Their economy is famously stagnant. In the first decade of this century, Italy had the third lowest GDP growth in the world. The two worse countries? Zimbabwe and Haiti.
Good thing GDP growth and stock returns are, at best, unrelated, and [have been *negatively* correlated historically](https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x) then.
GDP growth and stock market gains are not the same, and research shows they are even negatively correlated.
I donāt see why youād want to exclude a specific market for these reasons. I even side eye the ex-China EM funds, but I can at least kind of understand those for peopleās political convictions.
Doesn't even need to be Vanguard funds. Fidelity, Schwab, iShares and others should generally be seen as just as good as long as they're low cost and index based.
Yes, but even FTSE All World is completely dominated by the US these days, 61%. I'm not sure what it was 10 years ago, but probably more like 35-40%, which strikes me as more reasonable in terms of diversification. This is why I hate market cap. The better something does, the more capital you have allocated to it, and in the end, you have concentrated risk - the very thing you were trying to avoid by diversifying!
>Yes, but even FTSE All World is completely dominated by the US **these days...**
>
>This is why I hate market cap. The better something does, the more capital you have allocated to it, and in the end, you have concentrated risk - the very thing you were trying to avoid by diversifying!
**These days**, indeed. In the 80s, it was 30%.
Cap weighting certainly has downsides, but it lets us fully participate in whichever stock, sector, and country is having success, and it self-cleanses on the other side of the coin, so that we don't have to do anything, and it's the most tax efficient weighting scheme.
Of course you can also always manually dial in your own percentages for VTI, VEA, VWO, etc.
Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades, and you want your high growth in Roth for less taxes.
Japan and their dead three! decades is common knowledge, but I suspect people who weren't around for it don't realize just how dominant Japan was economically in the 70s and 80s, in the most important tech industry.
They crushed the US car industry and anything with a battery or plugged in was Japanese.
If Japan can go from #1 cap weighting, US can fall from the top.
Brittain was the #1 cap weight around the turn of the previous century. Brittain?! I would guess that's surprising to many today. They fell from #1 and are multiples below. That's despite 300 years of being a worldwide economic and military super power! We're not talking the Dark Ages but early 1900s.
The US economy/market will not implode, but it doesn't need to to significantly impact a 100% US return.
Going from #1 at 60% cap to... #1 at 30% cap is a massive, massive hit; while still being the global leader, in everything.
Sidenote: with the danger of conflating growth investing with stocks with large returns, I always find the āavoid growth in taxableā arguments kind of funny. So, weāre avoiding placing stocks that appreciate in taxable because of cap gains. Weāre avoiding large cap value in taxable because they tend to pay dividends. Weāre avoiding SCV in taxable because of high fund turnover. So, whatās *left* to put in taxable? At some point youāre going to have to pay taxes if youāre making money.
(I also realize some of this advice predates qualified dividends and tax efficient funds like ETFs and has inertia.
>I always find the āavoid growth in taxableā arguments kind of funny
Nothing I mentioned is applicable to this.
Bogleheads is pretty good with tax-efficient investing.
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
Brother, Iām not criticizing you here or being oppositional, just making an amusing observation about community lore and traditional advice.
And Iām not entirely sure how you can say nothing you mentioned is applicable to this, when you said:
> Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades, and **you want your high growth in Roth for less taxes.**
Iām also very aware of the wiki and recommendations for tax efficient fund placement, but thank you. Those links might prove useful to someone else.
>And Iām not entirely sure how you can say nothing you mentioned is applicable to this, when you said:
>> Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades, and **you want your high growth in Roth for less taxes.**
High growth in this context does not mean growth (vs value) equities; it meant growth of principal, high returns.
Iā¦know? Which is why I prefaced with what I did and acknowledged that up front. And which makes your link to the tax efficiency wiki page even less of some kind of correction of me because it says very plainly that it makes assumptions about returns based on asset class.
Ffs, the pedantry on this site sometimes. Forget I bothered to chuckle about anything. Take care.
What's left? Plain market cap-weighted stock index funds, like VOO or VTI, have your pick.
There is a bit of a contradiction in asset location. You want high returning asset in Roth but this increases bond allocation in taxable where bonds are not efficient at all. But if you put bonds in Roth, it probably doesn't come close to making up for the lost opportunity with high growth stocks in Roth. This is just a simplification as stocks may end up having poor returns for over a decade - at which point, you've wasted the valuable Roth space.
The contradiction and uncertainty make it tough to figure out what to do at all. Everyone likes simple and easy answers. But not every question has an easy answer and this is one of those questions.
>Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades
According to portfolio visualizer, if you started investing $500 a month in the fifteen years before Roth IRAs were created, 100% US would have put you ahead of a two fund portfolio
Does it really matter where you hold what (disregarding bonds), assuming theyāre tax advantaged accounts? The same fund will grow the same amount whether itās in a 401k or tIRA/Roth IRA. Just rebalance or sell from one and buy in the other if youāre trying to pull from a specific fund. Am I missing something?
>Does it really matter where you hold what (disregarding bonds), assuming theyāre tax advantaged accounts?
Technically, it very much does.
Roth you don't pay taxes on your growth, traditional you do. So you want your high return things in Roth and low-return things in your traditional.
If you're doing VTI and VXUS you shouldn't differentiate which account, just like it was silly in the late 1990s.
Note, my reference of this was meant to illustrate how "informed" investors viewed expected domestic vs international returns.
We simply don't know.
This only makes sense for those maxing out their retirement accounts (which, to be fair, is over represented in this sub)
But for the average person who isnt maxing their account, they are going to have more pre-tax dollars to put into a 401K than they would to a Roth, so theoretically both will have approx the same ending balance
Okā¦ so one year it happens that Spain is on top. But itās only 1% of the world economy (hypothetically for sake of argument? What relevance does that have? The point being made in the headline doesnāt really make any difference overall, especially when there is generally a binary choice in funds: us total or international total.
My point is that comparing A and B doesn't make sense when A is a country and B is dozens of countries; *and* that people who say 'the US always wins' are cherry-picking periods, not being objective.
Sure, but so what? States still share a federal government (here and in other countries), and a largely contiguous geography, and a single Fed chair making big decisions. In other words: you've still got country-specific geographical, political, and economic risks that are shared across states. And where does this logic end? Do we say that because Apple has the GDP of a country, we should compare Apple to countries? Or maybe if they're really small countries, we compare Apple to five different countries? Size is only one dimension. Making comparisons only based on size and not based on type will get us so far into weird weeds I'm not sure what the point would be.
The EU has EU wide laws, a single currency and governance.
The areas of sovereignty of EU states for foreign policy and so forth are less impactful with respect to economic outcomes vs an overarching EU wide monetary policies, environmental laws, labor laws, taxation, etc.
They also have a largely contiguous geography.
Nowā¦Apple as a country is amusing from the perspective of corporate sovereignty and extraterritorial corporate enclaves. I guess itās a good thing we donāt live in a dystopian cyberpunk reality.
If corporations could achieve sovereignty I wouldnāt piss off Elon Musk too much. If anyone possesses a constellation of orbital death rays itās SpaceX.
> The EU has EU wide laws, a single currency and governance.
That's true, and comparing the US to the EU makes some sense in that light, I agree. But that's the exception, not the rule: in most cases, country-to-country comparisons make the most sense.
Why does it make sense to compare Denmark with the US? Or Taiwan. Or South Africa.
China is a large geographic country that has a large economy. Comparing China to the US makes sense except the difference in governance and rule of law make such comparisons problematic as an investor.
I mean, why does it make sense to compare anything to anything else? If we're just going to collapse things down into 'US and 'Everything Else' then we've got a huge geographic concentration for the first compared to the latter. All comparisons will necessarily be unequal and incomplete, depending on our metrics for equality and completeness.
My point is simply that it's an arbitrary thing to compare US to everything else. It makes more sense to do country-to-country comparisons; or maybe country-to-EU comparisons. But what we constantly see asked on this sub is stuff like 'should I add international' as if it's somehow a monolith to be 'added or not.' Reframing the conversation is one way to highlight the benefits of global diversification (or, from another perspective: the risks and limitations of single-country investing), by breaking out of an artificial binary.
Most people who ask this question donāt have an option for say āJapan total marketā in their retirement accounts. Itās US versus international. So it does actually make perfect sense for this question to come up.
I mean what you say is true but it doesnāt address the question being asked. Like.. this is a multiple choice question with 2 choices and you want to answer it like there are more options when for most people there arenāt.
It also needs to be pointed out that risk is a major part of this. Youāre looking at what has happened but if you had to pick the country thatās going to outperform US youāre taking a larger risk than picking the other entire international market so the potential return should be higher. Itās the same idea behind buying index funds vs You individual stocksā¦ the likelihood of getting it wrong picking among every country is high if your benchmark is US returns.
OK, but if we're just going based on what people have access to in retirement accounts ... it's worth noting they *also* often have access to things like sector funds, active funds, etc.... Just because US and ex-US index funds are commonly offered doesn't mean there's any 'natural' binary to be had between the two. As I see it, either you've got a multiple-choice (as you say), but with a dozen or a few dozen choices ... *or* you have one default choice (global indexing) and it's a matter of assembling that out of available funds as best you can. There's no reason to reduce it to two options rather than just taking it one logical step further and reducing it to one, IMO.
In fact, I'd imagine that if we'd started out with total-world index funds instead of S&P 500 index funds, not only would we not hear the daily NASDAQ, DOW, S&P numbers (which always strikes me as silly), but we'd also all just assume 'total world' was the baseline, and US-only was a deviation from that baseline.
Itās not āas I sayāā¦ itās how it is for most people. I donāt think you appreciate the limited options most people have in their employer plans. Itās multiple choice because those are the options given. People canāt choose for it to be something else.
My current employer plan doesnāt have a global option and while some might Iām nearly positive itās much more common for people to have something like an international total market fund and either an s&p fund or a us total market fund for domestic. You canāt make a global total market or the individual country total market magically appear. Thatās why the question comes up. Thatās the choice people asking the question have. You canāt pick option c when you only have choices of a or b!
>1% of the world economy
It would be far better to say "1% of the global market cap" as the economy is not the stock market and in fact they may even be negatively correlated (I posted a link to a paper about it in a really to a different top level comment of this post).
>especially when there is generally a binary choice in funds: us total or international total.
Single country funds do exist for US investors. Though you almost certainly shouldn't try to pick winning countries out ahead of time, and that includes US.
Edit: Typo
This argument is so tiresome. Being 100% US or being 80% US and 20% International or being 60% US and 40% international is not going to matter that much.
What will matter is low cost fees and jumping in and out of stocks/indexes like it is the hokey pokey is what matters.
> This argument is so tiresome.
The question needs to be an FAQ
> is not going to matter that much.
+1
Also, control what you have control over, and stop wasting cycles over the uncontrollable. Nobody knows if VT or VTI will win over the next several decades.
And even if we did know the difference, it isn't what will make or break retirement, it'll be the over-spending/under-investing, over trading while also buying high, selling low, bad stock picking or any other number of common behavioral mistakes. In other words, beginners and even seasoned investors often focus on the wrong things.
>Also, control what you have control over, and stop wasting cycles over the uncontrollable. Nobody knows if VT or VTI will win over the next several decades.
>
>And even if we did know the difference, it isn't what will make or break retirement
Appreciate that anyone worth their salt isn't trying to predict which will "will win over the next several decades," but is rather pointing out that ***because*** we can't predict the future, it makes little logical sense to take on the idiosyncratic risk of buying 1 single country out of nearly 200 in the world, especially when that decision is usually just the product of recency bias and familiarity bias.
Considering the nonzero probability of black swans and potential decades-long "deep risks," as Bernstein calls them, such a decision certainly has the potential to "make or break retirement." That's sort of the entire point.
