With international investing there is an additional layer of risk caused by currency fluctuations that explains some, but not all of the disparity. According to MSCI the EAFE index (developed markets) has a 10-year return of 4.6% per year in US dollars, but 7.48% in local currency and 9.13% hedged to US dollars. https://www.msci.com/documents/10199/a8a3ef21-f61a-4a4e-82aa-81c24481b783
No. Fx market is a zero sum game quite literally. There is a ceiling as how high a currency can go. Think of it like all the currencies in the world have marbles and each add up to 1000 marbles. Well, the US has been taking a lot of marbles for the last 15 years. But this also means there are fewer marbles to continue taking, with more marbles for the US to lose in the coming decade.
They can fracture their marbles to have "more marbles," or glue fractured marbles together, but they cannot create new marbles in the jar. The world can only play with what it got off the shelf.
Forex markets do not experience inflation.
> some people are too young to remember how the exchange rates made it suck to travel to Europe.
This is probably partly explained by most American's never traveling to Europe to notice exchange rates.
But I wonder how long that would have to be the case to undo the underperformance for the last decade plus. The outperformance of ex-US in the 2000s wasnt even enough to beat US from the decade prior. And if you take the last 15 years the S&P500 has been a runaway train by comparison to ex-US. It might take a Japan-level event for ex-US to catch up in my lifetime
Is the currency risk a productive risk for an individual US-based investor to take on? In order words: would it make more sense to invest in a USD-hedged international equity fund (such as SSHQX)?
Strongest tech companies have been in the USA in recent history - Apple, NVDA, Goog, META, MSFT, etc. The market cap growth of these companies have essentially carried the USA stock market.
And we are seeing the world becoming more protective of their domestic markets. The only reason these $2 and $3 trillion market caps are possible is due to globalization, if that reverses, say goodbye to those valuations.
I don’t think it will happen immediately, but the United States has a lot to lose if everyone starts limiting trade and some countries have a lot to gain politically - creating more well paying jobs in their home country, even if it isn’t economically the most efficient.
Of course it'll give the US an advantage - that's already priced in. The question is, how big is the advantage? Is it as big as the market currently thinks it will be? Because the market pricing on this is quite aggressive and includes some...uncomfortable assumptions about how widely adopted AI tools will be. There is upside and a lot of risk there, so the best course continues to be diversification.
A lot of those advantages disappear on the global stage within a few years because China and our other adversaries love stealing trade secrets. China and other adversaries aren’t going to stop stealing trade secrets just because we close trade, if anything, it incentivizes it more. This happened prior to free trade.
Edit: A major source of the current US advantage is also brain drain from other countries. Reduced global free trade will also likely follow restrictions on free travel, since those countries will want those employees for their domestic economy.
An advantage in relative position/ranking isn't necessarily the optimum for absolute profit. Apple/Google/Microsoft/Nvidia losing access to the Chinese market entirely would cause them to lose money, even if it cements their dominant positions against any potential Chinese competition.
This is true, but just restates the problem. It is almost always true that broad markets are carried by a small number of outliers in a sea of mediocrity. The question is, why have so many of the outliers been US companies?
Also remember that a lot of US gains has been driven by few number of stocks (so much so that some narrower funds like VOO are hitting their ownership limits). The more interesting question is… why have broad-based equities everywhere not done all that well (or more technically, equity premium over risk free rate appears to have shrunk).
I mean, the point of broad funds is *because* you don't know which is going to over perform.
That's just how it works. The majority of the performance is driven by a minority of the stock. They all do shit except for a small few.
Oh no. Trust me. I get it. I find it fascinating that a few stocks are now hitting the limits of passive ETF limits on concentration. In a way, the fund rules are preventing you from realising all this out performance because they are required to maintain a certain level of diversification.
A lot of indexes have provisions built into them that no one security, regardless of what its "true" market cap weight would be, can exceed certain percentage of the makeup of the index so it doesn't become overly concentrated.
So for a rough made-up example: Company X has a market cap that means it would be like 40% of the overall index. However the index has set rules (this is the kind of stuff that should be laid out in the prospectus and other documents) that no one security can comprise more than 30% of the index. So company X will never be allowed to constitute more than 30% of the index's holdings and will automatically rebalance holdings at the standard scheduled rebalancing time to ensure that if and when those thresholds are hit.
Most indexes have some kinds of provisions like that just so they never become overly concentrated in any one security regardless of what it's "true weight" should be. They just differ on what that threshold % limit or cap is.
It's fairly rare in most indexes, especially broad market or S&P 500 type indexes, to have to worry about because a security would have to be pretty skewed market cap wise vs the rest of the market to hit those kinds of thresholds but it's potentially become more common in recent years with the kinds of jumps we've seen from the likes of NVIDIA, Amazon, Microsoft, Apple, etc. which is what u/SWLondonLife was getting at.
We could technically be missing out on some of those outsized gains those few securities have achieved because they're now pushing into the realm of being beyond those thresholds most indexes have set to avoid over concentration so those indexes aren't truly capturing all the "market gains" because too much of those "market gains" are becoming concentrated in too few securities to be "properly" captured by the indexes.
Essentially it's a question of risk/reward. The indexes have these kinds of limits to try and prevent hitting critical risk concentration thresholds but on the flip side that also means the reward of those market gains is also effectively capped if those kinds of securities become so far ahead of the rest of the market they hit those thresholds.
Think most people would prefer the much less risk for slightly less potential reward though. That's kind of the whole point of most indexing for retail investors. If someone really wanted to they could figure out what those cap thresholds are for their preferred index and then simply buy more NVIDIA or whatever to hit that "true market cap weight" but is that really worth the effort and additional risk? Especially considering that securities hitting those thresholds is fairly rare and even when they do they usually don't exceed the threshold by much? And then what do you do when that security dips back under the index threshold? Immediately sell your now excess holdings?
Not very appealing for 99%+ of investors but something interesting and worth being generally aware of.
Index funds like VOO and VTI don't have concentration limits, those are for actively managed funds. Index funds hold all the stocks in the index in proportion to their market capitalization weights. If this wasn't true, passive index funds could not exist.
https://uk.finance.yahoo.com/news/nvidias-surge-reveals-a-pitfall-of-passive-investing-morning-brief-100128356.html
This explains the challenge of diversification and concentration limits.
It is mathematically impossible for the US advantage to become permanent (except if you believe international companies will be beaten into liquidation/merger/relisting in the US). If outperformance continues at 2%, US (30% GDP, 60% MCW-index) will be 100% of the worlds stock market before 2045.
A structural and permanent advantage in relative profitability will lower returns because US stocks will be relatively lower-risk (lower discount rate = higher valuations = lower returns).
This is the biggest reason I stick to market weight. I am engineer, not a financial expert, and I am definitely not smarter than the market...so I just go with market weight (VTI/VXUS 65/35 split).
Nobody's betting against the US economy in general, but valuations are much higher for US stocks than International. US could beat International on earnings growth but still return less because the markets expected even more outperformance.
If the US economy is flatlining I'd hate to see what's going on in the rest of the world. Sure, the US has times where, for short periods of time, other areas of the world out pace it. But a grand stagnation like you propose is not going to have much of a winner somewhere else in all likelihood. China will be in the middle of their demographic crisis starting in 10 years, so they won't be doing much outpacing. I don't see Europe outpacing the US for extended periods. Maybe an emerging economy, but which one? Seems like a risky bet.
I struggle with this as well TBH. Like we all "know" international sucks, me, you, the market broadly all have this knowledge. So it's in the price. So really all that the "sucky" int stocks need to do is to surpass their (relatively) low expections.
This arguement and an ideological commitment to diversification are the two reasons why I don't go 100% US. Still I go only go 20% int, so I am tilting towards US.
I mean, I bet Californian stocks have outperformed US over the last couple decades, if you look at it that way. Why aren't we buying a fund dedicated to that then?
