equities. I've been reading a lot of the Boglehead guides, and John Bogle books lately, and was wondering why others felt the need to. Diversification is a completely legitimate case to argue.

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                    • #11
                      As some others have said, it's about diversification, because none of us can predict with any certainty what will happen. What has been true in the past might continue into the future, or it might end up up just the opposite, none of us knows for sure.

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                      • #12
                        I met with a fidelity FA a few years ago and he recommended that 90% of one's stock equity should be domestic. So I asked him if I were Australian, should I be 90% in Australia? He laughed, but wouldn't give an answer.

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                        • #13
                          I believe US equity market capitalization is like 52% with ROW comprising 48%. There are alot of really good international companies. IMO, some factors around performance disparity between US and non-US equity markets has to do with government level fiscal / monetary policy, business environment/policy at all levels, accounting regimes in blocks/countries, more use/comfort of debt in capital structure, and cultural differences in other societies with respect to equity. I hold international equity (VTIAX), though don't hold out significant hope it will outperforms the US anytime soon with some (relatively marginal) diversification benefit.

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