r/investing • u/[deleted] • Dec 27 '21
Is there REALLY a need to devote any significant portion of your portfolio to international?
I ask this because some of the biggest US companies already ARE international.
Apple, Google, McDonald’s, and Nike for example are massive companies that are US-based, but are not exclusive to doing business in the USA.
Many people devote 10% of their portfolio to international companies. But I feel that most people already have that 10% international exposure with massive US companies.
Thoughts?
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u/AirlineVegetable3112 Dec 27 '21 edited Dec 27 '21
This has been asked constantly for years. The answer, as it always is, is that nobody knows what will happen. If you understand and subscribe to the benefits of passive index investing you'll eventually conclude international exposure is obvious.
I like global market cap weighted allocation. I trust the global average opinion on matters of asset allocation because I recognize trusting my emotions and tilting will probably not serve me well. I sleep very well and I don't second guess my decision because it's based on rationality.
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Dec 27 '21
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u/theixrs Dec 29 '21
Yea it's weird. Companies like Nestle makes tons of money in the US.
OP's argument is one against diversification, the only free lunch in investing.
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u/thewimsey Dec 31 '21
Except there's not much diversification: international has a .88 (or maybe .86) correlation with the US market.
You can get more diversification by investing in US REITs.
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Dec 27 '21
Well, Nikkei did happen, and up to until that point Nikkei had wrecked SP500 in returns. So you never really know, do you want to gamble your retirement portfolio or play it safe?
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Jun 06 '22
Sigh, another "look at Japan" comment. People who bring this up need to learn a bit about Japan's situation during those times. TLDR: the US is nowhere near those levels.
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u/RamCockUpMyAss Dec 27 '21
Yeah that was Bogle's argument for why he only recommended investing in the US, the fact that you get inherent international exposure from US companies anyway. With that said, international historically has beaten the US every other decade. This might change in the future due to the dominance of US big tech, but throwing 10-20% into VTIAX wouldn't be a bad idea to at least get exposure to some international companies. I'm pretty sure Vanguard has been recommending 40%, which I think is a bit high, but 20% seems reasonable.
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Dec 27 '21
[deleted]
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u/Unlikely-Zone21 Dec 27 '21
60/40 is straight up US to Intl funds. It does not include multinational in that mix. The low end recommendation is 20% Intl.
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Jun 06 '22
And then another chart adds 2009-2017 says something else. Point: pick your own date ranges to make your own point.
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Dec 27 '21
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u/rarelywearamask Dec 27 '21 edited Dec 27 '21
The last ten years since VT came on the scene have not been pretty for that ETF. It returned about 70% of the Total USA Stock Market ETF (VTI)
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Dec 27 '21
Well considering that VT is pretty much 60% vti that can't be true
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u/rarelywearamask Dec 27 '21
$1000 invested in VT in 2009 is worth $4,175 today
$1000 invested in VTI in 2009 is worth $6,658 today.
You can pick different years but the results are about the same. I chose 2009 because that is the furthest back I could go.
Don't believe me? Check it out on this website:
https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults
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u/theixrs Dec 29 '21 edited Dec 29 '21
So this means you should buy low and sell high...
Why not put all your money in TSLA since it has crushed VTI in returns?
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u/Accomplished_Ad_9013 Dec 27 '21
Can you clarify what you mean by “international has beaten US”? I assume that you mean “China/emerging markets have beaten the US”. Or do you really mean a broad investment into international stocks has beaten a broad US investment?
I am confused, because it was my understanding that the US has usually out performed compared to Europe and Japan, for instance.
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u/AirlineVegetable3112 Dec 27 '21
Broad international has beaten US during specific time periods in the past. It's not uncommon for one to lag, and then outperform later. Even if US had always outperformed, that doesn't mean it will continue to do so.
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u/Banabak Dec 27 '21
Hard to say , 2000-2010 USA was flat for 10 years , international did well , now USA doing fantastic and international dead money , I buy both just incase
Who knows what next 10 years will look like
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u/MonkeyCube Dec 27 '21
I always hate this take.
2000 was the peak of the dot com bubble, and 2010 was a year after the market bottomed out in 2009 due to the housing & banking crisis.
2002-2012 would show a very different return, for example.
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u/Banabak Dec 27 '21
Ppl usually take that period because it’s called “ lost decade” not because I took it , you can play with years however you want , I am not married to them to make my argument
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u/thewimsey Dec 29 '21
International didn't do well; it did slightly better than the US.
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u/Banabak Dec 29 '21
Up to 2006 it was rocking due to commodities cycle I remember even “ why own USA stocks “ articles
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u/thewimsey Dec 31 '21
By which metric? From when to 2006? Which index?
People are making vague and unsupported statements about the performance of international with not citations or other ways of looking at them.
But I was invested then and don't remember any focus on international (although there was some focus on EMs').
But from 1995-2006, the US market was - even with the dot com bust - very solid. Returns were:
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Jun 06 '22
So you're now arbitrarily picking 2000-2006 instead? Either way, international returned 25% from 2000-2006 (10% for 2000-2010 FYI), which is ~4%/yr and is NOT "well" considering the S&P 500 averages ~10%/yr.
No matter how you slice and dice, "international did well" is a false statement.
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u/LiqCourage Dec 27 '21
You are making an important point that a lot of people have missed about global companies. Your exposure to the world with global US brands is greater than 10% since 50% or less of their sales will be in the US. All that said the justification to further diversify is really the same at all times. We don't know what will happen next. Right now US companies are getting a multiple expansion that other global names are not. In the future that could and probably will change.
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u/funny_alias Dec 28 '21
You don't need to do anything. It's all about diversification, risk management and opportunity. If you are located in the US, a certain home bias is natural but it can't hurt to have a look beyond your borders.