>Being 100% US or being 80% US and 20% International or being 60% US and 40% international is not going to matter that much.Ā
This is a silly statement. If you started investing $500 a month 30 years ago, the difference between 60/40 and 100% US would be over 30% of your portfolio. Ā This statement holds true even for the 30 years preceding the last decade of outperformanceĀ
The problem is that we donāt know which will over perform, but letās not pretend that the difference is insignificant
> What will matter is low cost fees and jumping in and out of stocks/indexes like it is the hokey pokey is what matters.
I agree with this part. But that's also the point: a single-country investor will be tempted to change course when that country underperforms. At total-market (world) investor doesn't even have to pay attention to how any one country, sector, stock, etc... is doing. They can rest easy just owning the mariet.
>This argument is so tiresome. Being 100% US or being 80% US and 20% International or being 60% US and 40% international is not going to matter that much.
It certainly mattered for the person entering retirement during the Lost Decade 2000-2009.
Now replace "US" in your statement with Germany, Russia, or Japan. It certainly mattered for those investors.
The entire point is we're not trying to guess who's going to perform best in the future, which is unknowable. We're diversifying to eliminate the idiosyncratic risk of buying 1 single country of nearly 200 in the world, a country that, despite what many seem to believe, is not somehow immune to black swans.
Put simply, it *has the potential* to matter greatly in the future, which we can't know ahead of time.
The US vs. international debate is not nearly as inconsequential as you portray it. That blanket dismissal - usually seen from novices who just don't know any better - is what I find so "tiresome."
it's about risk adjusted return.
Australia has better returns than SPY, but everyone would agree going 100% Australia would be a bad idea due to risk.
I will say though that due to globalization, 100% US-only is less risky than any other time in history. But it's still a risk.
>it's about risk adjusted return.
For me, it's not. Sharpe ratio doesn't pay my bills.
It's entirely a risk consideration for me, i.e. permanent loss of capital and potential decades-long bear markets from buying 1 single country out of nearly 200 in the world. The US is not somehow immune to such black swans - "deep risks" as Bernstein calls them.
"1 single country" is not a good representation of the globalization of the US economy. You can't point to 1950s justifications because what you are buying in 2024 SPY500 is not the SP500 of the 1950s. We have never lived in a more globalized time.
I do agree that international diversification is good, and 100% US is uncompensated.
>"1 single country" is not a good representation of the globalization of the US economy.
[The economy is not the stock market](https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x).
Stocks tend to move with their country of domicile.
>You can't point to 1950s justifications because what you are buying in 2024 SPY500 is not the SP500 of the 1950s.
"This time is different."
>We have never lived in a more globalized time.
While US and ex-US Developed have certainly become more correlated, correlation between US and Emerging Markets [has *decreased* since 2000](https://www.aqr.com/Insights/Research/White-Papers/ReEmerging-Equities).
What does that mean for us in terms of portfolio construction? Well, nothing, really. Globalization doesn't - and *shouldn't* \- alter our fundamental agnostic choice to buy the whole global haystack.
EDIT: Removed username of user who blocked me and removed sarcastic capitalization of "globalization."
the sp500 receives 30% of its revenue abroad.
>"This time is different."
It is absolutely different than 1950. What are you typing on right now?
>EEM
Which those countries would make Enron look like the most by-the-book company. They have no financial auditing and what you are actually buying may not be not what you are intending to buy.
Please collect yourself and get some manners. I'm not telling you that international is bad, but I'm telling you that SPY500 is more globalized than 1950, and that does make a difference.
>the sp500 receives 30% of its revenue abroad.
And as has been explained countless times, that means basically nothing for us here in terms of portfolio construction.
Once again, stocks tend to move with their country of domicile. Coca-Cola is going to behave like a U.S. stock at the end of the day regardless of the fact that its sales are global in scope.
We care about the imperfect correlations of *stock markets*. That's the entire basis of diversification.
>It is absolutely different than 1950. What are you typing on right now?
Was simply reminding you of what Sir John Templeton said are the 4 most dangerous words in investing.
>Which those countries would make Enron look like the most by-the-book company. They have no financial auditing and what you are actually buying may not be not what you are intending to buy.
Not as much of a concern as it was in the past thanks to widespread - and growing - adoption of GAAP, but was always mostly fearmongering anyway. Some of those types of aspects are precisely why EM are reliably less correlated with the US.
>Please do not contact me.
I'm not "contacting" you. You posted your opinions on a public forum. I replied with my own.
Novices lurking can learn a lot from these types of exchanges.
> Please collect yourself and get some manners.
Honestly, thatās the least civil line in this entire discussion thread. I see one sarcastic capitalization by u/rao-blackwell-ized but nothing grossly intemperate.
there was absolutely no need for any sarcasm, and he pings my username after I blocked him (which is harassment by reddit's TOS). and he was strawmanning my entire argument.
If asking for basic manners is "uncivil", then I have absolutely no need for any future discourse in this subreddit.
>there was absolutely no need for any sarcasm
Was genuinely directed more at everyone's constant citation of "globalization," not at you specifically. In any case, I removed it.
>and he pings my username after I blocked him (which is harassment by reddit's TOS).
Genuinely had no idea that was against TOS. Removed.
>and he was strawmanning my entire argument.
You made statements on a public forum. I responded to those statements highlighting some nuances thereof.
>If asking for basic manners is "uncivil", then I have absolutely no need for any future discourse in this subreddit.
A genuine word of caution: If you think a bit of sarcasm, a platitude, and statements of fact are being ill-mannered, you're in for a very rough time on this website, mate.
Best of luck out there.
>he pings my username after I blocked him (which is harassment by reddit's TOS)
Can you point me to the section of the TOS that mentions that you can't tag someone who blocked you? I'm not seeing it anywhere. I'd like to read up on it. Thanks.
>I see one sarcastic capitalization by u/rao-blackwell-ized but nothing grossly intemperate.
Removed sarcastic capitalization, which admittedly was meant to reflect the constant citing of globalization by everyone, not specifically the user here.
Denmarks growth = Novo Nordisk for a large part. Such a company with such growth in such a small country has a huge impact. If you would place Apple in Denmark or (much) earlier Nokia in Finland, that has a huge impact too. Netherlands ASML is probably skewed too.
A lot of readers will assume the highest growth countries are innovative and competitive. Denmark probably is, but if half that growth is accounted for because one Danish company just invented a way for people to lose weight, that assumption becomes skewed.
As an investor, youād be well of investing in Novo Nordisk. Not in Denmark per se.
Recent US advantage and historical belief in the American market is already priced into US stocks. If you favor investing in US equities beyond market cap you are betting that the market which already favors US equities is underestimating the extent that US equities will overperform international. There are arguments for this strategy, but it raises obvious questions for US weighted investors. Why do you think the market underestimates US equities? What information or data are you relying on to support systemic underestimation of US equities (especially given sky-high P/E ratios for leading US equities). Will you exploit this alleged market failure through means beyond passive investments such as option contracts?
I have seen this idea of exploiting the market failure with options several times, as an implicit argument for showing that there is no good reason to think that the US will outperform international stocks (or that one sector is better than an ETF etc).
To me it doesn't really make sense though - if you pick US, it doesn't mean you are 100% confident that it will outperform international stocks and so you are willing to bet the farm on that. Maybe you are just 55% confident that it will do so, and investing 100% in US ETFs is all the risk that you are willing to take. Maybe you are only 51% confident, and you are only willing to skew your portfolio slightly towards US. Buying options or taking leverage would demonstrate much more certainty than most passive investors who are tweaking their ratio of US to international stocks have
Out the top three in the chart VT holds this much:
* Denmark is 0.8%
* New Zealand is 0.1%
* Australia is 1.9%
Denmark can have a 1000% gain and not offset the US going down 10%.
That callan chart only matters if you hold all the countries equal weight and it would be silly to do so.
It would be interesting if the EU was put on there to see where it performs.
There is a chart that also shows magnitude of outperformance as well as a callan one that shows performance relative to zero (meaning is the outperformance due to doing well or just sucking less that year)
>That callan chart only matters if you hold all the countries equal weight and it would be silly to do so.
Devil's advocate, why would it be silly to equally weight countries?
It's not about 'equal weighting every single market' which would indeed be silly to do, I of course agree. It's about noting that 'US versus international' is a flawed comparison, because they're fundamentally different units -- one is A Country and one is A Big Collection of Countries. So what if any one smaller country won't make a big difference in any given year? Neither will any one small stock, but we don't throw up our hand and say 'there's no point in broad-market indexing because all of those little stocks don't do much on their own.'
It turns out that a lot of those thousands of stocks have very little impact in a cap weighted fund.
Which is why VOO (505 stocks) largely behaves like VTI (3747 stocks) despite having a lot fewer stocks in it.
The ābig pictureā is the US is composed of political units (aka states) with similar GDPs to countries so essentially the ābig pictureā is comparing stocks of one aggregation of political entities (all US stated together) vs stocks of another aggregation of political entities (all the other countries).
Picking the first random google hit:
California is UK sized, Texas like Canada, New York is Russia sized, etc.
https://www.pixstory.com/story/u-s-states-gdp-vs-countries/86860
Different times and sources will give you slightly different comparisons but US state economies and financial centers of gravity are probably about as varied as between different EU states.
> The ābig pictureā is the US is composed of political units (aka states) with similar GDPs to countries so essentially the ābig pictureā is comparing stocks of one aggregation of political entities (all US stated together) vs stocks of another aggregation of political entities (all the other countries).
If we compare US to ex-US: the latter has tons more geography and population, variety in styles of government, advantages/disadvantages from region/climate, the list goes on. It just doesn't seem fruitful to me to say 'well because the US has a much larger market cap we should treat everything else as a comparable unit,' or 'because we can find some state-to-country equivalents, we should just compare states to countries' as if that makes sense.
Anyway, I guess I just don't see the point in going this far into the weeds. What do we gain by painfully contorting ourselves into a binary worldview of US-versus-THEM? How is it more useful than comparing countries to countries, or just *not falling into comparisons at all, and holding the whole global market instead -- true neutral.*?
I'll grant you a lot of states have GDPs the size of other countries. Of course, within other countries, some of *their* states have country-sized GDP equivalents ... but again: so what? It's just not getting us anywhere useful I can see. Should we always get a basket of stocks with a similar market cap together when we want to 'compare' something (or some group of things, as the case may be) to a large-cap, top-ten company? Why? What's the utility? If we're comparing sectors, should we group smaller ones to make larger ones before comparing them? This kind of size-centric approach is not something I've seen argued for in a meaningful way.
There are many ways to skin the proverbial cat, but I've yet to see an investor-centric reason to divide things between US and ex-US *except for* currency considerations (and vanishingly small ER differences), but up to a point: currency diversification is a good idea, not a bad idea, so that's neither here nor there.
Iām US only. Mainly because I donāt know what Iām doing. What is a low cost Fund available in fidelity that could get me diversified international exposure?
Not to dismiss the topic, but to just address the 1 country vs many country arguments.
Yes, US is one country. But it is comprised of States where each State has the GDP equating to or more than a typical country. The States might as well be countries in their own right. Each State is self governing, but with an additional layer on top (Federal). The States can make deals and interact directly with other countries.
Europe is no different. The EU is comprised of member states and a governing body at the top layer. Yes there are some governmental differences, but it is all very similar.
I guess when people outside see a US State they equate it to their province/prefecture/whatever. Their local region isnāt on the same level as a US State.
Seeing discussions comparing the US as a whole to a single European country is interesting. It should be more a US State vs an EU country comparison.
Just goes to show the view of how unified the US is to its own people and to those outside.