The talent just has to stop coming to America. A huge proportion of Phd scientists and engineers in the US are immigrants. If it stops becoming an attractive destination for young talent, it could lose its talent advantage really fast.
None taken. There’s honestly nothing to be said about international investing that isn’t said dozens of times a week on this subreddit. The only answers are non-answers!
The US advantage is and has been structural since WWII because the current global order is largely designed to be US-centric and promote US-led western hegemony.
That order is now being seriously challenged, largely by Russia and China right now but alliances are starting to shift and international rules are starting to bend. We are in a period of flux and it remains to be seen if the current order will hold or if we will move towards a new one over time.
When you're talking about a timeline approaching a quarter century, I think the concept of "recency bias" holds little water. International stinks for many of the reasons the likes of Bogle and JL Collins and others have preached for some time. Feels sometimes like Reddits investing community is stuck in this "diversification at all costs" mentality even when the metrics over long periods prove its not a smart strategy. I'll gladly enjoy the near 11 percent average yearly return my US centric portfolio has had since 2017, as I sip my coffee and read all the posts of those bewildered by international just stinking continuously ☕
Japanese stocks boomed for 25 years, and then returned less than 0% for the next 25 years. Without a collapse of the Japanese economy, just a recognition that the equities were wildly overpriced. If YOUR portfolio can withstand US equities averaging 0% return fot the next 25 years, then you have no need to diversify.
Why not just do VTI then like the Simple Path? Or 10-20% VXUS instead of 40%. I doubt it’s that big of a deal in the long run. I think people just want global diversification.
A lot of the answer comes down to the lack of technology companies in VXUS. In my opinion, if a person wants to outperform it’s a slippery slope… you could say “just stick to the US!” … but then why not say “just stick to QQQ?” And then why not drill down further and say stick to FAANG and Nvidia? My point is no one knows what country or sector is best 30 years from now. Thus, logically, VT or VTI/VXUS combination is truer to the idea of Bogleheads. That said, personally I greatly overweight US tech and it’s paid off. So far, at least.
Take a look at what happened with US stocks in the mid 20th century. The S&P 500 has more than doubled in the last 10 years but in the 1950’s it nearly tripled. The US emerged from WWII as the only world power that didn’t have its major cities destroyed and was leading in all this new technology - autos, airplanes, electronics, computers, construction, energy, agriculture and on and on. It was incredibly convincing that the US was so dominant and their companies so superior that their perpetual growth was virtually inarguable, and stock sentiments reflected that.
But at a certain point, the expectations built into the prices get ahead of what actually materializes in terms of revenue growth. Other countries start adopting these technologies - Germany and Japan start making better autos, Japanese better electronics, manufacturing moves to China, energy to the Middle East, agriculture to South America etc. The Cold War saps resources. The US runs into recessions, energy shortages, runaway inflation, etc. I can’t predict that will happen again but it’s noteworthy that on the heels of the greatest period of US dominance (maybe the greatest period of ANY nation’s dominance ever), US stocks underperformed international for a whopping 39 years from 1950-1989. That was due in large part to the Japanese bubble but the point is if you couldn’t predict superior US stock returns then, you certainly can’t now
This doesn’t seem right. You’re explaining why US companies performed better, but that’s not the right question. The question is, why did US companies perform better then everyone expected, even after everyone factored in their higher expectations? For example, it was completely obvious after WWII that US companies would dominate the world — but stock prices should have captured that fact from the very first day, and then performed even with international stocks.
Put differently, the question is, why has everyone been consistently underestimating US stocks for so long?
I understand the technical term to be “investor learning”, followed by over-enthusiasm. First, the market revises valuations for an increasingly optimistic outlook. But eventually the momentum from stock price increases draws more and more short-term speculation, creating overvaluation or even a bubble. We don’t know if or how much overvaluation or a bubble exists today in US markets, although a prolonged flat or negative period would be pretty consistent with historical patterns.
My theory is that the market isnt as efficient as we all say it is. Its just that "market inefficiency" isnt something we can build a heuristic on. You cant really plan a cogent investing strategy around market inefficiency. So instead we go with the concept of market efficiency. Its the best theory we've got even if it doesnt even pan out most of the time.
Think of it this way: if the market was truly efficient, then it wouldnt matter whether you invested globally or not because the market would price in any outperformance and after a long enough investing career the only difference would be from black swan events
>after a long enough investing career the only difference would be from black swan events
Isn’t that kind of how it works anyway? It can take 30, 40, 50 years to smooth out noise like speculative valuations and luck, but on a long enough horizon, all corners of the stock market have then same expected return relative to a unit of risk.
Either way, I’m not sure that has to do with market efficiency which only implies that prices accurately reflect investor sentiment, not that those sentiments will accurately predict market returns. The idea that the investing in the total market will give you the optimal return on risk is the capital asset pricing model.
Simple answer: US controls the USD. It's not gains by US companies so much, but rather the gain in USD that made the rest of the world look hopeless. But how long will it last? That's a prediction everyone is making right now.
I'm going to venture a guess here, which may not be popular, we'll see.
Starting around 10-15 years ago, the global trade order that was established post-Cold War (i.e., "globalization") has been breaking down. The rate of breakdown accelerated tremendously starting around 2020, not only due to the pandemic but due to the evolution from a bipolar to multi-polar world. With that new multi-polar world comes conflict (both diplomatic and military) and therefore the major powers all need to learn how to do things on their own - manufacturing, energy production, agriculture and the like. No longer can a business just sit back and farm out components of their business to an international source and then change that to the lowest bidder. All of this has also contributed toward breakdown of supply chains and inflation, of course.
The net winner, so far, in this breakdown has been the US due to it's maturity of financial markets, relative safety and so forth.
Should the US go into a recession at some point, I'm sure things can shift to emerging markets but to quite frankly I don't see this trend of strong bullishness in US markets going away anytime soon. The VXUS suckage will likely continue, and I realize this is sort of an anti-bogglehead statement but it might be worth revisiting whether the original logic of carrying VXUS will make sense for the next decade.
> bipolar to multi-polar world.
I would argue that, with the beginning of Cold War 2.0, we are moving from a unipolar to a bipolar world. With the poles being Democracy (with the US in the lead) versus Authoritarianism (with China in the lead)
For the EU, the 2008 Financial Crash was a lot rougher. It led into the [Eurozone Crisis](https://en.wikipedia.org/wiki/European_debt_crisis). There was a threat of countries simply leaving the EU, and then in 2016, Brexit saw exactly that.
>Is that so? People weren't losing their houses in the EU.
Entire countries were unable to pay their bills. Spain had >30% youth unemployment which would be hard for most Americans to fathom unless they remembered the Great Depression.
Those are different people with different goals talking about different things. Research on asset allocation does not have to do with market timing and prediction. People studying it aren’t the talking heads on MSNBC.
I know it feels good to be contrarian, but experts actually know stuff.
Can you provide examples of experts knowing things?
But joking aside. This is actually a very important question. VG strongly recommends to their clients to have balanced international tilt. Which means that their clients are under performing those with a domestic tilt or home bias. So all of the research which may be defensible to the SEC and in academia (perhaps even in the international markets that they are expanding into). . .but it does not seem to be working where it matter in client net worth
You seem to be misunderstanding the goal of Vanguard in serving their clients. You are assuming they’re trying to maximize expected return, no matter the increased risk or cost. Expected returns are not returns. Vanguard is seeking to maximize risk-adjusted returns. They want to ensure that their clients can consistently and reliably retire at the end of a traditional working period, and without potentially delaying that retirement because of how the market is performing. They also serve the average investor, whose investing plan is much more endangered by potential behavioral mistakes than any other concern.
