International Stocks--The Pros and Cons of Investing in Foreign Companies
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- Опубліковано 29 вер 2024
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Should a well diversified portfolio include international stock funds? That's the question I'm covering in this video. I'll first walk through several reasons an international stock fund is NOT necessary. Then I'll explain why I nevertheless invest in international stocks. Finally, I'll cover what I think is the most important factor as you decide what is best for your investment portfolio.
Video Outline
- U.S. vs. International
- Performance (Portfolio Visualizer)
- Current Valuations (VTI vs VXUS--Morningstar)
- Reasons NOT to own international stocks
1. Warren Buffett & Jack Bogle
- Warren Buffett Portfolio--robberger.com/...
- Bogle on Investing
- www.morningsta...
- jasonzweig.com...
2. International stocks may have lower valuations for a reason
3. The U.S. is the best place to invest
- entrepreneurial
- Soundest institutions
- Excellent governance
- Well diversified economy
4. U.S. companies do business around the world (so we already have int'l exposure)
- About 50% of revenue and earnings come from abroad
5. Diversification may not be that great
- U.S. Small Cap Value may provide more diversification
- www.morningsta...
6. Many countries are unstable politically, economically or both
- Why I own international stocks (and how much)
1. The U.S. dominance won't last forever
- 2021: 149347908.v2.p...
- 1989: 149347908.v2.p...
- Not a single company on the 1989 list made the 2021 list
- Valuations have soared
2. I prefer the added diversification
3. Valuations are lower than U.S. stocks
4. 20% to 30% is reasonable
5. I'm comfortable I can stick with the allocation long term
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#internationalstocks #investing #robberger
ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
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Id rather lose that 1% or so every how ever many years betting on the S&P500 rather than losing 3-4% per year every year hoping and waiting that one day international stocks over perform the US (which no one knows when) only for the US to likely over perform again after that. The big tech companies of the US isn’t going anywhere. Tech is allowing the world to become more and more intertwined compared to the other decades prior to the age of smartphones. There will be new tech companies sure, but tech will continue to be the future. It will be more and more integrated into our lives. That’s why i’m investing into a global tech ETF rather than international/emerging markets
Another great video Rob. Thank you. This is a topic that I've thought about a lot over the last few years. I'm generally more comfortable without international funds in my portfolio, but I really appreciate your presentation of the merits of having some exposure to the international marketplace. Your reasoning is very compelling.
Those 2 images of the top 20 companies are fascinating ! It’s crazy to think that not 1 company is in the list today. Wow! Great video as always
Take another look. Almost all of the Japanese "companies" were banks or investment firms. They didn't produce products. And the yen-dollar exchange rate changed everything very quickly. Context.
Good video. There are strong arguments on both sides. I just don't think it makes sense to make a 100% bet on the risks of a single economy, currency, political and economic system. You take that risk in the hope the next 30 years repeats the last and you squeeze an extra 1%? The world will change a lot in 30 years. What if something happens to US currency, political system, etc? You may underperform 5%+. In my opinion, its asymmetric and comparable to idiosyncratic risk. I'm at global market cap, matching VTWAX, but using individual indexes like 58% VTSAX / 42% VTIAX.
I also follow you. Your video about this topic (the one that you play 2 characters 🤣) was great too. 👍
@@aridm47 Thanks Ari!
I think it's good to have a small position of International ETF such as VXUS maybe at a 10-20% role in a portfolio. It's good to have diversification .
I have 40% VXUS
So excited about this video! I was searching the other day to see if you had made one on international investing. Couldn't have come at a better time.
100% 🇺🇲
Rob, VTWAX Total World Stock index launched in 2019. What are your thoughts on it? Rebalance automatically...low cost. Would like your thoughts. Thanks
Hi Rob. I’ve noticed that both Vanguard’s and Fidelity’s Index Target Retirement date funds begin with around 55% Total US and 35% Total International funds. And we do see and ebb and flow when viewing decade v decade.
Want to do 20% international stocks fund like VSUX and the rest domestic 80%.
Good video. Schwab advisors are very adamant about international over the next 10 years. Jeff Kleinfelt thinks 9-10% vs 4-5% return for the US
Yes, and so is Ray Dalio.
Jeremy Grantham recommends 70% emerging markets value
Ray Dalio invest in international ETFs. I think that if you invest part of portfolio in international ETFs is a manner to make a good diversification. Maybe 20-30%.
One rule I have is no international funds. Sorry, but I have a shorter time-frame (I am currently retired) and it just does not help adding volatility and lower performance, so there is no real reason to add this sector. I am adding a small contribution to my wife's Roth (she will also be retiring soon) in S&P 500, and VDIGX. The dividend growth fund while not a big performance fund, does add some stability to our accounts. Love your work and looking forward to the next newsletter.
Don't really bother with the emerging markets exposure, I'm 80% US (VOO & SCHD) and 20% Developed International (SCHF) in my account. The reason i don't bother is because just like the US companies do business Internationally in Developed and emerging markets, so do the International companies as well, so I'm already getting indirect exposure to emerging markets by investing in both VOO/VTI & a Developed International Stock Market ETF. Japan, South Korea, France, UK 🇬🇧, Germany, etc. all theses countries do business in emerging markets like Chinese and Taiwan, India, and other emerging markets.
Home bias is a thing. If you want to know why this could be a problem look at charts of the stock market in japan in the last couple of decades. Remember, you are investing for the long term . A lot of things can happen in a couple of decades.