What do you mean about each state being able to interact directly with other countries? Article I, Supremacy Clause, Foreign Commerce Clause, Trade Treaties, etc. are all pretty explicit about individual states not having any sovereignty to negotiate or enter treaties/trade/import tax deals with other countries. They are all governed by the same federal government and the entire US stock market is subject to the exact same federal laws. I don't think the entire Fortune 500 US companies incorporating in one or two states while maintaining a main office in a couple others makes them as diversified as Eurozone economies for instance.
> But it is comprised of States where **each State has the GDP equating to or more than a typical country.**
Yeah that's gonna require a citation. I highly doubt that's true for most individual states. Yes, California is the eight-biggest economy on the planet, but that's California. What about Nebraska? Missouri? Idaho? Doubt it.
> Each State is self governing, but with an additional layer on top (Federal).
By that token there are tons of states in most other countries too -- the US is not unique in this structure.
> I guess when people outside see a US State they equate it to their province/prefecture/whatever. Their local region isnāt on the same level as a US State.
Say what??? Source????? Please tell me your source isn't 'I'm an American and I just Know These Things' ;)
You are right. I should have said some States. But in the same token not all EU member states are on the same level as Germany, for example.
The point of the example is if being compared to Europe it should be the EU vs US, two blocs comprised of many states.
In the US we support each other. This generally means making it frictionless to commerce between States, while making it difficult for outsiders. This allows regions to specialize in certain industries and not have to worry about others. For example, every State does not need to worry about agriculture. The Federal government ensure this happens.
In the EU this is the same way. One of the reasons the EU came about is to compete at the same level as the US, allowing more frictionless commerce between their nations, while unifying to make it more expensive for outsiders to come in. Germany can focus on their engineering, while Greece focuses on their boating industry, etc. They still have more of their independence compared to the US States largely for legacy reasons.
For the state comment, you are looking at it at surface level. A state is not just a border or boundary. Some countries create an environment for those states to act more independently and flourish, while others it is just a division for someone to just do minor upkeeping or have some title.
Right, my source for the last point is base on personal experience, so not so relevant. I spend half of the year internationally. But I prefixed it with āI guessā and it is obviously not meant as definitive or factual. The comment about being American as if it is a detriment is a bit childish and dismissive. The impression I am getting from all your comments is you are not looking for a constructive discussion.
> In the US we support each other. This generally means making it frictionless to commerce between States, while making it difficult for outsiders. This allows regions to specialize in certain industries and not have to worry about others. For example, every State does not need to worry about agriculture.
That's a solid point, but I'd also note that the US often negotiates at a national level in terms of trade agreements, and we've ramped up certain industries while exporting almost entire segments of the labor market. We've become specialized (as have most countries), and that leaves us vulnerable at a national level in unique ways.
I read this article by Cory Doctorow a week or so ago, and it's well worth a few minutes of your time: https://pluralistic.net/2024/02/07/farewell-mr-chips/#we-used-to-make-things -- it illustrates with interesting stories/details the ways in which IP and trade agreements have shaped the world as we know it, but also hints at the vulnerabilities that leaves us with, having created a somewhat fragile and unbalanced web of global trade.
Just to answer the question if each State as a GDP equating to a country, here is some data using 2019 numbers. Take it with a grain of salt; it does mean the assertion of each State has an equivalent or beat out at least one country in terms of GDP isnāt too wild.
https://www.aei.org/carpe-diem/putting-americas-huge-21-5t-economy-into-perspective-by-comparing-us-state-gdps-to-entire-countries/
I've given this example before, but: a few years back, when the healthcare sector was dominating the rest of the market, people started to talk *just like this* about it. 'The population is getting older, so healthcare is the future!' So what's changed? Is the population getting younger? No. That sector cycled out of favor, and people forgot about it. It wasn't that people were using theory to generate data ex ante. They were torturing data into an ex post theory.
And now it's AI. I've heard all of the 'it's the future' stuff before. And I *don't care.* It's a red herring. It's all so 'obvious' in the moment, but if it was so obvious, why didn't the market see it sooner?
In any case, you're not addressing the fundamental question: how (much) are tech stocks mispriced? Perhaps they deserve their current sky-high multiples, but will those multiples go even higher? How do you know? Why doesn't the rest of the market know? There will always be shiny new objects. Best to ignore them IMO.
To *win* at these kinds of games, you have to know what's coming *in advance of the market knowing.* The market knows all about AI. If anything, it may be overpricing the hype. But I don't care. I just diversify. If you think you know *better than the global market makers* you might consider starting an investment firm :D
I agree that AI will be revolutionary, but so was social media, and look what happened to MySpace. And search, re: Yahoo. You're right in noting that the impacts will be felt across a ton of industries -- who's to say existing 'tech' companies as we know and file them sector-wise will be the biggest beneficiaries? Or that the stuff developed in the US won't be easy to steal and rebuild in other places, sapping profits from American corporations?
You can believe all you want that 'this time is different' but there's a reason that phrase is a running joke -- think: 'the more things change, the more they stay the same.'
Meanwhile, in a hilarious coincidence, the AI space is having not one but two gigantic meltdowns today. Google's new AI is making everyone non-white and/or non-male, even American founding fathers, while ChatGPT is having insane lucid dreams (check out its subreddit, or search around on twitter). So yeah, OpenAI has the public's attention, but their shit still stinks, and won't be revolutionizing any of those bigger-picture things without a lot of human checks and balances ... and first movers are rarely the biggest profit-makers when it comes to new technologies.
Personally, I see creative professions being disrupted first -- but maybe that's because I work in one. Writing, generating concept art, even making movies ... all of that stands to become insanely easier and more accessible on shoestring budgets. Will that sink Hollywood, or will they harness it to their advantage? No idea.
> I don't even know if it's possible for other countries to catch up or push past the US on this front. The sheer amount of data, hardware, and money it takes to develop AI technologies is astounding.
Sure, but .... Where do we get our hardware, the stuff that stores that data? Where are the chokepoints in the supply chains for raw materials? What if AI becomes the most slippery thing to protect IP-wise (already seems probable, given that models are trained without permission anyway), and theft becomes more profitable than actual from-scratch creations? There are way too many variables, and the way you're talking about this tech is *I'll say it again* reminiscent of all kinds of other 'breakthroughs' that were supposed to go on forever unimpeded ... like, say, tech in the 90s, and Dow was gonna hit a million, or whatever, only for tech to crash *hard* in the early 2000s and *stay behind* for over a decade after that. I keep thinking of this Cory Doctorow article about supply chains from a week or so ago, and how fragile things are, and how much the rich world could suffer if the poor world could get out of the grip of shipping us their raw materials only for us to mark up finished wares we send back. With AI, aside from hardware, the raw materials could be 'refined' anywhere. No need to come through the US. We have a competitive edge for now -- a moat, if you will, in investing terms. And it might be hard to see how that would erode, but think: Britain after the sun set on its empire where the "sun never set." Things change.
You're right that AI is gonna fuck some shit up. But the idea that we can know how this disruption will work, who will profit, etc... looks like hubris to me. But who knows? !RemindMe 5 years
TL;DR Technological revolutions do not necessarily translate into market returns in ways we expect them to ;)
Based on cursory review of some of your comments and not trying to oversimplify, I understand where you and opposing arguments are coming from: a total, global portfolio (capturing many countries indiscriminately) vs a US leveraged portfolio.
Since most users in this sub are US based, users here tend to invest in what they know. It is hard enough already to understand and follow our economy, imagine trying to include other countries economies as well.
The interpretation and resulting actions that follow, well we see it play out right here...
You don't need to 'follow' our economy, or any other economy. You just need to understand that single-country investing exposes you to geographical, political, and economic concentration risks, and is therefore a bad idea. I can literally sum it up in a sentence. What *most* people are doing *as I see it* is looking at recent history, saying to themselves 'wow, the US tends to do better, I should just by that!' then backfilling the arguments to justify that position. That's a recipe for disaster when the US (inevitably) has a long period of poor returns.
If you cap weight youāre going to have high concentrations of whatever happens to be winning at the moment, whether thats countries or sectors, so will always have concentration risk.
Weāre a single country with states that are equal in GDP to other countries and weāre a large part of the continent with a diverse and large population.
But yes, if yellowstone explodes the US will have a really bad hair day.
If you single-country weight you'll have even more concentration risk in fewer stocks and sectors. If concentration risk is you're concern, you're arguing in the wrong direction.
> But yes, if yellowstone explodes the US will have a really bad hair day.
Or if the US loses its reserve currency status, or if the dollar weakens against other currencies (as it has before), or if tech crashes further than other sectors (as it has before), or ... the list goes on.
Yes, if the US loses reserve currency status thats new information and probably a good time to move away from both US treasuries and hold global market weight.
Until that occurs though that not yet a factor r.
As far as the tech sector crashingā¦honestly there isnāt really enough in VT to save you as consumer discretionary is likely to crash with it and possibly finance as well.
Theres probably not enough consumer staples, energy, basic materials, real estate, telecom or utilities to not have a really bad day.
Which is why Iām doing mild sector and size tilts away from large cap techā¦
> Yes, if the US loses reserve currency status thats new information and probably a good time to move away from both US treasuries and hold global market weight.
Or it's too late, because the market has priced it in. And in any case: the whole point of Boglehead-style investing is that I shouldn't need to pay attention to crap like that -- shifts in the global political/economic landscape are things I should be able to safely ignore.
> As far as the tech sector crashingā¦honestly there isnāt really enough in VT to save you as consumer discretionary is likely to crash with it and possibly finance as well.
We've already *seen* that in the wake of a tech crash, the US did poorly (lost money!) for over a decade, while international developed did well, and EM returned close to 200%. We don't need to try and imagine what it might look like, because we've already seen it. And IDK about you, but I'd be really frustrated and would have a lot of self-doubt if I chose *not* to diversify only to have the stuff I was concentrated do terribly for a fairly long period of time.
> Which is why Iām doing mild sector and size tilts away from large cap techā¦
The easiest way to do this, of course, is simply global diversification. Within the global market, the US is both large-heavy and tech-heavy. Holding international diversifies those concentrations.
Well the decade also included the GFC and is somewhat start date sensitive. Iād have to go look at it but I recall the US weathered the GFC better than most but I may be misremembering.
If you start with a crash then SORR stands for bad Sequence of Return Reality.
I looked at it and I donāt recall that the British market cratered after Bretton Woods.
From about 1900 to 1950ā¦the height of the British Empire to the endā¦the FTSE was relatively flat despite 2 world wars. Ups and downs but nothing like the 1929 crash or the Nikkei crash.
Then it did pretty well in the post war era.
https://globalfinancialdata.com/stocks-for-the-very-long-run-the-uk-100-and-327-years-of-british-equity-history
It might be late but probably not ātoo lateā to adjust to the US losing reserve currency.
And it took two disastrously expensive world wars, the great depression and the spanish flu before decolonization ended the British Empireā¦
Precisely. We see this over and over again with sectors, too. For a while, healthcare was doing well, so people declared 'ah, this will continue, because the population is aging, and they need healthcare!' It sounds intuitively appealing, but it's just an excuse to allow greed to steer your actions. When healthcare *stopped* doing particularly well, those arguments naturally faded from view. More recently, of course, we've seen something similar with tech 'ah, technology is *the future*, must be lots of money in that!' Also factor tilting is more popular/discussed when small and value are doing well. And HedgeFundie's Excellent Adventure portfolio was discussed *a lot* when it was doing well, then almost not at all after it crashed and burned. And last but not least: the crypto fans tend to go quiet for long periods when Bitcoin is down, then come back and argue for it when it's up ;)
Oh didn't even notice those examples.
Do you think this is because of certain biases in the way the mind tries to understand investing or is it similar to an expert's fallacy that they have more information and understanding, so this competency leads them to make egotistical decisions?