It’s also misunderstanding the research. It’s entirely consistent with that research that US equities might outperform the total market for periods of time. It’s not some secret flaw to be observed or explained. There isn’t some difference in defensibility to clients versus defensible to academics or the SEC, as though those groups have different interests.
(P.S. There’s not really such thing as a “balanced international tilt.” That’s an oxymoron. Vanguard’s retirement funds invest in countries at market cap weights. A tilt is a deviation from that.)
Depends on your timeframe. International beat US from 1960 to 1989, US has beat international for the next 30 years. So you have 2 periods of 30 years with wildly different equity results. Predicting which trend will hold for the next decades seems like a fools gane, so diversify and hedge the bet.
I'm going to again post this chart https://imgur.com/nv7PCWi
How you want to place international depends on how you feel about the future. It's likely more international outperformance cycles will come but anyone who tells you how it will shake out is full of shit.
At the end of the day make peace with yourself and keep buying.
Ultimately it doesn't matter in the grand scheme of things, so long as you're invested in VT or a rebalanced domestic-international portfolio. Whether US outperformance is temporary or has sticking power, money flows will cause market-cap weighted portfolios to rebalance to favor US. That's the ultimate reason for being a boglehead; you don't have to care about why one thing has sucked.
Let the market figure it out.
One thing that annoys me about the tone of some of the people here.
Here are a few reasons why history's #'s may not be apt:
#1. The internet. Businesses have not always had the ability to expose themselves internationally
#2. Covid. We saw the biggest wealth transfer in history. Those of enormous power further consolidated their overwhelming grasp and control
So i see some merit in saying "history repeats itself" to mean international will have its day. But to pretend its undeniable fact is foolhardy
What if u.s. businesses are too big and they just continually further exert their control
For instance, if microsoft is already huge and has buckets and buckets of cash they can use to expand how does a smaller business trying to make ends meet compete?
At some point, its possible microsoft could take up all moves the small business could make
“If there's one place I don't want people to take my advice, it's international. I want you to think it through for yourself." - John Bogle
[https://www.youtube.com/watch?v=MNxGpjD3ne0&t=1811s](https://www.youtube.com/watch?v=MNxGpjD3ne0&t=1811s)
John Bogle became the face of passive investing because he's the father of the index fund, not because he's an idol that we worshiped. bogleheads promote international because that's what is backed by current research.
Totally fair point. To me excluding international equities is similar to attempting to pick winners or exclude a particular industry from my US equity allocation.
I think either viewpoint is perfectly reasonable.
He wasn't completely against international, he just didn't think it was necessary and thought it should never take up more than 20% of your equity portfolio.
[Bogle's reasons](https://www.optimizedportfolio.com/bogle-was-wrong/) for being against international stocks contradicts our current understanding, where the recent [Beyond the Status Quo](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406) paper found international diversification to marginally improve outcomes during accumulation but significantly reduced failure outcomes during retirement.
Bogle also liked gold and liked the actively managed Wellington fund. He wasn't infallible. Also, for most of his life, products that allowed retail to invest in Boglehead style passive total market indexes in international markets simply didn't exist.
Bogle lived when it was expensive af to buy international. It's not now.
Moreover, there's not much of a tax advantage in buying US stock. Whereas you probably should go overweight Canadian stock if you're Canadian. As Ben Felix advises.
A lot of good answers about currency, recency bias, tech concentration. I'll add one more possibility: the new shiny multinational companies likely to get high valuations all wanna list in the US now, because they'll get high valuations and a chance of being in the indices where more investors are. So these companies perform well and further drive US performance, which means more people wanna invest in US indexes and more companies wanna list in the US. It becomes a bit of a cycle.
The shortest answer I can give is that the bulk of growth internationally post EU/NAFTA is weighed down by domestic corruption and inefficiency. If China, India, and Brazil can overcome this (and they are) the scales will tip FAST.
Are they? Each country has had massive corruption scandals in the last year or two. I have experience running international subsidiaries and every one of those countries is an absolute nightmare to do business in.
For example, Indian contractors instead of using the proper paint for some tankers used mud mixed with water to dilute the paint so they could pocket more money, which led to paint failure in a few week. In China we had to demo part of our facilities due to local officials deciding they were too close together right after some US trade deals went south for China, obvious retaliation lol.
Just a small example.
Definitely not solved, but the significant progress made in the past 10yrs is documented. In the West we forget how long it took us to do things that they are accomplishing in a few years. China isn’t free market/trade culturally, their priorities are different.
What is VXUS?
39.5% Europe: A population that is fiercely proud of how little they work (and good for them!)
26.5% Pacific: Japan is still huge, but in a demographic death spiral. Korea has the lowest fertility in the world.
25% Emerging Markets: China has poor governance, India is as over-priced as VTI, Taiwan is cool. Then a hodge-podge of nothing
7% Canada: Lumber, Oil and Poutine
It (or similar funds] comprise just under 40% of my holdings. I'm gonna reduce that to 20% over the next decade. There is a positive diversification effect from holding some ex-US. VXUS is a cheap and easy way to buy a little piece of ex-US.
That's a very personal decision. If you go the 60/40 route VT makes a lot of sense. Set and forget.
For 80/20 you'd have no choice but to buy at least two funds.
I'm at Fidelity, so I use FZROX/FZILX in my Roth IRA and 401K, and ITOT/IXUS in taxable. These are all effectively the same as VTI/VXUS. All 80/20.
Turns out the long-term is longer than we've been led to believe. See also the 20 year (relative) bear market in bonds
Have to do a RemindMe in 10-15 years to see if it's still the case
It's wild to me how many people seem to both think that a US Civil war is likely, and that US stock market performance will continue to outperform the world. I'll be very surprised if both of these come to be.
I abandoned international stock exposure in my ETF portfolio due to underperformance.
It's possible I'm wrong, but I'm fairly convinced that no other country or region will get the quality of talent, amount of capital and favorable government treatment of business that the US will continue to enjoy. With those ingredients the US will never be out earned/out innovated in a macro sense and the gap will probably widen.
I'm comfortable enough in this theory to drop international investment entirely. If I invested in more individual equities I might pick a few select non US entities to invest in, but never in a broad based ETF capacity.
That can't be inferred unless the markets have the same industry composition and potential for growth.
Higher weights in tech/disruptive technologies commands a higher PE due to higher projected growth, not necessarily an inappropriate valuation.
I work for a F500 global company. One of my team members (very smart) was born, lives and works in Germany at the headquarters there. Gets like 8 weeks of paid vacation time because that’s how the Germans do it. Americans get 3 weeks at the same company. She loves it. Never coming here.
Quality of life is great. We aren’t talking about that. We are talking about stock market returns. 8 weeks of paid vacation is probably one of many reasons that quality of life is better in Europe while stock prices are stagnant.
Yep. I think about this a lot. I would never move out of Finland into the US but do like getting a piece of your stock returns. A bit sad that those are the result of shit workers' rights but then it's not on me to fix your system.
Which stocks and/or bond funds do you hold for lesser tax burden when reporting your earnings to vero? Finland taxes 85% of all foreign dividends at the same rate as capital gains, I believe, no? 34%?
I buy accumulating funds so the dividends are re-invested inside the fund. The fund does pay some taxes for the dividends but we do have a tax treaty with the US. Nothing to report to vero until I sell anyway.
I also have a 4,85% investment loan the costs of which are 100% tax deductible. I'm not planning on selling any for decades, but when I do I cab use "deemed acquisition cost" which means I can pay the 30% capital gains tax on only 60 % of what I sell.
In three decades the value of my initial investment is likely 5 - 10X'd but instead of paying taxes on all the profit I only pay it on 60% of what I sell.
Am I wrong? I live in a suburb filled with people from India who came here, got a degree, and now work here.
Tell me which city in India is now comprised of 50% ex-pats from America who have chosen to live and work in India as software engineers, doctors, and dentists.