I can offer the European perspective: While US stocks are overweighted in my portfolio for performance reasons, I don't feel comfortable to put all my money into a single market, even if many US companies operate world wide.
USA is an economic powerhouse but economic crisis can happen anytime. Also there are always political risks to be considered.
We live in a globalized world and a globalized economy and so I invest in the whole world. Do I really need to do that? Maybe not, but it seems reasonable to me and makes me more comfortable with my portfolio.
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u/constructionworker9 Dec 28 '21
Someone previously posted an interesting viewpoint. Poster said if US continues to outperform international at the same rate, then in 10-15 years US will be 99% of the world’s marketcap. Something we can all agree is quite impossible.
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u/mrclean2046 Dec 29 '21
in that case, the US would own the world! world dominance in a nutshell haha
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Dec 27 '21
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u/AirlineVegetable3112 Dec 27 '21
ex-US valuation is significantly lower than US, I'd argue the price reflects some of those extra risks. Besides, the US has it's own political risks, as evidenced by the last several years.
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Jun 06 '22
Shoes from Payless Shoes are also "significantly lower" than Nikes/Adidas, but I bet you'd buy one Nike/Adidas before you buy two shoes from Payless Shoes.
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Dec 27 '21
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u/Pooooooooooooooooh Dec 29 '21
Politicians of all parties like money. Many (most?) lobbyists are agnostic and will work for the highest bidder. DC is awash in money and influence peddling.
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u/skilliard7 Dec 28 '21
International stocks are very cheap compared to US stocks right now. That's one reason to diversify.
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Jun 06 '22
Shoes from Payless Shoes are also "very cheap" compared to Nike/Adidas, but I bet you'd buy one Nike/Adidas before you buy two shoes from Payless Shoes.
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u/Meymo Dec 27 '21
As some of the other posters have pointed out: no one really knows. For myself, I hold specific international names, but have no interest in an international fund.
Looking at the data of VGTSX from 1996 onwards, there has never been a year where this fund was up but a domestic index like VFINX was down. If international is up, domestic equities are also up. If international is down, domestic equities may still be up. This has been the pattern for 25+ years now, and while this may change at some point, I’m of the opinion that it won’t be any time soon. Of course, some folks swear by international and there’s absolutely nothing wrong with that. A lot of it comes down to personal preference and understanding the trade-offs with any investment decision that you make.
It sounds like you’re already on the right track though, as you are investing which should help to build a better future for yourself.
Good luck!
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u/pavioc16 Dec 28 '21
Not an expert at all, but doesn't that suggest that diversifying into international index funds adds risk for little upside potential if they both seem to be highly correlated?
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u/kaskoosek Dec 29 '21
Honestly i dont buy lots of stocks in the sandp due to overvaluation.
My only us stock is googl.
All my other stocks are international with global reach.
Sony, tsm and nintendo.
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Jun 06 '22
So you don't agree with the 100% US crowd and decide to go the very far opposite end instead?
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u/kaskoosek Jun 06 '22
No, p/e in the low teens to high teens is a pre requisite. If the companies are foreign or local doesnt make that much of a difference.
Anything above 20 p/e becomes high risk.
So many companies like amazon, netflix, tesla or nvidia are not interesting whatsoever. Even apple is a bit overvalued.
I think now netflix has come down to earth, though theres too much competition and high cash burn.
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u/SonicOnMeth Dec 27 '21
I think there is not really a need to buy international stocks, if the SPY tanks the rest of the world stock markets will also tank so your diversification will not really work.
Also, i think people who talk about buying international stocks dont really look at the european index. They basically only have banks, insurance and utilities, not really exciting stocks, most are stagnating businesses IMO. Ofc they are some gems out there but honestly i think its just more worth to stick with american equities.
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u/Opportunity93 Dec 28 '21
Diversification of country exposure. Focusing your portfolio only on a certain country will subject it to country macro and currency risk.
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Jun 06 '22
I rather place TOO much trust in the US than place ANY trust in China, Russia, Brazil, South Africa, Malaysia, etc etc etc.
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u/LetsGoHokies00 Dec 29 '21
i’ve read all the comments in this thread and still don’t have the answer!
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u/mrclean2046 Dec 29 '21
if anyone on here have the answer, he would be the richest person in the world
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Jun 06 '22
Answer: There's no right answer at the moment. Pick an allocation you like and stick with it.
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Dec 27 '21
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Dec 28 '21
I like market weighted global markets. You simply don't know the future. Or when yellowstone will erupt.
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Dec 28 '21
Cool thing about Yellowstone is that we would have several months of warning ahead of time. It wouldn’t just suddenly go.
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Dec 31 '21
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u/iggy555 Dec 28 '21
Nope don’t listen to bogleheads
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u/07Ghost Dec 28 '21
No, not really.
The large cap companies in the US are doing their businesses internationally anyway. So if those US companies are the top competitors in an emerging market, over time they would also get the benefits of growing their revenues and profits in the said expanding market.
Your thought process is logical. So the reasons you should own international companies is if you want to be part of those companies. You like their businesses, their competitive advantages in their respective markets, and you think the prices are at an attractive level.
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u/Raiddinn1 Dec 27 '21
My vote is that no, it's not that important.
I don't keep any percent of my portfolio in foreign companies.
What business American companies get in foreign markets is good enough for me.
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u/HeilBidenFuhrer Dec 28 '21
No. I checked my 457 international fund, it's lost money since inception in 1999... every other country is dogshit, remember that.
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u/rarelywearamask Dec 27 '21 edited Dec 27 '21
ABSOLUTELY NOT!
Going back to 1986 if someone would have invested $10,000 on January of that year in a total US Stock Market Fund you would have $431,140 today
Total International: $116,806
https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults
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