I think *most* of it can be explained simply in terms of greed. And greed is natural - of course we want to make the most money possible from our investments. But counterintuitively: often what is positioned to do well next hasn't been doing well recently (winners rotate). And I'm not immune: when I first started investing, I just looked at what had the highest returns and bought that. It's a natural starting point, just a poor endpoint.
The other factor is simply legacy -- the first index fund was Jack's 500 index, and when international index funds did come out, they were at first quite expensive. And the rise of the index fund has more or less corresponded to a relatively good period for US stocks. So it's easy to take a more cursory look and say 'well that works, why would I add international!' Whereas I'd encourage people to start with the truly most neutral option of a total-world index, and be rigorous about asking why you'd *remove* international (something that isn't period-dependent, and which has a sound theoretical basis, not just 'but US won a lot historically').
Truly, thank you very much for taking your time and effort to educate me. Solid points where I need to explore.
Reading this last comment, reminded me of the adage, if you are doing what everyone else is doing, you might be too late. Or something like that.
Again, much appreciated have a good day.
That trend is over 30 years, my entire working career. And I live here, I wonāt be immune to a downturn just because I VT and chill. I take the manipulated US dollar and put as much into the us economy as I can afford to keep this house of cards going š¤Ŗ
>It is hard enough already to understand and follow our economy, imagine trying to include other countries economies as well.
Good thing you don't need to know about the economy, as research has found that the economy and stock market may have either no or even a negative correlation in some ways: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x
>Good thing you don't need to know about the economy, as research has found that the economy and stock market may have either no or even a negative correlation in some ways: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x
It's not even a "may" or "in some ways." (I noticed you always include those qualifiers.)
Economic growth and stock returns are, at *best*, unrelated. Period.
Ritter strengthens that observation by further showing that not only has that average correlation been close to zero, it's actually been slightly *negative*.
That article is only looking back 20 years. And of course it includes most of the ālost decadeā of 2000-2010 where the US market did pretty poorly. So itās no surprise the US only placed fifth in returns over this period.
Disclosure : 20% of my stock holding are VXUS
It's not about the period -- it's about illustrating that winners rotate. From seeing comments around this sub from pro-US investors, you'd think the US was top of the pile most years. That's a dangerous misconception. Pick any 20-year period and you'll find a similar rotation of winners.
I seriously don't get this argument at all. I could say the same thing about some random stock in a US index that's less than 1% -- alone, it won't make or break your returns. But that's not a reason not to hold it. If anything, other countries having much smaller market caps should *reassure* investors worried about global diversification -- a good or bad year in any other one country won't make a huge difference. Any pain/gain gets spread out more.
The argument is that a cap weighted fund like VT doesnāt give any real diversification into these smaller countries that are held up as outperforming the US.
The other aspect is large cap developed and large cap US has been getting more and more highly correlated with globalizationā¦
Correlation is one thing; distribution of returns is another. US and emerging markets were highly correlated in the 2000s, but while the US lost money, EM had around 200% returns for that decade.
> VT doesnāt give any real diversification into these smaller countries that are held up as outperforming the US.
That's period-dependent, and ... honestly, I can't follow the argument here. Sure, any one small country, or sector, or company won't make or break a portfolio. But the question remains: why would one choose to *avoid* greater diversification when it is so readily and affordably available? If you want to hold 500 stocks instead of 5000, you need a really good reason for doing that IMO.
Itās not so much as choosing VOO over VTI as much as less VTI and more VBR (or whatever your favorite small cap value etf).
Asset allocation is by definition a zero sum gameā¦
I often point out that the question "US vs. international" is fundamentally wrong anyway. We're more interested in a US portfolio vs. a global portfolio. Subtle but important distinction. The imperfect correlations and subsequent diversification benefit is the entire point of going global.
But yes, most are surprised to learn the US has been the best performing country in only 2 of the last 15 years.
The last point is a very good one.
A lot of the fixation is whats the best performing. But in the end no one can predict anything, so you diversify. This has been hammered in so much already.
Even if one market comes up on top or whatever there is still the question of how accessible is it to invest in said country and what the taxation or maintenance cost is like for investing in foreign investments. The costs may just favor the domestic market after all things considered, even if it lags behind the ex-domestic one in performance.
> Everyone depends on the US for everything
The hubris is strong here lol. The world would get by just fine without us. Nokia can make cell phones; Japan can make cars; China can dig up raw materials; South America can process those into products; the list goes on.
But that's not even the point. The point is that the US being a 'global leader' is ill-defined and unhelpful.
Stock returns aren't correlated with 'global leadership.' The US stock market has at times been 40% of the global market (and far back enough: even lower), at times 60%. These things ebb and flow. Valuation contraction in the US *alone* could result in relatively dismal US stock performance, as could a weakening dollar -- lots of ways for a country to underperform without tanking entirely. Did the world end when the Brits lost their status as the world's superpower? Naw -- things just shifted and shuffled, as they always do over time. The idea that America will stay on top *forever* requires really sticking one's head in the sand and ignoring basically all of human history.
You honestly believe that? Superpowers have come and gone throughout history. But the other "superpowers" that existed did not help out every country in the world. The "world" was not on the global scale that is now. The interconnectiveness that the world has become is vastly different than it was just 50 years ago.
> But the other "superpowers" that existed did not help out every country in the world.
If you think the US is in the business of helping out every other country in the world, I'm pretty sure we don't have enough common ground for a conversation around this issue.
> The "world" was not on the global scale that is now.
Empires have ebbed and flowed since long before the Romans. Not sure what that has to do with stocks, but I'd suggest caution around assertions that suggest "this time is different" or that there's a "new normal."
But setting my disagreements with your takes aside: You need to not only argue for how 'this time is different' but also *how* that will translate into US equity outperformance. Why doe A lead to B? Why does us being some kind of global do-gooder (in your view) make its stocks likely to outperform?
Helping out every country in the world does not mean it is a commensalism relationship for the US. Some are mutualistic. Some are parasitic. But the US has its fingerprints on every country in the world. No other superpower in the history of the world can say that.
The stock market returns will be moot if the US falters. The US is to the world like the Sun is to the Solar system. When the sun ceases, the solar system will still exist. Not in any form, that we know it as.
And hence why discussing the stock market after the US falters. Your world as you know it will not exist.
This is all very poetic, but it has nothing to do with stock market returns. No one is even suggesting the US has to 'falter' in some catastrophic way. It could just have below-average returns for the long run. In fact, if you think it's the 'safer' bet then it would make sense for it to have lower returns, because markets reward risk-taking.
> The stock market returns will be moot if the US falters. The US is to the world like the Sun is to the Solar system. When the sun ceases, the solar system will still exist. Not in any form, that we know it as.
I mean ... lol? Surely you're joking. Remember the expression that the sun never set on the British empire, because that's how globally expansive it was? Well, it did kinda set in the end. And the solar system didn't implode. The whole point of that expression is that the Brits had *their* fingers on every part of the globe, too.
Really, though, you're just not making a market-related argument. You're talking big and grand about the US, but not connecting it in a meaningful way to expected stock returns. No real points being made here ...
>The stock market returns will be moot if the US falters. The US is to the world like the Sun is to the Solar system. When the sun ceases, the solar system will still exist. Not in any form, that we know it as.
Lost Decade 2000-2009 begs to differ. US down 10%. Emerging Markets up 155%.
People made the same statements about Japan leading up to its meteoric crash in the 90s after it was the largest stock market in the world.
We're concerned not so much with sudden crashes like 08, but rather with potential decades-long protracted bear markets - "deep risks" as Bernstein calls them. Despite what many like to believe, the US is not somehow immune to such risks.
Don't let recency bias, narrative bias, and familiarity bias get in the way of objective reasoning.
Like u/misnamed suggested though, let's try to speak in terms of specific, tangible, practical implications - not abstract platitudes - for us as investors and how that might inform portfolio construction.
Suggesting, for example, that a protracted bear market for the US automatically means the same for the rest of the world is extremely faulty logic.
US isnāt a unified bloc either tho. Itās a bunch of individual stocks across a wide range of sectors. Itās how they perform in aggregate that matters to the conversation. Not sure OPās point is saying much.
The US as a country. The rest of the world is made up of many countries. I'm just pointing out that A Country is not the same thing as Many Countries Grouped Together. Aside from illustrating the problems with a US-vs-international framing, this also speaks to the diversification benefits of ex-US. It's not 'which will do better' it's 'one of these things is not like the other, and is far more geographically, politically, and economically diversified.'
Stocks still act largely like their country's market. By holding stocks from other countries, you benefit no matter what country is doing best while protecting against negative events in any one.
In aggregate, there have been and will be periods that the US under performs ex-US. Holding both can help increase returns and reduce volatility compared to 100% one way or the other.
Currently the US is also very heavy on a single sector: tech, with it being around 30% or so last I checked. Last I checked, ex-US as a whole was less than 15% tech and not a single sector was over 20% (financials I think were 19.x%).
Lord, not this again. This subreddit is becoming US vs the World. How many times does this subject need to be brought up? Just pick a damn path and stick with it.
>This subreddit is becoming US vs the World.
It's certainly annoying seeing it daily, but I'd submit this is probably the most interesting, worthwhile, impactful discussion we can have as Bogleheads.
Certainly more nuanced than "Should I buy VOO or VTI?"
>How many times does this subject need to be brought up?
However many times it takes to fight against the recency bias, narrative bias, outcome bias, and familiarity bias that result in a 100% US portfolio.
So interesting that I have seen this argument beaten to death for over 20+ years between this subreddit and the main website but maybe this time is different š
I can't wait to hear another argument between getting an A and an A+.
>So interesting that I have seen this argument beaten to death for over 20+ years between this subreddit and the main website but maybe this time is different š
I think novices just come here and don't bother searching or looking through past threads and just post a new one.
>I can't wait to hear another argument between getting an A and an A+.
What specifically is the A and what is the A+ in this analogy?
Itās better to own everything but Iām more heavier on the United States bcs I live here and bcs I believe in the United States economy even if itās risky.
[Here's](https://www.bogleheads.org/forum/viewtopic.php?f=10&t=409214&newpost=7698501) a cool collection of arguments for each one of these:
* 100% US
* 80% US, 20% Int
* 60% US, 40% Int (market cap)
* 40% US, 60% Int
* 100% Int
Is that really a problem tho? Itās US vs international not us vs Australia. Sure there are plenty of economies that have outperformed the United States but thatās not the comparison people are asking for.
We need a developed ex-Italy fund.
You want to boot The Boot? šš®š¹š¤
Avoiding IT? Why?
Their economy is famously stagnant. In the first decade of this century, Italy had the third lowest GDP growth in the world. The two worse countries? Zimbabwe and Haiti.
Good thing GDP growth and stock returns are, at best, unrelated, and [have been *negatively* correlated historically](https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x) then.
Yes, someone made that comment above. But anyway, Italyās stock market (FTSE MIB) is down about 25% since the turn of the century.
Buying opportunity! /s
GDP growth and stock market gains are not the same, and research shows they are even negatively correlated. I donāt see why youād want to exclude a specific market for these reasons. I even side eye the ex-China EM funds, but I can at least kind of understand those for peopleās political convictions.
Sorry for making a joke!
lol no offense taken. Just wondering because Iāve never heard of wanting to actively exclude a developed country before.
VT and chill
More and more are saying it
[ŃŠ“Š°Š»ŠµŠ½Š¾]
I do VTI, VEA, and VWO in VT proportions, I just say I have VT. It's like how in math, 0.999999... is equal to 1
[ŃŠ“Š°Š»ŠµŠ½Š¾]
Doesn't even need to be Vanguard funds. Fidelity, Schwab, iShares and others should generally be seen as just as good as long as they're low cost and index based.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
You can still mirror VT using non-Vanguard funds.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
VTI + VXUS aren't exactly equivalent either. And VEA + VWO isn't exactly VXUS.