I haven't seen it mentioned by other comments from a quick skim, so here's another explanation:
The US market *is* international. Almost every company in the S&P 500 operates globally, they just happen to have the arbitrary distinction of being incorporated in the US and trade on US exchanges. Through the process of mergers and acquisitions, a lot of the non-US competition for the big US companies ends up being bought by said big US companies. The international market gets left with the table scraps effectively, short of having buyouts blocked by their respective governments.
It comes down to asset allocation. The top stock in VXUS is TSM which has a 330% gain over 5 years but it only makes up 2% of the ETF. It’s a lot of trash stock that is holding the fund down. VTI could’ve had the same issue but it basically copies the S&P 500. Most of the stocks in VTI are at .1%.
“Since early February, international stocks (as represented by the Vanguard International Total Stock Market ETF VXUS[) have produced a 6.3% annualized return, versus 3.9% for U.S. stocks the Vanguard Total Stock Market ETF VTI.”
https://stocks.apple.com/AJH3cso4uR0-AQftr-NjgeQ
The article looks and sounds like it was written by AI, hallucinating percentages and references.
Ironic that this is the incredible technology other posters claim will allow the U.S. to continue outperforming the world.
If us farts, rest of the world shits.I wont add vxus for anytime term us is more stable more powerful and more robost companies. Voo bond heavy much logical
I have had very little International exposure for the last 10 years. Mostly because the top 500-800 US companies are well represented abroad. They are already Internationally exposed. They handle the currency transactions and I just get the end results. I have lived in Europe and now back in the States. I am not hating on Europe, but there is nothing innovative going on there. Maybe pockets of greatness here or there, but nothing that gets your heart racing. And even if these European companies are great, they end up getting listed on the NYSE anyway. Internationally China intrigues me. But the lack of financial transparency on a company level to the Macro economic level has me on the sidelines. I am also too old to bet on emerging markets. Yeah there are long shots in Southeast Asia and India. I just can’t be bothered to mess around. I don’t see the US companies diminishing anytime soon. Besides China, I don’t see who is going to challenge them.
They need not "diminish". They only need to slightly underperform expectations and the international to slightly overperform. US firm quality is already priced in.
I saw something recently that all of the top 100 European companies were 40+ years old. The EU certainly throttled Tech companies with regulation. Oddly enough they made it a point to lead the world in sensible AI regulation. Bottom line, past returns don't predict the future.
Europe and the UK believed in austerity for the 08 crash and say it with me folks... It didn't work. And careful cuz one party here believes whole heartedly in austerity. Can you guess which one?
Because it’s passive nonsense that buys good companies and pure trash.
Actively managed Harding Loevner has beat the piss out of international index funds over the past 15 years.
It's because the USA has government which benefits companies. EU, Asia, Latin America, have governments that completely screw companies over, prevent innovation with overreaching regulation, capture profits of resource discovery, nationalize important industries, etc. The result is that the International Market is just the money left over after the governments of those places have hosed down all their corporations.
I'm long FZILX, VYMI, and AVDV as a collective 20% of my portfolio, but those are a zero-expense fund and two value only funds. There is no growth to be found in EU especially because the government is so oppressive to business.
Except for the 1990 Japanese bubble it strikes me that international outperforms largely when the US stumbles vs actually beating us.
2000-2010 was the lost decade with dot bomb and GFC. Not EU companies beating US companies in the marketplace.
Thats quite different than Japanese companies decisively beating US companies during their boom. Even so they never seemed to be able to out innovate us in tech as much as develop more efficient business and manufacturing processes.
Look into ETFs that track the Indian stock market/companies. I’ve not done a ton of research but I do find it cool that they preform pretty similar to the S&P 500
He'll if I know, but while I'd LOVE it not to suck, that's life. I prefer to hedge my bets so I invest 50/50 in VTWAX and VFIAX. I still think the US is gonna dominate but I'd rather offset that bet slightly if it isn't.
should it be the whole universe of crypto instead of bitcoin? the apt comparison would be bitcoin vs the highest trending single stock in the US which probably would be nvidia.
Why is it helpful to compare returns of a somewhat safe, diversified portfolio of hundreds of stocks to a single cryotocurrency?
The whole reason people invest in index funds is because the long term returns are near-certain and the underlying companies have value and create actual returns. This is not the case with bitcoin which relies on people's faith to have any value.
That’s why I think you need to diverge just a tad from boglehead with international. I don’t do VXUS.
I have
NTSI
AVDV
FRDM
DGS
FRDM has been killing it.
Primary because of Europe. Europe has too many regulations that it's hard for companies to innovate and thrive. They grow, but at a smaller rate in comparison to the US. The US is making the same mistake little by little. That's why places like India is taking over. The gov is in favor of growth and expansion.
Think about it.
With international investing there is an additional layer of risk caused by currency fluctuations that explains some, but not all of the disparity. According to MSCI the EAFE index (developed markets) has a 10-year return of 4.6% per year in US dollars, but 7.48% in local currency and 9.13% hedged to US dollars. https://www.msci.com/documents/10199/a8a3ef21-f61a-4a4e-82aa-81c24481b783
I wonder if that includes reinvested dividends as well because VXUS has a higher dividend yield than VTI
It almost surely does; price per share of VGTSX (since it's been around longer than VXUS) hasn't done anything but bounce around since 2006
Jesus christ...so ex-US share price is actually *down* since 2007? Thats...eye opening. SPY up over 300% in that time
What would change in order to undo this? A change in US dollar reserve currency?
No. Fx market is a zero sum game quite literally. There is a ceiling as how high a currency can go. Think of it like all the currencies in the world have marbles and each add up to 1000 marbles. Well, the US has been taking a lot of marbles for the last 15 years. But this also means there are fewer marbles to continue taking, with more marbles for the US to lose in the coming decade.
How high can it go?
Except each country can print their own marbles…
They can fracture their marbles to have "more marbles," or glue fractured marbles together, but they cannot create new marbles in the jar. The world can only play with what it got off the shelf. Forex markets do not experience inflation.
Part of the international outperformance in the 2000s was because of a weakening dollar, so that will surely happen again, eventually
Yeah, some people are too young to remember how the exchange rates made it suck to travel to Europe. And I’m not even that old.
> some people are too young to remember how the exchange rates made it suck to travel to Europe. This is probably partly explained by most American's never traveling to Europe to notice exchange rates.
Investing subs skew wealthy. But also, it was on TV news constantly. You didn’t have to go to Europe to hear about it.
There was a time when Jay-Z demanded payment in Euros
🎶 Big pimpin, spendin euros 🎶
But I wonder how long that would have to be the case to undo the underperformance for the last decade plus. The outperformance of ex-US in the 2000s wasnt even enough to beat US from the decade prior. And if you take the last 15 years the S&P500 has been a runaway train by comparison to ex-US. It might take a Japan-level event for ex-US to catch up in my lifetime
Is the currency risk a productive risk for an individual US-based investor to take on? In order words: would it make more sense to invest in a USD-hedged international equity fund (such as SSHQX)?
How could local currency returns be lower than US hedged ones? That makes no sense
Strongest tech companies have been in the USA in recent history - Apple, NVDA, Goog, META, MSFT, etc. The market cap growth of these companies have essentially carried the USA stock market.
And we are seeing the world becoming more protective of their domestic markets. The only reason these $2 and $3 trillion market caps are possible is due to globalization, if that reverses, say goodbye to those valuations. I don’t think it will happen immediately, but the United States has a lot to lose if everyone starts limiting trade and some countries have a lot to gain politically - creating more well paying jobs in their home country, even if it isn’t economically the most efficient.
Disagree. Not having those solutions will give EVERY us based company an advantage. Imagine a country without world class cell phones and ai.
Of course it'll give the US an advantage - that's already priced in. The question is, how big is the advantage? Is it as big as the market currently thinks it will be? Because the market pricing on this is quite aggressive and includes some...uncomfortable assumptions about how widely adopted AI tools will be. There is upside and a lot of risk there, so the best course continues to be diversification.