Any thoughts on Brazil in particular? I know you're not much for options, but the premiums available due to the typically higher IVs seem attractive. I would imagine its a safer ETF to trade on than commodities or something like AARK which seems to focus on crypto. I'm trying to move the risk/reward needle a bit further without going into crazy town territory and I had my eye on Brazil for this. Is Brazil reasonably stable and diversified?
If the U.S. did fall behind international by a considerable margin in the next 30-40 years, how much would I be losing out on with a 20% international stock allocation vs a 40% one?
I compared the two on portfolio visualizer. In the 1970-2000 range and 1985-2022 range, the 20% international portfolio outperformed, and potentially by a lot when I invested a small amount monthly. For some decades like 2000-2010, the 40% portfolio outperformed, but only very slightly. They were still nearly even. So I get the impression it would be better to just go 20% for diversification benefits.
Very informative video. Thank you, Rob! Keep up the good work xxx
I'm currently 60/40 US/international. I hold the world market roughly by market weight. I also think that international will outperform over the next 10 - 20 years.
Great video! 👍 I just started with 50% US, 30% DM, 10% EM, 10% bonds as main portfolio... but I have another small portfolio, like 20% of the main, with an S&P500 ETF. Guess I believe in international but I'm still afraid, so this video helps a lot. Thanks!
Your last point was the BEST.
It is so important. More important than the specific asset allocation you pick (at least to a point).
@rob_berger I agree. I understand the arguments for it. But then I wonder how much. And then I wonder how long it will take for international to beat US. I went down the same rabbit hole when I thought about small and/or value. I sleep better with half sp500 (Buffet) and half total US (Bogle).
As a non-US follower of your great channel, one thing I'd cautiously disagree with is the difficulty of avoiding unstable countries.
For example the immensely popular (at least here in Europe) funds tracking the MSCI World index are 67% US (currently), with the rest distributed between rich European countries, Canada, Australia, Singapore, Japan and Hong Kong. That's basically a sample of the rich, stable, business-friendly countries globally.
I'm a big fan of this index, coupled with some EM stocks and bonds.
I'm sure international stock funds lowers the portfolio beta, it helps during the period of distress
I used to use VXUS but a year or two claimed tax losses and currently hold VEU. I wonder about shorting a particular country or two with business governance I do not trust. I'd must rather have a fund x-country, but those are expensive if they can be found. The other option is a handful of country specific funds. None of those options seem great so I'm still in VEU. 🤔My allocation to VEU is slight. I live in the U.S. and own shares in the few outside of the U.S. companies in addition to my "local" positions. I've calculated that 35% to 50% of my portfolio revenues come from outside the U.S. My final option for x-US investing is to drop VEU and maybe pick up a few more individual companies.
Great video.
Can anyone recommend a good international etf minus China? . I am buying individual Chinese stocks for greater gains.
Thank you Rob. This was incredibly helpful.
Thank you for your clear and concise well supported point of view. Your examples were spot on.
Thanks Rob for the insights. I took a look at my individual portfolio, apart from my 401ks, and apparently it encompasses about 3% of the overall set of positions. Doesn't seem like a lot, and it isn't, but you are right, they are generally less expensive. With the preponderance of my individual portfolio in US-based indexes, stocks, and bonds, many of those cross borders. I do agree that the diversification play with the internationals is a key component, not to mention the enjoyment of watching them continue to grow and provide dividends in most cases. Keep up the great videos! Really enjoy the way you present each of the topics and the "diversity" of content.
Excellent Presentation I agree I own VXUS
Thanks, Rob, god info (as usual!). I personally don't have much in Int'l. If something substantially changes, like globalization unraveling significantly, or the US was no longer the world's reserve currency, that would change my mind.
I have started a 3 fund portfolio with VTI (60%), IJR (20%) and VXUS (20%).
Congrats!
Excellent video!
Many of those "companies" in 1989 in Japan were banks or investment companies. They didn't *produce* anything, and the exchange rate quickly changed everything.
I worked in IT for an inter-dealer brokerage in NYC from 1986 until my retirement this year. The yen bonds desk went kaput in a very short time... our Japanese customers were.... you guessed it: those banks.
I'm sorry Rob, but your 1989 example isn't compelling or relevant in my estimation. You have an A1 channel & I've learned much from you for which I'm thankful.
BTw your price to earnings point is well-taken.
I've been mulling over a small cap value inclusion into my portfolio. SLYV, IWN, XSVM, ISCV, and RWJ have been on my radar. SLYV and IWN seem the most popular of the bunch while the morningstar fund has a far more attractive expense ratio than any of the others though performance also seems the lowest atm. A couple of the others have outperformed the rest in the short term though not sure if there's a reason to expect this to continue. Any thoughts on these, or another, small cap value fund?
Avuv
SLYV or AVUV
Totally agree. I am 70% total US 30% total international
That’s where I’m at.
US stocks are the most expensive in history. Guaranteed very low return on S&P next decade even with money printing.
I choose to have 15-20% in an international index fund. I thought about rebalancing and putting that money into an S&P 500 fund, but the political and social climate in the U.S. has grown increasingly aggressive toward big companies and wealth accumulation since 2008, so I want to keep foreign exposure as a hedge.
VTI/VXUS vs VT?
I just make it easy an go with VT. No bias
What's your opinion on VT?
I love VT. Makes things a lot easier lol!