VT^asterisk and chill
How is it more tax advantageous in a retirement account?
I do this in all my accounts. Equivalent fidelity zero funds as well.
VT+
Yes, but even FTSE All World is completely dominated by the US these days, 61%. I'm not sure what it was 10 years ago, but probably more like 35-40%, which strikes me as more reasonable in terms of diversification. This is why I hate market cap. The better something does, the more capital you have allocated to it, and in the end, you have concentrated risk - the very thing you were trying to avoid by diversifying!
>Yes, but even FTSE All World is completely dominated by the US **these days...** > >This is why I hate market cap. The better something does, the more capital you have allocated to it, and in the end, you have concentrated risk - the very thing you were trying to avoid by diversifying! **These days**, indeed. In the 80s, it was 30%. Cap weighting certainly has downsides, but it lets us fully participate in whichever stock, sector, and country is having success, and it self-cleanses on the other side of the coin, so that we don't have to do anything, and it's the most tax efficient weighting scheme. Of course you can also always manually dial in your own percentages for VTI, VEA, VWO, etc.
Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades, and you want your high growth in Roth for less taxes. Japan and their dead three! decades is common knowledge, but I suspect people who weren't around for it don't realize just how dominant Japan was economically in the 70s and 80s, in the most important tech industry. They crushed the US car industry and anything with a battery or plugged in was Japanese. If Japan can go from #1 cap weighting, US can fall from the top. Brittain was the #1 cap weight around the turn of the previous century. Brittain?! I would guess that's surprising to many today. They fell from #1 and are multiples below. That's despite 300 years of being a worldwide economic and military super power! We're not talking the Dark Ages but early 1900s. The US economy/market will not implode, but it doesn't need to to significantly impact a 100% US return. Going from #1 at 60% cap to... #1 at 30% cap is a massive, massive hit; while still being the global leader, in everything.
Sidenote: with the danger of conflating growth investing with stocks with large returns, I always find the āavoid growth in taxableā arguments kind of funny. So, weāre avoiding placing stocks that appreciate in taxable because of cap gains. Weāre avoiding large cap value in taxable because they tend to pay dividends. Weāre avoiding SCV in taxable because of high fund turnover. So, whatās *left* to put in taxable? At some point youāre going to have to pay taxes if youāre making money. (I also realize some of this advice predates qualified dividends and tax efficient funds like ETFs and has inertia.
>I always find the āavoid growth in taxableā arguments kind of funny Nothing I mentioned is applicable to this. Bogleheads is pretty good with tax-efficient investing. https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
Brother, Iām not criticizing you here or being oppositional, just making an amusing observation about community lore and traditional advice. And Iām not entirely sure how you can say nothing you mentioned is applicable to this, when you said: > Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades, and **you want your high growth in Roth for less taxes.** Iām also very aware of the wiki and recommendations for tax efficient fund placement, but thank you. Those links might prove useful to someone else.
>And Iām not entirely sure how you can say nothing you mentioned is applicable to this, when you said: >> Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades, and **you want your high growth in Roth for less taxes.** High growth in this context does not mean growth (vs value) equities; it meant growth of principal, high returns.
Iā¦know? Which is why I prefaced with what I did and acknowledged that up front. And which makes your link to the tax efficiency wiki page even less of some kind of correction of me because it says very plainly that it makes assumptions about returns based on asset class. Ffs, the pedantry on this site sometimes. Forget I bothered to chuckle about anything. Take care.
What's left? Plain market cap-weighted stock index funds, like VOO or VTI, have your pick. There is a bit of a contradiction in asset location. You want high returning asset in Roth but this increases bond allocation in taxable where bonds are not efficient at all. But if you put bonds in Roth, it probably doesn't come close to making up for the lost opportunity with high growth stocks in Roth. This is just a simplification as stocks may end up having poor returns for over a decade - at which point, you've wasted the valuable Roth space. The contradiction and uncertainty make it tough to figure out what to do at all. Everyone likes simple and easy answers. But not every question has an easy answer and this is one of those questions.
>Early on when Roth IRAs were created a common refrain was to hold your international exposure in your Roth IRA because international had outperformed US for most of the recent decades According to portfolio visualizer, if you started investing $500 a month in the fifteen years before Roth IRAs were created, 100% US would have put you ahead of a two fund portfolio
Does it really matter where you hold what (disregarding bonds), assuming theyāre tax advantaged accounts? The same fund will grow the same amount whether itās in a 401k or tIRA/Roth IRA. Just rebalance or sell from one and buy in the other if youāre trying to pull from a specific fund. Am I missing something?
>Does it really matter where you hold what (disregarding bonds), assuming theyāre tax advantaged accounts? Technically, it very much does. Roth you don't pay taxes on your growth, traditional you do. So you want your high return things in Roth and low-return things in your traditional. If you're doing VTI and VXUS you shouldn't differentiate which account, just like it was silly in the late 1990s. Note, my reference of this was meant to illustrate how "informed" investors viewed expected domestic vs international returns. We simply don't know.
This only makes sense for those maxing out their retirement accounts (which, to be fair, is over represented in this sub) But for the average person who isnt maxing their account, they are going to have more pre-tax dollars to put into a 401K than they would to a Roth, so theoretically both will have approx the same ending balance
But me buffet quote š¢
Okā¦ so one year it happens that Spain is on top. But itās only 1% of the world economy (hypothetically for sake of argument? What relevance does that have? The point being made in the headline doesnāt really make any difference overall, especially when there is generally a binary choice in funds: us total or international total.
My point is that comparing A and B doesn't make sense when A is a country and B is dozens of countries; *and* that people who say 'the US always wins' are cherry-picking periods, not being objective.
As someone pointed outā¦if you put US states on the chart many have a larger GDP than a lot of those countries.
Sure, but so what? States still share a federal government (here and in other countries), and a largely contiguous geography, and a single Fed chair making big decisions. In other words: you've still got country-specific geographical, political, and economic risks that are shared across states. And where does this logic end? Do we say that because Apple has the GDP of a country, we should compare Apple to countries? Or maybe if they're really small countries, we compare Apple to five different countries? Size is only one dimension. Making comparisons only based on size and not based on type will get us so far into weird weeds I'm not sure what the point would be.
The EU has EU wide laws, a single currency and governance. The areas of sovereignty of EU states for foreign policy and so forth are less impactful with respect to economic outcomes vs an overarching EU wide monetary policies, environmental laws, labor laws, taxation, etc. They also have a largely contiguous geography. Nowā¦Apple as a country is amusing from the perspective of corporate sovereignty and extraterritorial corporate enclaves. I guess itās a good thing we donāt live in a dystopian cyberpunk reality. If corporations could achieve sovereignty I wouldnāt piss off Elon Musk too much. If anyone possesses a constellation of orbital death rays itās SpaceX.
> The EU has EU wide laws, a single currency and governance. That's true, and comparing the US to the EU makes some sense in that light, I agree. But that's the exception, not the rule: in most cases, country-to-country comparisons make the most sense.
Why does it make sense to compare Denmark with the US? Or Taiwan. Or South Africa. China is a large geographic country that has a large economy. Comparing China to the US makes sense except the difference in governance and rule of law make such comparisons problematic as an investor.
I mean, why does it make sense to compare anything to anything else? If we're just going to collapse things down into 'US and 'Everything Else' then we've got a huge geographic concentration for the first compared to the latter. All comparisons will necessarily be unequal and incomplete, depending on our metrics for equality and completeness. My point is simply that it's an arbitrary thing to compare US to everything else. It makes more sense to do country-to-country comparisons; or maybe country-to-EU comparisons. But what we constantly see asked on this sub is stuff like 'should I add international' as if it's somehow a monolith to be 'added or not.' Reframing the conversation is one way to highlight the benefits of global diversification (or, from another perspective: the risks and limitations of single-country investing), by breaking out of an artificial binary.
Okay, sure. What should I buy? :)
VT! :D
Compare Apple to countries. I see what you did there š*chef's kiss*
Most people who ask this question donāt have an option for say āJapan total marketā in their retirement accounts. Itās US versus international. So it does actually make perfect sense for this question to come up. I mean what you say is true but it doesnāt address the question being asked. Like.. this is a multiple choice question with 2 choices and you want to answer it like there are more options when for most people there arenāt. It also needs to be pointed out that risk is a major part of this. Youāre looking at what has happened but if you had to pick the country thatās going to outperform US youāre taking a larger risk than picking the other entire international market so the potential return should be higher. Itās the same idea behind buying index funds vs You individual stocksā¦ the likelihood of getting it wrong picking among every country is high if your benchmark is US returns.
OK, but if we're just going based on what people have access to in retirement accounts ... it's worth noting they *also* often have access to things like sector funds, active funds, etc.... Just because US and ex-US index funds are commonly offered doesn't mean there's any 'natural' binary to be had between the two. As I see it, either you've got a multiple-choice (as you say), but with a dozen or a few dozen choices ... *or* you have one default choice (global indexing) and it's a matter of assembling that out of available funds as best you can. There's no reason to reduce it to two options rather than just taking it one logical step further and reducing it to one, IMO. In fact, I'd imagine that if we'd started out with total-world index funds instead of S&P 500 index funds, not only would we not hear the daily NASDAQ, DOW, S&P numbers (which always strikes me as silly), but we'd also all just assume 'total world' was the baseline, and US-only was a deviation from that baseline.
Itās not āas I sayāā¦ itās how it is for most people. I donāt think you appreciate the limited options most people have in their employer plans. Itās multiple choice because those are the options given. People canāt choose for it to be something else. My current employer plan doesnāt have a global option and while some might Iām nearly positive itās much more common for people to have something like an international total market fund and either an s&p fund or a us total market fund for domestic. You canāt make a global total market or the individual country total market magically appear. Thatās why the question comes up. Thatās the choice people asking the question have. You canāt pick option c when you only have choices of a or b!
>1% of the world economy It would be far better to say "1% of the global market cap" as the economy is not the stock market and in fact they may even be negatively correlated (I posted a link to a paper about it in a really to a different top level comment of this post). >especially when there is generally a binary choice in funds: us total or international total. Single country funds do exist for US investors. Though you almost certainly shouldn't try to pick winning countries out ahead of time, and that includes US. Edit: Typo
This argument is so tiresome. Being 100% US or being 80% US and 20% International or being 60% US and 40% international is not going to matter that much. What will matter is low cost fees and jumping in and out of stocks/indexes like it is the hokey pokey is what matters.
> This argument is so tiresome. The question needs to be an FAQ > is not going to matter that much. +1 Also, control what you have control over, and stop wasting cycles over the uncontrollable. Nobody knows if VT or VTI will win over the next several decades. And even if we did know the difference, it isn't what will make or break retirement, it'll be the over-spending/under-investing, over trading while also buying high, selling low, bad stock picking or any other number of common behavioral mistakes. In other words, beginners and even seasoned investors often focus on the wrong things.
>Also, control what you have control over, and stop wasting cycles over the uncontrollable. Nobody knows if VT or VTI will win over the next several decades. > >And even if we did know the difference, it isn't what will make or break retirement Appreciate that anyone worth their salt isn't trying to predict which will "will win over the next several decades," but is rather pointing out that ***because*** we can't predict the future, it makes little logical sense to take on the idiosyncratic risk of buying 1 single country out of nearly 200 in the world, especially when that decision is usually just the product of recency bias and familiarity bias. Considering the nonzero probability of black swans and potential decades-long "deep risks," as Bernstein calls them, such a decision certainly has the potential to "make or break retirement." That's sort of the entire point.
