iemily wrote: Wed Sep 24, 2025 1:18 pm
How did you make that decision, especially since it seems like over the last X # of years, S&P/US total stock have outperformed international? And how did you determine how much % of international stock to hold if you do think its value add?
It doesn’t just seem like US has outperformed ex-US, that’s actually been the case since 2008 (end of the GFC). However, bulls & bears run in cycles and prior to 2008, US and ex-US traded places on top (meaning they were less correlated than they are now). I have no crystal ball for looking forward, but there is regional diversity in not holding the stocks of a single country and historically there has been diversification-value in holding those ex-US stocks. When people see a long market-cycle pattern they often exclaim “it’s different this time…” or “there’s been a fundamental shift…” (in this particular case, meaning US will now outperform ex-US indefinitely). I’m pretty confident that every pundit or individual investor that made such an assertion was caught up in some kind of bubble group-think and was eventually proven wrong (see the Tulip Mania chart in an earlier post… still amuses me!).
There are reasonable arguments against foreign stock due to the foreign tax (meaning double-taxation in Trad and FTC not fully recovering that in Taxable), currency exchange risk, higher risk of company defaults due to poorer regulation, infrastructure, corruption, etc. (esp. in emerging markets), but I simply don’t know the future… the Boglehead philosophy is to keep it simple and avoid tilts, so I’m personally using the market weighting of around 40% of stocks in int’l. However, that’s me and that doesn’t mean my choices is universally right for everyone… it’s unique to the individual.
it’s also not uncommon for investors to lose patience, so when they see a 5y up-trend they start to follow it. Despite the recommendations to diversify–they concentrate their holdings, piling on the best performers or “chasing performance.” To me that’s a lack of discipline if your plan was to be diversified, or a abandoning a diversified plan in the hopes that “past performance will likely predict future results,” despite a warning in every prospectus required by law that states the contrary (again greed trumps fear when an undisciplined gambler see an up-trend). How many individual investors do you think are piling on Nvidia or Meta given their amazing appreciation? I know of at least one former forum member that said “my Int’l stocks have been dogs, I’m going 100% US stock.” Nobody knows if those concentration (vs diversification) bets were right or wrong until history is the judge of that wager.
Value of Int’l Diversity from US
There’s essentially two camps among Bogleheads: a) Those that are on board with the global market cap weighting, which is about 60% US stock and 40% ex-US stock; and b) those that have a home bias (US will usually outperform), which is about 80% US stock and 20% ex-US stock (some even omit Int’l altogether). I’m in camp a) based on the chart below from WisdomTree, the white paper from Vanguard, and the more recent article from Vanguard.
Vanguard White Paper: International Equity – Considerations and Recommendations
Vanguard Web Article: Making the case for international equity allocations
Applies to bonds too…
Vanguard White Paper on International Bonds
I asked Taylor, author of the 3-Fund Portfolio, about why int’l bonds were omitted and while I expected something about currency risk or higher default risk, relative to the expected reward, instead the response in a private message on 31-Jan-2025 was “I feel simplicity is more important than more diversification.”