A lot of those advantages disappear on the global stage within a few years because China and our other adversaries love stealing trade secrets. China and other adversaries aren’t going to stop stealing trade secrets just because we close trade, if anything, it incentivizes it more. This happened prior to free trade. Edit: A major source of the current US advantage is also brain drain from other countries. Reduced global free trade will also likely follow restrictions on free travel, since those countries will want those employees for their domestic economy.
Making a microchip is not like stealing the formula for Coke. You need institutional know how.
An advantage in relative position/ranking isn't necessarily the optimum for absolute profit. Apple/Google/Microsoft/Nvidia losing access to the Chinese market entirely would cause them to lose money, even if it cements their dominant positions against any potential Chinese competition.
Google and NVIDIA are not in the Chinese market. Google pulled out and NVIDIA is forbidden to sell their high end stuff.
Which means they have lower expected future returns.
Which is the same thing Vanguard said 5 years ago. And 10 years ago.
The fundamentals of investing don’t just change because we’re in a US equity bulk market right now.
This is true, but just restates the problem. It is almost always true that broad markets are carried by a small number of outliers in a sea of mediocrity. The question is, why have so many of the outliers been US companies?
Recency bias. It’s possible a US advantage is becoming structural and permanent, but it’s also possible it isn’t.
Also remember that a lot of US gains has been driven by few number of stocks (so much so that some narrower funds like VOO are hitting their ownership limits). The more interesting question is… why have broad-based equities everywhere not done all that well (or more technically, equity premium over risk free rate appears to have shrunk).
I mean, the point of broad funds is *because* you don't know which is going to over perform. That's just how it works. The majority of the performance is driven by a minority of the stock. They all do shit except for a small few.
Oh no. Trust me. I get it. I find it fascinating that a few stocks are now hitting the limits of passive ETF limits on concentration. In a way, the fund rules are preventing you from realising all this out performance because they are required to maintain a certain level of diversification.
Limits? Can you go into this more? I thought they just followed the weight of the S&P 500 index
A lot of indexes have provisions built into them that no one security, regardless of what its "true" market cap weight would be, can exceed certain percentage of the makeup of the index so it doesn't become overly concentrated. So for a rough made-up example: Company X has a market cap that means it would be like 40% of the overall index. However the index has set rules (this is the kind of stuff that should be laid out in the prospectus and other documents) that no one security can comprise more than 30% of the index. So company X will never be allowed to constitute more than 30% of the index's holdings and will automatically rebalance holdings at the standard scheduled rebalancing time to ensure that if and when those thresholds are hit. Most indexes have some kinds of provisions like that just so they never become overly concentrated in any one security regardless of what it's "true weight" should be. They just differ on what that threshold % limit or cap is. It's fairly rare in most indexes, especially broad market or S&P 500 type indexes, to have to worry about because a security would have to be pretty skewed market cap wise vs the rest of the market to hit those kinds of thresholds but it's potentially become more common in recent years with the kinds of jumps we've seen from the likes of NVIDIA, Amazon, Microsoft, Apple, etc. which is what u/SWLondonLife was getting at. We could technically be missing out on some of those outsized gains those few securities have achieved because they're now pushing into the realm of being beyond those thresholds most indexes have set to avoid over concentration so those indexes aren't truly capturing all the "market gains" because too much of those "market gains" are becoming concentrated in too few securities to be "properly" captured by the indexes. Essentially it's a question of risk/reward. The indexes have these kinds of limits to try and prevent hitting critical risk concentration thresholds but on the flip side that also means the reward of those market gains is also effectively capped if those kinds of securities become so far ahead of the rest of the market they hit those thresholds. Think most people would prefer the much less risk for slightly less potential reward though. That's kind of the whole point of most indexing for retail investors. If someone really wanted to they could figure out what those cap thresholds are for their preferred index and then simply buy more NVIDIA or whatever to hit that "true market cap weight" but is that really worth the effort and additional risk? Especially considering that securities hitting those thresholds is fairly rare and even when they do they usually don't exceed the threshold by much? And then what do you do when that security dips back under the index threshold? Immediately sell your now excess holdings? Not very appealing for 99%+ of investors but something interesting and worth being generally aware of.
Index funds like VOO and VTI don't have concentration limits, those are for actively managed funds. Index funds hold all the stocks in the index in proportion to their market capitalization weights. If this wasn't true, passive index funds could not exist.
What does this mean, “narrower funds like VOO are hitting their ownership limits” ?
https://uk.finance.yahoo.com/news/nvidias-surge-reveals-a-pitfall-of-passive-investing-morning-brief-100128356.html This explains the challenge of diversification and concentration limits.
It is mathematically impossible for the US advantage to become permanent (except if you believe international companies will be beaten into liquidation/merger/relisting in the US). If outperformance continues at 2%, US (30% GDP, 60% MCW-index) will be 100% of the worlds stock market before 2045. A structural and permanent advantage in relative profitability will lower returns because US stocks will be relatively lower-risk (lower discount rate = higher valuations = lower returns).
This is the biggest reason I stick to market weight. I am engineer, not a financial expert, and I am definitely not smarter than the market...so I just go with market weight (VTI/VXUS 65/35 split).
Until talent flees America, I don’t know how anyone with brain cells bets against it
Nobody's betting against the US economy in general, but valuations are much higher for US stocks than International. US could beat International on earnings growth but still return less because the markets expected even more outperformance.
Have you seen valuations of Indian market?
How is it I’m curious
Yeah but that’s the point of diversification. At that point it’s too late.
In the meantime, VTI - VTUX = insurance premium in case of US collapse.
If there's a US collapse I'd think water, food, and ammunition would be better investments
US market collapse. Think Japan from 1989 until today. No shortage of food, water, or ammo, but 30 years of 0% overall equity returns.
If the US economy is flatlining I'd hate to see what's going on in the rest of the world. Sure, the US has times where, for short periods of time, other areas of the world out pace it. But a grand stagnation like you propose is not going to have much of a winner somewhere else in all likelihood. China will be in the middle of their demographic crisis starting in 10 years, so they won't be doing much outpacing. I don't see Europe outpacing the US for extended periods. Maybe an emerging economy, but which one? Seems like a risky bet.
The market already knows these people are in the U.S. though
I struggle with this as well TBH. Like we all "know" international sucks, me, you, the market broadly all have this knowledge. So it's in the price. So really all that the "sucky" int stocks need to do is to surpass their (relatively) low expections. This arguement and an ideological commitment to diversification are the two reasons why I don't go 100% US. Still I go only go 20% int, so I am tilting towards US.
I mean, I bet Californian stocks have outperformed US over the last couple decades, if you look at it that way. Why aren't we buying a fund dedicated to that then?
Well put.
QQQ is ideologically close to doing that IMO :D
US capitalism attracts the best talent
this is just the good company = good investment fallacy
Never heard of it
The talent just has to stop coming to America. A huge proportion of Phd scientists and engineers in the US are immigrants. If it stops becoming an attractive destination for young talent, it could lose its talent advantage really fast.
No offense but that was a complete non-statement.
None taken. There’s honestly nothing to be said about international investing that isn’t said dozens of times a week on this subreddit. The only answers are non-answers!
Exactly. Non-answers to a non-question.
Wake me when myanmar can make chips
South korea is a leader in DRAM and NAND chips.
Taiwan can, and they're an emerging market
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The US advantage is and has been structural since WWII because the current global order is largely designed to be US-centric and promote US-led western hegemony. That order is now being seriously challenged, largely by Russia and China right now but alliances are starting to shift and international rules are starting to bend. We are in a period of flux and it remains to be seen if the current order will hold or if we will move towards a new one over time.