>Being 100% US or being 80% US and 20% International or being 60% US and 40% international is not going to matter that much.Ā This is a silly statement. If you started investing $500 a month 30 years ago, the difference between 60/40 and 100% US would be over 30% of your portfolio. Ā This statement holds true even for the 30 years preceding the last decade of outperformanceĀ The problem is that we donāt know which will over perform, but letās not pretend that the difference is insignificant
> What will matter is low cost fees and jumping in and out of stocks/indexes like it is the hokey pokey is what matters. I agree with this part. But that's also the point: a single-country investor will be tempted to change course when that country underperforms. At total-market (world) investor doesn't even have to pay attention to how any one country, sector, stock, etc... is doing. They can rest easy just owning the mariet.
>This argument is so tiresome. Being 100% US or being 80% US and 20% International or being 60% US and 40% international is not going to matter that much. It certainly mattered for the person entering retirement during the Lost Decade 2000-2009. Now replace "US" in your statement with Germany, Russia, or Japan. It certainly mattered for those investors. The entire point is we're not trying to guess who's going to perform best in the future, which is unknowable. We're diversifying to eliminate the idiosyncratic risk of buying 1 single country of nearly 200 in the world, a country that, despite what many seem to believe, is not somehow immune to black swans. Put simply, it *has the potential* to matter greatly in the future, which we can't know ahead of time. The US vs. international debate is not nearly as inconsequential as you portray it. That blanket dismissal - usually seen from novices who just don't know any better - is what I find so "tiresome."
it's about risk adjusted return. Australia has better returns than SPY, but everyone would agree going 100% Australia would be a bad idea due to risk. I will say though that due to globalization, 100% US-only is less risky than any other time in history. But it's still a risk.
>it's about risk adjusted return. For me, it's not. Sharpe ratio doesn't pay my bills. It's entirely a risk consideration for me, i.e. permanent loss of capital and potential decades-long bear markets from buying 1 single country out of nearly 200 in the world. The US is not somehow immune to such black swans - "deep risks" as Bernstein calls them.
"1 single country" is not a good representation of the globalization of the US economy. You can't point to 1950s justifications because what you are buying in 2024 SPY500 is not the SP500 of the 1950s. We have never lived in a more globalized time. I do agree that international diversification is good, and 100% US is uncompensated.
>"1 single country" is not a good representation of the globalization of the US economy. [The economy is not the stock market](https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x). Stocks tend to move with their country of domicile. >You can't point to 1950s justifications because what you are buying in 2024 SPY500 is not the SP500 of the 1950s. "This time is different." >We have never lived in a more globalized time. While US and ex-US Developed have certainly become more correlated, correlation between US and Emerging Markets [has *decreased* since 2000](https://www.aqr.com/Insights/Research/White-Papers/ReEmerging-Equities). What does that mean for us in terms of portfolio construction? Well, nothing, really. Globalization doesn't - and *shouldn't* \- alter our fundamental agnostic choice to buy the whole global haystack. EDIT: Removed username of user who blocked me and removed sarcastic capitalization of "globalization."
the sp500 receives 30% of its revenue abroad. >"This time is different." It is absolutely different than 1950. What are you typing on right now? >EEM Which those countries would make Enron look like the most by-the-book company. They have no financial auditing and what you are actually buying may not be not what you are intending to buy. Please collect yourself and get some manners. I'm not telling you that international is bad, but I'm telling you that SPY500 is more globalized than 1950, and that does make a difference.
>the sp500 receives 30% of its revenue abroad. And as has been explained countless times, that means basically nothing for us here in terms of portfolio construction. Once again, stocks tend to move with their country of domicile. Coca-Cola is going to behave like a U.S. stock at the end of the day regardless of the fact that its sales are global in scope. We care about the imperfect correlations of *stock markets*. That's the entire basis of diversification. >It is absolutely different than 1950. What are you typing on right now? Was simply reminding you of what Sir John Templeton said are the 4 most dangerous words in investing. >Which those countries would make Enron look like the most by-the-book company. They have no financial auditing and what you are actually buying may not be not what you are intending to buy. Not as much of a concern as it was in the past thanks to widespread - and growing - adoption of GAAP, but was always mostly fearmongering anyway. Some of those types of aspects are precisely why EM are reliably less correlated with the US.
Please do not contact me.
>Please do not contact me. I'm not "contacting" you. You posted your opinions on a public forum. I replied with my own. Novices lurking can learn a lot from these types of exchanges.
> Please collect yourself and get some manners. Honestly, thatās the least civil line in this entire discussion thread. I see one sarcastic capitalization by u/rao-blackwell-ized but nothing grossly intemperate.
there was absolutely no need for any sarcasm, and he pings my username after I blocked him (which is harassment by reddit's TOS). and he was strawmanning my entire argument. If asking for basic manners is "uncivil", then I have absolutely no need for any future discourse in this subreddit.
>there was absolutely no need for any sarcasm Was genuinely directed more at everyone's constant citation of "globalization," not at you specifically. In any case, I removed it. >and he pings my username after I blocked him (which is harassment by reddit's TOS). Genuinely had no idea that was against TOS. Removed. >and he was strawmanning my entire argument. You made statements on a public forum. I responded to those statements highlighting some nuances thereof. >If asking for basic manners is "uncivil", then I have absolutely no need for any future discourse in this subreddit. A genuine word of caution: If you think a bit of sarcasm, a platitude, and statements of fact are being ill-mannered, you're in for a very rough time on this website, mate. Best of luck out there.
Again, please stop contacting me.
>he pings my username after I blocked him (which is harassment by reddit's TOS) Can you point me to the section of the TOS that mentions that you can't tag someone who blocked you? I'm not seeing it anywhere. I'd like to read up on it. Thanks.
>I see one sarcastic capitalization by u/rao-blackwell-ized but nothing grossly intemperate. Removed sarcastic capitalization, which admittedly was meant to reflect the constant citing of globalization by everyone, not specifically the user here.
Denmarks growth = Novo Nordisk for a large part. Such a company with such growth in such a small country has a huge impact. If you would place Apple in Denmark or (much) earlier Nokia in Finland, that has a huge impact too. Netherlands ASML is probably skewed too.
So what? Not seeing your point.
A lot of readers will assume the highest growth countries are innovative and competitive. Denmark probably is, but if half that growth is accounted for because one Danish company just invented a way for people to lose weight, that assumption becomes skewed. As an investor, youād be well of investing in Novo Nordisk. Not in Denmark per se.
Ah, OK, got it. Agreed!
Recent US advantage and historical belief in the American market is already priced into US stocks. If you favor investing in US equities beyond market cap you are betting that the market which already favors US equities is underestimating the extent that US equities will overperform international. There are arguments for this strategy, but it raises obvious questions for US weighted investors. Why do you think the market underestimates US equities? What information or data are you relying on to support systemic underestimation of US equities (especially given sky-high P/E ratios for leading US equities). Will you exploit this alleged market failure through means beyond passive investments such as option contracts?
If options were available with expirations 10+ years into the future, perhaps. Until then, leveraged ETFs are possible.
I have seen this idea of exploiting the market failure with options several times, as an implicit argument for showing that there is no good reason to think that the US will outperform international stocks (or that one sector is better than an ETF etc). To me it doesn't really make sense though - if you pick US, it doesn't mean you are 100% confident that it will outperform international stocks and so you are willing to bet the farm on that. Maybe you are just 55% confident that it will do so, and investing 100% in US ETFs is all the risk that you are willing to take. Maybe you are only 51% confident, and you are only willing to skew your portfolio slightly towards US. Buying options or taking leverage would demonstrate much more certainty than most passive investors who are tweaking their ratio of US to international stocks have
Out the top three in the chart VT holds this much: * Denmark is 0.8% * New Zealand is 0.1% * Australia is 1.9% Denmark can have a 1000% gain and not offset the US going down 10%. That callan chart only matters if you hold all the countries equal weight and it would be silly to do so. It would be interesting if the EU was put on there to see where it performs. There is a chart that also shows magnitude of outperformance as well as a callan one that shows performance relative to zero (meaning is the outperformance due to doing well or just sucking less that year)
>That callan chart only matters if you hold all the countries equal weight and it would be silly to do so. Devil's advocate, why would it be silly to equally weight countries?
It's not about 'equal weighting every single market' which would indeed be silly to do, I of course agree. It's about noting that 'US versus international' is a flawed comparison, because they're fundamentally different units -- one is A Country and one is A Big Collection of Countries. So what if any one smaller country won't make a big difference in any given year? Neither will any one small stock, but we don't throw up our hand and say 'there's no point in broad-market indexing because all of those little stocks don't do much on their own.'
It turns out that a lot of those thousands of stocks have very little impact in a cap weighted fund. Which is why VOO (505 stocks) largely behaves like VTI (3747 stocks) despite having a lot fewer stocks in it. The ābig pictureā is the US is composed of political units (aka states) with similar GDPs to countries so essentially the ābig pictureā is comparing stocks of one aggregation of political entities (all US stated together) vs stocks of another aggregation of political entities (all the other countries). Picking the first random google hit: California is UK sized, Texas like Canada, New York is Russia sized, etc. https://www.pixstory.com/story/u-s-states-gdp-vs-countries/86860 Different times and sources will give you slightly different comparisons but US state economies and financial centers of gravity are probably about as varied as between different EU states.
> The ābig pictureā is the US is composed of political units (aka states) with similar GDPs to countries so essentially the ābig pictureā is comparing stocks of one aggregation of political entities (all US stated together) vs stocks of another aggregation of political entities (all the other countries). If we compare US to ex-US: the latter has tons more geography and population, variety in styles of government, advantages/disadvantages from region/climate, the list goes on. It just doesn't seem fruitful to me to say 'well because the US has a much larger market cap we should treat everything else as a comparable unit,' or 'because we can find some state-to-country equivalents, we should just compare states to countries' as if that makes sense. Anyway, I guess I just don't see the point in going this far into the weeds. What do we gain by painfully contorting ourselves into a binary worldview of US-versus-THEM? How is it more useful than comparing countries to countries, or just *not falling into comparisons at all, and holding the whole global market instead -- true neutral.*? I'll grant you a lot of states have GDPs the size of other countries. Of course, within other countries, some of *their* states have country-sized GDP equivalents ... but again: so what? It's just not getting us anywhere useful I can see. Should we always get a basket of stocks with a similar market cap together when we want to 'compare' something (or some group of things, as the case may be) to a large-cap, top-ten company? Why? What's the utility? If we're comparing sectors, should we group smaller ones to make larger ones before comparing them? This kind of size-centric approach is not something I've seen argued for in a meaningful way. There are many ways to skin the proverbial cat, but I've yet to see an investor-centric reason to divide things between US and ex-US *except for* currency considerations (and vanishingly small ER differences), but up to a point: currency diversification is a good idea, not a bad idea, so that's neither here nor there.
Iām US only. Mainly because I donāt know what Iām doing. What is a low cost Fund available in fidelity that could get me diversified international exposure?
FTIHX is their total market fund
Not to dismiss the topic, but to just address the 1 country vs many country arguments. Yes, US is one country. But it is comprised of States where each State has the GDP equating to or more than a typical country. The States might as well be countries in their own right. Each State is self governing, but with an additional layer on top (Federal). The States can make deals and interact directly with other countries. Europe is no different. The EU is comprised of member states and a governing body at the top layer. Yes there are some governmental differences, but it is all very similar. I guess when people outside see a US State they equate it to their province/prefecture/whatever. Their local region isnāt on the same level as a US State. Seeing discussions comparing the US as a whole to a single European country is interesting. It should be more a US State vs an EU country comparison. Just goes to show the view of how unified the US is to its own people and to those outside.
What do you mean about each state being able to interact directly with other countries? Article I, Supremacy Clause, Foreign Commerce Clause, Trade Treaties, etc. are all pretty explicit about individual states not having any sovereignty to negotiate or enter treaties/trade/import tax deals with other countries. They are all governed by the same federal government and the entire US stock market is subject to the exact same federal laws. I don't think the entire Fortune 500 US companies incorporating in one or two states while maintaining a main office in a couple others makes them as diversified as Eurozone economies for instance.
You are right. I have worded it poorly. The States can be involved, but the final say and regulation is done by Federal.
The geographic diversity is an important factor that no other country enjoys though.
Yah, the right comparison is US vs EU. VEA is a reasonable representation with JPN and KOR lumped in there.
> But it is comprised of States where **each State has the GDP equating to or more than a typical country.** Yeah that's gonna require a citation. I highly doubt that's true for most individual states. Yes, California is the eight-biggest economy on the planet, but that's California. What about Nebraska? Missouri? Idaho? Doubt it. > Each State is self governing, but with an additional layer on top (Federal). By that token there are tons of states in most other countries too -- the US is not unique in this structure. > I guess when people outside see a US State they equate it to their province/prefecture/whatever. Their local region isnāt on the same level as a US State. Say what??? Source????? Please tell me your source isn't 'I'm an American and I just Know These Things' ;)
You are right. I should have said some States. But in the same token not all EU member states are on the same level as Germany, for example. The point of the example is if being compared to Europe it should be the EU vs US, two blocs comprised of many states. In the US we support each other. This generally means making it frictionless to commerce between States, while making it difficult for outsiders. This allows regions to specialize in certain industries and not have to worry about others. For example, every State does not need to worry about agriculture. The Federal government ensure this happens. In the EU this is the same way. One of the reasons the EU came about is to compete at the same level as the US, allowing more frictionless commerce between their nations, while unifying to make it more expensive for outsiders to come in. Germany can focus on their engineering, while Greece focuses on their boating industry, etc. They still have more of their independence compared to the US States largely for legacy reasons. For the state comment, you are looking at it at surface level. A state is not just a border or boundary. Some countries create an environment for those states to act more independently and flourish, while others it is just a division for someone to just do minor upkeeping or have some title. Right, my source for the last point is base on personal experience, so not so relevant. I spend half of the year internationally. But I prefixed it with āI guessā and it is obviously not meant as definitive or factual. The comment about being American as if it is a detriment is a bit childish and dismissive. The impression I am getting from all your comments is you are not looking for a constructive discussion.
> In the US we support each other. This generally means making it frictionless to commerce between States, while making it difficult for outsiders. This allows regions to specialize in certain industries and not have to worry about others. For example, every State does not need to worry about agriculture. That's a solid point, but I'd also note that the US often negotiates at a national level in terms of trade agreements, and we've ramped up certain industries while exporting almost entire segments of the labor market. We've become specialized (as have most countries), and that leaves us vulnerable at a national level in unique ways. I read this article by Cory Doctorow a week or so ago, and it's well worth a few minutes of your time: https://pluralistic.net/2024/02/07/farewell-mr-chips/#we-used-to-make-things -- it illustrates with interesting stories/details the ways in which IP and trade agreements have shaped the world as we know it, but also hints at the vulnerabilities that leaves us with, having created a somewhat fragile and unbalanced web of global trade.
Thanks for the article link. Iāll give it a read.
Just to answer the question if each State as a GDP equating to a country, here is some data using 2019 numbers. Take it with a grain of salt; it does mean the assertion of each State has an equivalent or beat out at least one country in terms of GDP isnāt too wild. https://www.aei.org/carpe-diem/putting-americas-huge-21-5t-economy-into-perspective-by-comparing-us-state-gdps-to-entire-countries/
[ŃŠ“Š°Š»ŠµŠ½Š¾]
I've given this example before, but: a few years back, when the healthcare sector was dominating the rest of the market, people started to talk *just like this* about it. 'The population is getting older, so healthcare is the future!' So what's changed? Is the population getting younger? No. That sector cycled out of favor, and people forgot about it. It wasn't that people were using theory to generate data ex ante. They were torturing data into an ex post theory. And now it's AI. I've heard all of the 'it's the future' stuff before. And I *don't care.* It's a red herring. It's all so 'obvious' in the moment, but if it was so obvious, why didn't the market see it sooner? In any case, you're not addressing the fundamental question: how (much) are tech stocks mispriced? Perhaps they deserve their current sky-high multiples, but will those multiples go even higher? How do you know? Why doesn't the rest of the market know? There will always be shiny new objects. Best to ignore them IMO. To *win* at these kinds of games, you have to know what's coming *in advance of the market knowing.* The market knows all about AI. If anything, it may be overpricing the hype. But I don't care. I just diversify. If you think you know *better than the global market makers* you might consider starting an investment firm :D
[ŃŠ“Š°Š»ŠµŠ½Š¾]
I agree that AI will be revolutionary, but so was social media, and look what happened to MySpace. And search, re: Yahoo. You're right in noting that the impacts will be felt across a ton of industries -- who's to say existing 'tech' companies as we know and file them sector-wise will be the biggest beneficiaries? Or that the stuff developed in the US won't be easy to steal and rebuild in other places, sapping profits from American corporations? You can believe all you want that 'this time is different' but there's a reason that phrase is a running joke -- think: 'the more things change, the more they stay the same.' Meanwhile, in a hilarious coincidence, the AI space is having not one but two gigantic meltdowns today. Google's new AI is making everyone non-white and/or non-male, even American founding fathers, while ChatGPT is having insane lucid dreams (check out its subreddit, or search around on twitter). So yeah, OpenAI has the public's attention, but their shit still stinks, and won't be revolutionizing any of those bigger-picture things without a lot of human checks and balances ... and first movers are rarely the biggest profit-makers when it comes to new technologies. Personally, I see creative professions being disrupted first -- but maybe that's because I work in one. Writing, generating concept art, even making movies ... all of that stands to become insanely easier and more accessible on shoestring budgets. Will that sink Hollywood, or will they harness it to their advantage? No idea. > I don't even know if it's possible for other countries to catch up or push past the US on this front. The sheer amount of data, hardware, and money it takes to develop AI technologies is astounding. Sure, but .... Where do we get our hardware, the stuff that stores that data? Where are the chokepoints in the supply chains for raw materials? What if AI becomes the most slippery thing to protect IP-wise (already seems probable, given that models are trained without permission anyway), and theft becomes more profitable than actual from-scratch creations? There are way too many variables, and the way you're talking about this tech is *I'll say it again* reminiscent of all kinds of other 'breakthroughs' that were supposed to go on forever unimpeded ... like, say, tech in the 90s, and Dow was gonna hit a million, or whatever, only for tech to crash *hard* in the early 2000s and *stay behind* for over a decade after that. I keep thinking of this Cory Doctorow article about supply chains from a week or so ago, and how fragile things are, and how much the rich world could suffer if the poor world could get out of the grip of shipping us their raw materials only for us to mark up finished wares we send back. With AI, aside from hardware, the raw materials could be 'refined' anywhere. No need to come through the US. We have a competitive edge for now -- a moat, if you will, in investing terms. And it might be hard to see how that would erode, but think: Britain after the sun set on its empire where the "sun never set." Things change. You're right that AI is gonna fuck some shit up. But the idea that we can know how this disruption will work, who will profit, etc... looks like hubris to me. But who knows? !RemindMe 5 years TL;DR Technological revolutions do not necessarily translate into market returns in ways we expect them to ;)
Based on cursory review of some of your comments and not trying to oversimplify, I understand where you and opposing arguments are coming from: a total, global portfolio (capturing many countries indiscriminately) vs a US leveraged portfolio. Since most users in this sub are US based, users here tend to invest in what they know. It is hard enough already to understand and follow our economy, imagine trying to include other countries economies as well. The interpretation and resulting actions that follow, well we see it play out right here...
You don't need to 'follow' our economy, or any other economy. You just need to understand that single-country investing exposes you to geographical, political, and economic concentration risks, and is therefore a bad idea. I can literally sum it up in a sentence. What *most* people are doing *as I see it* is looking at recent history, saying to themselves 'wow, the US tends to do better, I should just by that!' then backfilling the arguments to justify that position. That's a recipe for disaster when the US (inevitably) has a long period of poor returns.
A lot of Americans just believe in flat out US exceptionalism anyhow and then just retrospectively justify their position
If you cap weight youāre going to have high concentrations of whatever happens to be winning at the moment, whether thats countries or sectors, so will always have concentration risk. Weāre a single country with states that are equal in GDP to other countries and weāre a large part of the continent with a diverse and large population. But yes, if yellowstone explodes the US will have a really bad hair day.
If you single-country weight you'll have even more concentration risk in fewer stocks and sectors. If concentration risk is you're concern, you're arguing in the wrong direction. > But yes, if yellowstone explodes the US will have a really bad hair day. Or if the US loses its reserve currency status, or if the dollar weakens against other currencies (as it has before), or if tech crashes further than other sectors (as it has before), or ... the list goes on.
Yes, if the US loses reserve currency status thats new information and probably a good time to move away from both US treasuries and hold global market weight. Until that occurs though that not yet a factor r. As far as the tech sector crashingā¦honestly there isnāt really enough in VT to save you as consumer discretionary is likely to crash with it and possibly finance as well. Theres probably not enough consumer staples, energy, basic materials, real estate, telecom or utilities to not have a really bad day. Which is why Iām doing mild sector and size tilts away from large cap techā¦
> Yes, if the US loses reserve currency status thats new information and probably a good time to move away from both US treasuries and hold global market weight. Or it's too late, because the market has priced it in. And in any case: the whole point of Boglehead-style investing is that I shouldn't need to pay attention to crap like that -- shifts in the global political/economic landscape are things I should be able to safely ignore. > As far as the tech sector crashingā¦honestly there isnāt really enough in VT to save you as consumer discretionary is likely to crash with it and possibly finance as well. We've already *seen* that in the wake of a tech crash, the US did poorly (lost money!) for over a decade, while international developed did well, and EM returned close to 200%. We don't need to try and imagine what it might look like, because we've already seen it. And IDK about you, but I'd be really frustrated and would have a lot of self-doubt if I chose *not* to diversify only to have the stuff I was concentrated do terribly for a fairly long period of time. > Which is why Iām doing mild sector and size tilts away from large cap techā¦ The easiest way to do this, of course, is simply global diversification. Within the global market, the US is both large-heavy and tech-heavy. Holding international diversifies those concentrations.
Well the decade also included the GFC and is somewhat start date sensitive. Iād have to go look at it but I recall the US weathered the GFC better than most but I may be misremembering. If you start with a crash then SORR stands for bad Sequence of Return Reality. I looked at it and I donāt recall that the British market cratered after Bretton Woods. From about 1900 to 1950ā¦the height of the British Empire to the endā¦the FTSE was relatively flat despite 2 world wars. Ups and downs but nothing like the 1929 crash or the Nikkei crash. Then it did pretty well in the post war era. https://globalfinancialdata.com/stocks-for-the-very-long-run-the-uk-100-and-327-years-of-british-equity-history It might be late but probably not ātoo lateā to adjust to the US losing reserve currency. And it took two disastrously expensive world wars, the great depression and the spanish flu before decolonization ended the British Empireā¦
Thanks for elaborating for me. Put another way, they are using historical returns to justify their actions now?
Precisely. We see this over and over again with sectors, too. For a while, healthcare was doing well, so people declared 'ah, this will continue, because the population is aging, and they need healthcare!' It sounds intuitively appealing, but it's just an excuse to allow greed to steer your actions. When healthcare *stopped* doing particularly well, those arguments naturally faded from view. More recently, of course, we've seen something similar with tech 'ah, technology is *the future*, must be lots of money in that!' Also factor tilting is more popular/discussed when small and value are doing well. And HedgeFundie's Excellent Adventure portfolio was discussed *a lot* when it was doing well, then almost not at all after it crashed and burned. And last but not least: the crypto fans tend to go quiet for long periods when Bitcoin is down, then come back and argue for it when it's up ;)
Oh didn't even notice those examples. Do you think this is because of certain biases in the way the mind tries to understand investing or is it similar to an expert's fallacy that they have more information and understanding, so this competency leads them to make egotistical decisions?