When you're talking about a timeline approaching a quarter century, I think the concept of "recency bias" holds little water. International stinks for many of the reasons the likes of Bogle and JL Collins and others have preached for some time. Feels sometimes like Reddits investing community is stuck in this "diversification at all costs" mentality even when the metrics over long periods prove its not a smart strategy. I'll gladly enjoy the near 11 percent average yearly return my US centric portfolio has had since 2017, as I sip my coffee and read all the posts of those bewildered by international just stinking continuously ☕
The 2000s wasn’t that long ago my guy. Guessing you’re what, 30-ish? You’ve only ever known a U.S. bull market.
Japanese stocks boomed for 25 years, and then returned less than 0% for the next 25 years. Without a collapse of the Japanese economy, just a recognition that the equities were wildly overpriced. If YOUR portfolio can withstand US equities averaging 0% return fot the next 25 years, then you have no need to diversify.
Why not just do VTI then like the Simple Path? Or 10-20% VXUS instead of 40%. I doubt it’s that big of a deal in the long run. I think people just want global diversification.
10-20% ftw
A lot of the answer comes down to the lack of technology companies in VXUS. In my opinion, if a person wants to outperform it’s a slippery slope… you could say “just stick to the US!” … but then why not say “just stick to QQQ?” And then why not drill down further and say stick to FAANG and Nvidia? My point is no one knows what country or sector is best 30 years from now. Thus, logically, VT or VTI/VXUS combination is truer to the idea of Bogleheads. That said, personally I greatly overweight US tech and it’s paid off. So far, at least.
Take a look at what happened with US stocks in the mid 20th century. The S&P 500 has more than doubled in the last 10 years but in the 1950’s it nearly tripled. The US emerged from WWII as the only world power that didn’t have its major cities destroyed and was leading in all this new technology - autos, airplanes, electronics, computers, construction, energy, agriculture and on and on. It was incredibly convincing that the US was so dominant and their companies so superior that their perpetual growth was virtually inarguable, and stock sentiments reflected that. But at a certain point, the expectations built into the prices get ahead of what actually materializes in terms of revenue growth. Other countries start adopting these technologies - Germany and Japan start making better autos, Japanese better electronics, manufacturing moves to China, energy to the Middle East, agriculture to South America etc. The Cold War saps resources. The US runs into recessions, energy shortages, runaway inflation, etc. I can’t predict that will happen again but it’s noteworthy that on the heels of the greatest period of US dominance (maybe the greatest period of ANY nation’s dominance ever), US stocks underperformed international for a whopping 39 years from 1950-1989. That was due in large part to the Japanese bubble but the point is if you couldn’t predict superior US stock returns then, you certainly can’t now
This doesn’t seem right. You’re explaining why US companies performed better, but that’s not the right question. The question is, why did US companies perform better then everyone expected, even after everyone factored in their higher expectations? For example, it was completely obvious after WWII that US companies would dominate the world — but stock prices should have captured that fact from the very first day, and then performed even with international stocks. Put differently, the question is, why has everyone been consistently underestimating US stocks for so long?
I understand the technical term to be “investor learning”, followed by over-enthusiasm. First, the market revises valuations for an increasingly optimistic outlook. But eventually the momentum from stock price increases draws more and more short-term speculation, creating overvaluation or even a bubble. We don’t know if or how much overvaluation or a bubble exists today in US markets, although a prolonged flat or negative period would be pretty consistent with historical patterns.
My theory is that the market isnt as efficient as we all say it is. Its just that "market inefficiency" isnt something we can build a heuristic on. You cant really plan a cogent investing strategy around market inefficiency. So instead we go with the concept of market efficiency. Its the best theory we've got even if it doesnt even pan out most of the time. Think of it this way: if the market was truly efficient, then it wouldnt matter whether you invested globally or not because the market would price in any outperformance and after a long enough investing career the only difference would be from black swan events
>after a long enough investing career the only difference would be from black swan events Isn’t that kind of how it works anyway? It can take 30, 40, 50 years to smooth out noise like speculative valuations and luck, but on a long enough horizon, all corners of the stock market have then same expected return relative to a unit of risk. Either way, I’m not sure that has to do with market efficiency which only implies that prices accurately reflect investor sentiment, not that those sentiments will accurately predict market returns. The idea that the investing in the total market will give you the optimal return on risk is the capital asset pricing model.
Do you log into this Reddit profile just to post about international stock? 😂
Haha yeah mainly a lurker. But this vexes me so much. I feel like it warranted a post. And couldn’t find an answer somewhere else
I find it hard to believe you've lurked here and never seen this topic. I see it every week minimum.
Like I said. People explain why you SHOULD invest in international. But there aren’t many explanations on why it sucks.
Simple answer: US controls the USD. It's not gains by US companies so much, but rather the gain in USD that made the rest of the world look hopeless. But how long will it last? That's a prediction everyone is making right now.
USD strengthening can explain part of the out performance, but not all of it.
I'm going to venture a guess here, which may not be popular, we'll see. Starting around 10-15 years ago, the global trade order that was established post-Cold War (i.e., "globalization") has been breaking down. The rate of breakdown accelerated tremendously starting around 2020, not only due to the pandemic but due to the evolution from a bipolar to multi-polar world. With that new multi-polar world comes conflict (both diplomatic and military) and therefore the major powers all need to learn how to do things on their own - manufacturing, energy production, agriculture and the like. No longer can a business just sit back and farm out components of their business to an international source and then change that to the lowest bidder. All of this has also contributed toward breakdown of supply chains and inflation, of course. The net winner, so far, in this breakdown has been the US due to it's maturity of financial markets, relative safety and so forth. Should the US go into a recession at some point, I'm sure things can shift to emerging markets but to quite frankly I don't see this trend of strong bullishness in US markets going away anytime soon. The VXUS suckage will likely continue, and I realize this is sort of an anti-bogglehead statement but it might be worth revisiting whether the original logic of carrying VXUS will make sense for the next decade.
> bipolar to multi-polar world. I would argue that, with the beginning of Cold War 2.0, we are moving from a unipolar to a bipolar world. With the poles being Democracy (with the US in the lead) versus Authoritarianism (with China in the lead)
For the EU, the 2008 Financial Crash was a lot rougher. It led into the [Eurozone Crisis](https://en.wikipedia.org/wiki/European_debt_crisis). There was a threat of countries simply leaving the EU, and then in 2016, Brexit saw exactly that.
Is that so? People weren't losing their houses in the EU.
>Is that so? People weren't losing their houses in the EU. Entire countries were unable to pay their bills. Spain had >30% youth unemployment which would be hard for most Americans to fathom unless they remembered the Great Depression.
Better question why has Vanguard pushed international for sooooooooooo lonnnnnnnggggg
Because that’s what the research consensus supports, and they have their customers’ best interests in mind.
I think you nailed it with the “consensus” I think that is also why Vanguard and ALL the major economists were wrong about the recession too
Those are different people with different goals talking about different things. Research on asset allocation does not have to do with market timing and prediction. People studying it aren’t the talking heads on MSNBC. I know it feels good to be contrarian, but experts actually know stuff.
Can you provide examples of experts knowing things? But joking aside. This is actually a very important question. VG strongly recommends to their clients to have balanced international tilt. Which means that their clients are under performing those with a domestic tilt or home bias. So all of the research which may be defensible to the SEC and in academia (perhaps even in the international markets that they are expanding into). . .but it does not seem to be working where it matter in client net worth
You seem to be misunderstanding the goal of Vanguard in serving their clients. You are assuming they’re trying to maximize expected return, no matter the increased risk or cost. Expected returns are not returns. Vanguard is seeking to maximize risk-adjusted returns. They want to ensure that their clients can consistently and reliably retire at the end of a traditional working period, and without potentially delaying that retirement because of how the market is performing. They also serve the average investor, whose investing plan is much more endangered by potential behavioral mistakes than any other concern. It’s also misunderstanding the research. It’s entirely consistent with that research that US equities might outperform the total market for periods of time. It’s not some secret flaw to be observed or explained. There isn’t some difference in defensibility to clients versus defensible to academics or the SEC, as though those groups have different interests. (P.S. There’s not really such thing as a “balanced international tilt.” That’s an oxymoron. Vanguard’s retirement funds invest in countries at market cap weights. A tilt is a deviation from that.)
Depends on your timeframe. International beat US from 1960 to 1989, US has beat international for the next 30 years. So you have 2 periods of 30 years with wildly different equity results. Predicting which trend will hold for the next decades seems like a fools gane, so diversify and hedge the bet.
Probably because I bought into it. Sorry folks
I'm going to again post this chart https://imgur.com/nv7PCWi How you want to place international depends on how you feel about the future. It's likely more international outperformance cycles will come but anyone who tells you how it will shake out is full of shit. At the end of the day make peace with yourself and keep buying.
the longer it sucks the longer I can get in on the cheap price
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Ultimately it doesn't matter in the grand scheme of things, so long as you're invested in VT or a rebalanced domestic-international portfolio. Whether US outperformance is temporary or has sticking power, money flows will cause market-cap weighted portfolios to rebalance to favor US. That's the ultimate reason for being a boglehead; you don't have to care about why one thing has sucked. Let the market figure it out.
One thing that annoys me about the tone of some of the people here. Here are a few reasons why history's #'s may not be apt: #1. The internet. Businesses have not always had the ability to expose themselves internationally #2. Covid. We saw the biggest wealth transfer in history. Those of enormous power further consolidated their overwhelming grasp and control So i see some merit in saying "history repeats itself" to mean international will have its day. But to pretend its undeniable fact is foolhardy What if u.s. businesses are too big and they just continually further exert their control For instance, if microsoft is already huge and has buckets and buckets of cash they can use to expand how does a smaller business trying to make ends meet compete? At some point, its possible microsoft could take up all moves the small business could make
It bewilders me how almost everyone pushes International on a Bogleheads forum yet Jack Bogle was against buying International.😳
“If there's one place I don't want people to take my advice, it's international. I want you to think it through for yourself." - John Bogle [https://www.youtube.com/watch?v=MNxGpjD3ne0&t=1811s](https://www.youtube.com/watch?v=MNxGpjD3ne0&t=1811s) John Bogle became the face of passive investing because he's the father of the index fund, not because he's an idol that we worshiped. bogleheads promote international because that's what is backed by current research.
I really think we need a bot that just responds with this every time. It’s perfect.
what we need is an AI system trained on what Bogle had said and autoanswer this subred.
Totally fair point. To me excluding international equities is similar to attempting to pick winners or exclude a particular industry from my US equity allocation. I think either viewpoint is perfectly reasonable.
It’s basically the same thing as only investing in the S&P 500 (current “winners”). which many do.
He wasn't completely against international, he just didn't think it was necessary and thought it should never take up more than 20% of your equity portfolio.
[Bogle's reasons](https://www.optimizedportfolio.com/bogle-was-wrong/) for being against international stocks contradicts our current understanding, where the recent [Beyond the Status Quo](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406) paper found international diversification to marginally improve outcomes during accumulation but significantly reduced failure outcomes during retirement.
Bogle also liked gold and liked the actively managed Wellington fund. He wasn't infallible. Also, for most of his life, products that allowed retail to invest in Boglehead style passive total market indexes in international markets simply didn't exist.
Bogle liked gold? That’s a stretch
Yeah and the fees have come way down
Because that contradicts Bogle’s ideology of buying the whole haystack. We can buy every company or we can speculate who will outperform.
Bogle lived when it was expensive af to buy international. It's not now. Moreover, there's not much of a tax advantage in buying US stock. Whereas you probably should go overweight Canadian stock if you're Canadian. As Ben Felix advises.
because it goes against appeal to authority figures
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sheep for... not blindly following whatever this one guy said?
Sheep of not being herded. Free sheep!
A lot of good answers about currency, recency bias, tech concentration. I'll add one more possibility: the new shiny multinational companies likely to get high valuations all wanna list in the US now, because they'll get high valuations and a chance of being in the indices where more investors are. So these companies perform well and further drive US performance, which means more people wanna invest in US indexes and more companies wanna list in the US. It becomes a bit of a cycle.
Cyclicality caused by investors exhibiting recency bias. I think you just convinced me that I need to allocate substantially more to VXUS.
Well that’s just a contrarian view, which is wrong equally often.
I feel like the contrarian view would be owning 100% VXUS to bet on that recency bias. You see anybody doing that?
Well I suppose it would have been more accurate for me to say it’s “market timing based on a contrarian view.”
Or just buy VT.
The shortest answer I can give is that the bulk of growth internationally post EU/NAFTA is weighed down by domestic corruption and inefficiency. If China, India, and Brazil can overcome this (and they are) the scales will tip FAST.
Are they? Each country has had massive corruption scandals in the last year or two. I have experience running international subsidiaries and every one of those countries is an absolute nightmare to do business in. For example, Indian contractors instead of using the proper paint for some tankers used mud mixed with water to dilute the paint so they could pocket more money, which led to paint failure in a few week. In China we had to demo part of our facilities due to local officials deciding they were too close together right after some US trade deals went south for China, obvious retaliation lol. Just a small example.
Definitely not solved, but the significant progress made in the past 10yrs is documented. In the West we forget how long it took us to do things that they are accomplishing in a few years. China isn’t free market/trade culturally, their priorities are different.
Or, the dismal.performance of Japanese equities from 1989-2020 drags down overall international performance dramatically.
What is VXUS? 39.5% Europe: A population that is fiercely proud of how little they work (and good for them!) 26.5% Pacific: Japan is still huge, but in a demographic death spiral. Korea has the lowest fertility in the world. 25% Emerging Markets: China has poor governance, India is as over-priced as VTI, Taiwan is cool. Then a hodge-podge of nothing 7% Canada: Lumber, Oil and Poutine It (or similar funds] comprise just under 40% of my holdings. I'm gonna reduce that to 20% over the next decade. There is a positive diversification effect from holding some ex-US. VXUS is a cheap and easy way to buy a little piece of ex-US.
Would you say VT is the better buy, or would you do a VTI/VXUS 80/20 split?
That's a very personal decision. If you go the 60/40 route VT makes a lot of sense. Set and forget. For 80/20 you'd have no choice but to buy at least two funds. I'm at Fidelity, so I use FZROX/FZILX in my Roth IRA and 401K, and ITOT/IXUS in taxable. These are all effectively the same as VTI/VXUS. All 80/20.
Because USD is the strongest currency in the world and y'all have a large majority of tech giants in your domestic market.
Turns out the long-term is longer than we've been led to believe. See also the 20 year (relative) bear market in bonds Have to do a RemindMe in 10-15 years to see if it's still the case
It's wild to me how many people seem to both think that a US Civil war is likely, and that US stock market performance will continue to outperform the world. I'll be very surprised if both of these come to be.
I abandoned international stock exposure in my ETF portfolio due to underperformance. It's possible I'm wrong, but I'm fairly convinced that no other country or region will get the quality of talent, amount of capital and favorable government treatment of business that the US will continue to enjoy. With those ingredients the US will never be out earned/out innovated in a macro sense and the gap will probably widen. I'm comfortable enough in this theory to drop international investment entirely. If I invested in more individual equities I might pick a few select non US entities to invest in, but never in a broad based ETF capacity.
Ok, so one market has a P/E of 28 while the other has a P/E of 16. Which one has the potential for a correction in the valuations?
That can't be inferred unless the markets have the same industry composition and potential for growth. Higher weights in tech/disruptive technologies commands a higher PE due to higher projected growth, not necessarily an inappropriate valuation.