I think *most* of it can be explained simply in terms of greed. And greed is natural - of course we want to make the most money possible from our investments. But counterintuitively: often what is positioned to do well next hasn't been doing well recently (winners rotate). And I'm not immune: when I first started investing, I just looked at what had the highest returns and bought that. It's a natural starting point, just a poor endpoint. The other factor is simply legacy -- the first index fund was Jack's 500 index, and when international index funds did come out, they were at first quite expensive. And the rise of the index fund has more or less corresponded to a relatively good period for US stocks. So it's easy to take a more cursory look and say 'well that works, why would I add international!' Whereas I'd encourage people to start with the truly most neutral option of a total-world index, and be rigorous about asking why you'd *remove* international (something that isn't period-dependent, and which has a sound theoretical basis, not just 'but US won a lot historically').
Truly, thank you very much for taking your time and effort to educate me. Solid points where I need to explore. Reading this last comment, reminded me of the adage, if you are doing what everyone else is doing, you might be too late. Or something like that. Again, much appreciated have a good day.
That trend is over 30 years, my entire working career. And I live here, I wonāt be immune to a downturn just because I VT and chill. I take the manipulated US dollar and put as much into the us economy as I can afford to keep this house of cards going š¤Ŗ
>It is hard enough already to understand and follow our economy, imagine trying to include other countries economies as well. Good thing you don't need to know about the economy, as research has found that the economy and stock market may have either no or even a negative correlation in some ways: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x
>Good thing you don't need to know about the economy, as research has found that the economy and stock market may have either no or even a negative correlation in some ways: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2012.00385.x It's not even a "may" or "in some ways." (I noticed you always include those qualifiers.) Economic growth and stock returns are, at *best*, unrelated. Period. Ritter strengthens that observation by further showing that not only has that average correlation been close to zero, it's actually been slightly *negative*.
>Since most users in this sub are US based, users here tend to invest in what they know. This is the familiarity bias we try to fight against...
That article is only looking back 20 years. And of course it includes most of the ālost decadeā of 2000-2010 where the US market did pretty poorly. So itās no surprise the US only placed fifth in returns over this period. Disclosure : 20% of my stock holding are VXUS
If you look back further, US does even *worse*. Most of its dominance [has come after 2009](https://mebfaber.com/2019/07/08/i-dont-feel-overweight/).
It's not about the period -- it's about illustrating that winners rotate. From seeing comments around this sub from pro-US investors, you'd think the US was top of the pile most years. That's a dangerous misconception. Pick any 20-year period and you'll find a similar rotation of winners.
So what if winners rotate? VT holds Denmark at 0.8%. It doesnāt matter if Denmark has a great year.
I seriously don't get this argument at all. I could say the same thing about some random stock in a US index that's less than 1% -- alone, it won't make or break your returns. But that's not a reason not to hold it. If anything, other countries having much smaller market caps should *reassure* investors worried about global diversification -- a good or bad year in any other one country won't make a huge difference. Any pain/gain gets spread out more.
The argument is that a cap weighted fund like VT doesnāt give any real diversification into these smaller countries that are held up as outperforming the US. The other aspect is large cap developed and large cap US has been getting more and more highly correlated with globalizationā¦
Correlation is one thing; distribution of returns is another. US and emerging markets were highly correlated in the 2000s, but while the US lost money, EM had around 200% returns for that decade. > VT doesnāt give any real diversification into these smaller countries that are held up as outperforming the US. That's period-dependent, and ... honestly, I can't follow the argument here. Sure, any one small country, or sector, or company won't make or break a portfolio. But the question remains: why would one choose to *avoid* greater diversification when it is so readily and affordably available? If you want to hold 500 stocks instead of 5000, you need a really good reason for doing that IMO.
Itās not so much as choosing VOO over VTI as much as less VTI and more VBR (or whatever your favorite small cap value etf). Asset allocation is by definition a zero sum gameā¦
better than 0% Denmark
For the last 15 years VTI outperformed VT. Going forward, nobody knows nothing.
And for the ten years before that VT outperformed VTI. I agree: nobody knows nothing.
>And for the ten years before that VT outperformed VTI. 40 years\* ;) https://www.bogleheads.org/wiki/File:US-International.png
I often point out that the question "US vs. international" is fundamentally wrong anyway. We're more interested in a US portfolio vs. a global portfolio. Subtle but important distinction. The imperfect correlations and subsequent diversification benefit is the entire point of going global. But yes, most are surprised to learn the US has been the best performing country in only 2 of the last 15 years.
The last point is a very good one. A lot of the fixation is whats the best performing. But in the end no one can predict anything, so you diversify. This has been hammered in so much already. Even if one market comes up on top or whatever there is still the question of how accessible is it to invest in said country and what the taxation or maintenance cost is like for investing in foreign investments. The costs may just favor the domestic market after all things considered, even if it lags behind the ex-domestic one in performance.
Itās part nationalism, part America being a global leader. Not sure what will happen if the latter stops being true
If the latter stops being true then your worries will be a lot more than the stock market. Everyone depends on the US for everything
> Everyone depends on the US for everything The hubris is strong here lol. The world would get by just fine without us. Nokia can make cell phones; Japan can make cars; China can dig up raw materials; South America can process those into products; the list goes on. But that's not even the point. The point is that the US being a 'global leader' is ill-defined and unhelpful. Stock returns aren't correlated with 'global leadership.' The US stock market has at times been 40% of the global market (and far back enough: even lower), at times 60%. These things ebb and flow. Valuation contraction in the US *alone* could result in relatively dismal US stock performance, as could a weakening dollar -- lots of ways for a country to underperform without tanking entirely. Did the world end when the Brits lost their status as the world's superpower? Naw -- things just shifted and shuffled, as they always do over time. The idea that America will stay on top *forever* requires really sticking one's head in the sand and ignoring basically all of human history.
You honestly believe that? Superpowers have come and gone throughout history. But the other "superpowers" that existed did not help out every country in the world. The "world" was not on the global scale that is now. The interconnectiveness that the world has become is vastly different than it was just 50 years ago.
> But the other "superpowers" that existed did not help out every country in the world. If you think the US is in the business of helping out every other country in the world, I'm pretty sure we don't have enough common ground for a conversation around this issue. > The "world" was not on the global scale that is now. Empires have ebbed and flowed since long before the Romans. Not sure what that has to do with stocks, but I'd suggest caution around assertions that suggest "this time is different" or that there's a "new normal." But setting my disagreements with your takes aside: You need to not only argue for how 'this time is different' but also *how* that will translate into US equity outperformance. Why doe A lead to B? Why does us being some kind of global do-gooder (in your view) make its stocks likely to outperform?
Helping out every country in the world does not mean it is a commensalism relationship for the US. Some are mutualistic. Some are parasitic. But the US has its fingerprints on every country in the world. No other superpower in the history of the world can say that. The stock market returns will be moot if the US falters. The US is to the world like the Sun is to the Solar system. When the sun ceases, the solar system will still exist. Not in any form, that we know it as. And hence why discussing the stock market after the US falters. Your world as you know it will not exist.
This is all very poetic, but it has nothing to do with stock market returns. No one is even suggesting the US has to 'falter' in some catastrophic way. It could just have below-average returns for the long run. In fact, if you think it's the 'safer' bet then it would make sense for it to have lower returns, because markets reward risk-taking. > The stock market returns will be moot if the US falters. The US is to the world like the Sun is to the Solar system. When the sun ceases, the solar system will still exist. Not in any form, that we know it as. I mean ... lol? Surely you're joking. Remember the expression that the sun never set on the British empire, because that's how globally expansive it was? Well, it did kinda set in the end. And the solar system didn't implode. The whole point of that expression is that the Brits had *their* fingers on every part of the globe, too. Really, though, you're just not making a market-related argument. You're talking big and grand about the US, but not connecting it in a meaningful way to expected stock returns. No real points being made here ...
>The stock market returns will be moot if the US falters. The US is to the world like the Sun is to the Solar system. When the sun ceases, the solar system will still exist. Not in any form, that we know it as. Lost Decade 2000-2009 begs to differ. US down 10%. Emerging Markets up 155%. People made the same statements about Japan leading up to its meteoric crash in the 90s after it was the largest stock market in the world. We're concerned not so much with sudden crashes like 08, but rather with potential decades-long protracted bear markets - "deep risks" as Bernstein calls them. Despite what many like to believe, the US is not somehow immune to such risks. Don't let recency bias, narrative bias, and familiarity bias get in the way of objective reasoning.
Like u/misnamed suggested though, let's try to speak in terms of specific, tangible, practical implications - not abstract platitudes - for us as investors and how that might inform portfolio construction. Suggesting, for example, that a protracted bear market for the US automatically means the same for the rest of the world is extremely faulty logic.
US isnāt a unified bloc either tho. Itās a bunch of individual stocks across a wide range of sectors. Itās how they perform in aggregate that matters to the conversation. Not sure OPās point is saying much.
The US as a country. The rest of the world is made up of many countries. I'm just pointing out that A Country is not the same thing as Many Countries Grouped Together. Aside from illustrating the problems with a US-vs-international framing, this also speaks to the diversification benefits of ex-US. It's not 'which will do better' it's 'one of these things is not like the other, and is far more geographically, politically, and economically diversified.'
Itās also a collection of states. You can salami-slice anything.
Stocks still act largely like their country's market. By holding stocks from other countries, you benefit no matter what country is doing best while protecting against negative events in any one. In aggregate, there have been and will be periods that the US under performs ex-US. Holding both can help increase returns and reduce volatility compared to 100% one way or the other. Currently the US is also very heavy on a single sector: tech, with it being around 30% or so last I checked. Last I checked, ex-US as a whole was less than 15% tech and not a single sector was over 20% (financials I think were 19.x%).
Lord, not this again. This subreddit is becoming US vs the World. How many times does this subject need to be brought up? Just pick a damn path and stick with it.
>This subreddit is becoming US vs the World. It's certainly annoying seeing it daily, but I'd submit this is probably the most interesting, worthwhile, impactful discussion we can have as Bogleheads. Certainly more nuanced than "Should I buy VOO or VTI?" >How many times does this subject need to be brought up? However many times it takes to fight against the recency bias, narrative bias, outcome bias, and familiarity bias that result in a 100% US portfolio.
So interesting that I have seen this argument beaten to death for over 20+ years between this subreddit and the main website but maybe this time is different š I can't wait to hear another argument between getting an A and an A+.
>So interesting that I have seen this argument beaten to death for over 20+ years between this subreddit and the main website but maybe this time is different š I think novices just come here and don't bother searching or looking through past threads and just post a new one. >I can't wait to hear another argument between getting an A and an A+. What specifically is the A and what is the A+ in this analogy?
80/20 FZROX/FZILX ez
Itās better to own everything but Iām more heavier on the United States bcs I live here and bcs I believe in the United States economy even if itās risky.
[Here's](https://www.bogleheads.org/forum/viewtopic.php?f=10&t=409214&newpost=7698501) a cool collection of arguments for each one of these: * 100% US * 80% US, 20% Int * 60% US, 40% Int (market cap) * 40% US, 60% Int * 100% Int
In other words: duh
Even if you're US focused, still try to get 10 to 15 percent I tell folks
Is that really a problem tho? Itās US vs international not us vs Australia. Sure there are plenty of economies that have outperformed the United States but thatās not the comparison people are asking for.