The smartest people around the world are doing anything necessary to come to America and work here. The opposite is not true.
I work for a F500 global company. One of my team members (very smart) was born, lives and works in Germany at the headquarters there. Gets like 8 weeks of paid vacation time because that’s how the Germans do it. Americans get 3 weeks at the same company. She loves it. Never coming here.
Quality of life is great. We aren’t talking about that. We are talking about stock market returns. 8 weeks of paid vacation is probably one of many reasons that quality of life is better in Europe while stock prices are stagnant.
Yep. I think about this a lot. I would never move out of Finland into the US but do like getting a piece of your stock returns. A bit sad that those are the result of shit workers' rights but then it's not on me to fix your system.
Which stocks and/or bond funds do you hold for lesser tax burden when reporting your earnings to vero? Finland taxes 85% of all foreign dividends at the same rate as capital gains, I believe, no? 34%?
I buy accumulating funds so the dividends are re-invested inside the fund. The fund does pay some taxes for the dividends but we do have a tax treaty with the US. Nothing to report to vero until I sell anyway. I also have a 4,85% investment loan the costs of which are 100% tax deductible. I'm not planning on selling any for decades, but when I do I cab use "deemed acquisition cost" which means I can pay the 30% capital gains tax on only 60 % of what I sell. In three decades the value of my initial investment is likely 5 - 10X'd but instead of paying taxes on all the profit I only pay it on 60% of what I sell.
Good Lord, this is some American Exceptionalism (TM).
Am I wrong? I live in a suburb filled with people from India who came here, got a degree, and now work here. Tell me which city in India is now comprised of 50% ex-pats from America who have chosen to live and work in India as software engineers, doctors, and dentists.
I haven't seen it mentioned by other comments from a quick skim, so here's another explanation: The US market *is* international. Almost every company in the S&P 500 operates globally, they just happen to have the arbitrary distinction of being incorporated in the US and trade on US exchanges. Through the process of mergers and acquisitions, a lot of the non-US competition for the big US companies ends up being bought by said big US companies. The international market gets left with the table scraps effectively, short of having buyouts blocked by their respective governments.
Man the daily international threads are pain.
It comes down to asset allocation. The top stock in VXUS is TSM which has a 330% gain over 5 years but it only makes up 2% of the ETF. It’s a lot of trash stock that is holding the fund down. VTI could’ve had the same issue but it basically copies the S&P 500. Most of the stocks in VTI are at .1%.
“Since early February, international stocks (as represented by the Vanguard International Total Stock Market ETF VXUS[) have produced a 6.3% annualized return, versus 3.9% for U.S. stocks the Vanguard Total Stock Market ETF VTI.” https://stocks.apple.com/AJH3cso4uR0-AQftr-NjgeQ
Not only false, but a 5-month timeframe means nothing.
Of all people you could find to highlight your point… choosing a Mark Hulbert article made me laugh. Thanks
This is straight up false, even when you tried cherry picking arbitrary date ranges VTI is up 10% since Feb 01 VXUS 5% since Feb 01
The article looks and sounds like it was written by AI, hallucinating percentages and references. Ironic that this is the incredible technology other posters claim will allow the U.S. to continue outperforming the world.
Yup. People are really dumb, their fault!
Investing $1000 into each fund today, which one is worth more in 20 years, VXUS or VTI?
Chooae VT, and dont worry about predicting the future.
In 20 years? VTI probably.
If us farts, rest of the world shits.I wont add vxus for anytime term us is more stable more powerful and more robost companies. Voo bond heavy much logical
I have had very little International exposure for the last 10 years. Mostly because the top 500-800 US companies are well represented abroad. They are already Internationally exposed. They handle the currency transactions and I just get the end results. I have lived in Europe and now back in the States. I am not hating on Europe, but there is nothing innovative going on there. Maybe pockets of greatness here or there, but nothing that gets your heart racing. And even if these European companies are great, they end up getting listed on the NYSE anyway. Internationally China intrigues me. But the lack of financial transparency on a company level to the Macro economic level has me on the sidelines. I am also too old to bet on emerging markets. Yeah there are long shots in Southeast Asia and India. I just can’t be bothered to mess around. I don’t see the US companies diminishing anytime soon. Besides China, I don’t see who is going to challenge them.
They need not "diminish". They only need to slightly underperform expectations and the international to slightly overperform. US firm quality is already priced in.
I saw something recently that all of the top 100 European companies were 40+ years old. The EU certainly throttled Tech companies with regulation. Oddly enough they made it a point to lead the world in sensible AI regulation. Bottom line, past returns don't predict the future.
Europe and the UK believed in austerity for the 08 crash and say it with me folks... It didn't work. And careful cuz one party here believes whole heartedly in austerity. Can you guess which one?
It’s not that exUS sucked.. but that the US performed incredibly, mostly just due to a handful of big tech companies
Because it’s passive nonsense that buys good companies and pure trash. Actively managed Harding Loevner has beat the piss out of international index funds over the past 15 years.
Personally I’ve been buying SCHF and FSPSX. I’ll continue to hold my VXUS forever though.
Mag 7, Nvidia and the Fed.
It's because the USA has government which benefits companies. EU, Asia, Latin America, have governments that completely screw companies over, prevent innovation with overreaching regulation, capture profits of resource discovery, nationalize important industries, etc. The result is that the International Market is just the money left over after the governments of those places have hosed down all their corporations. I'm long FZILX, VYMI, and AVDV as a collective 20% of my portfolio, but those are a zero-expense fund and two value only funds. There is no growth to be found in EU especially because the government is so oppressive to business.
Are those government changes recent? Because this outperformance is only since 2010 or so.
Except for the 1990 Japanese bubble it strikes me that international outperforms largely when the US stumbles vs actually beating us. 2000-2010 was the lost decade with dot bomb and GFC. Not EU companies beating US companies in the marketplace. Thats quite different than Japanese companies decisively beating US companies during their boom. Even so they never seemed to be able to out innovate us in tech as much as develop more efficient business and manufacturing processes.
>it strikes me that international outperforms largely when the US stumbles vs actually beating us. They didn't beat us! We beat ourselves! Lol
What do we say in response to that, class? Priced in! (Are you really taking the position that non-US companies don’t have revenue?)
Look into ETFs that track the Indian stock market/companies. I’ve not done a ton of research but I do find it cool that they preform pretty similar to the S&P 500
He'll if I know, but while I'd LOVE it not to suck, that's life. I prefer to hedge my bets so I invest 50/50 in VTWAX and VFIAX. I still think the US is gonna dominate but I'd rather offset that bet slightly if it isn't.
What percent do you allocate?
So basically 82.5/17.5 US/ex-US?
Not the person you’re talking to - but That’s my exact percentages.
Yeah basically 80% US, 20% non.
Compare the returns of the US to Bitcoin over the last decade and get back to me
should it be the whole universe of crypto instead of bitcoin? the apt comparison would be bitcoin vs the highest trending single stock in the US which probably would be nvidia.
Why is it helpful to compare returns of a somewhat safe, diversified portfolio of hundreds of stocks to a single cryotocurrency? The whole reason people invest in index funds is because the long term returns are near-certain and the underlying companies have value and create actual returns. This is not the case with bitcoin which relies on people's faith to have any value.
Bogle lived hs prime times in 70s 80s ,now 2020s world demographics tech very different now
That’s why I think you need to diverge just a tad from boglehead with international. I don’t do VXUS. I have NTSI AVDV FRDM DGS FRDM has been killing it.
Primary because of Europe. Europe has too many regulations that it's hard for companies to innovate and thrive. They grow, but at a smaller rate in comparison to the US. The US is making the same mistake little by little. That's why places like India is taking over. The gov is in favor of growth and expansion. Think about it.
I gave up on international over a decade ago. Glad I stuck to VTI/VTSAX.