International Stocks--The Pros and Cons of Investing in Foreign Companies
ฝัง
- เผยแพร่เมื่อ 14 ก.ย. 2021
- Join the newsletter: robberger.com/newsletter/?utm...
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/warren-buffett-...
- Bogle on Investing
- www.morningstar.com/articles/...
- jasonzweig.com/invest-globall...
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.morningstar.com/articles/...
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.pressablecdn.com...
- 1989: 149347908.v2.pressablecdn.com...
- 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
Investing Tools & Resources
📚 My Book (Retire Before Mom and Dad): amzn.to/2MsRJ9B
📈 Personal Capital (Investment Tracking): go.robberger.com/empower/yt-
⛱ New Retirement: go.robberger.com/new-retireme...
💰 M1 Finance $30 Bonus (IRA & Taxable Accounts): go.robberger.com/m1finance-bo...
📊 Morningstar (Fund Research): go.robberger.com/morningstar/yt-
💵 Tiller (Budgeting): go.robberger.com/tiller/yt-
🏆 Best Investment Tracking Apps: bit.ly/3wSbKZa
Popular Videos:
1️⃣ How to Create a 3-Fund Portfolio: • How to Create a 3 Fund...
2️⃣ How I Manage 28 Accounts in One App: • How I Manage 28 Financ...
3️⃣ 7-Step Financial Checkup: • A 7-Step Annual Financ...
#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)
LET'S CONNECT
TH-cam: / @rob_berger
Facebook: / financialfreedomguy
Twitter: / robert_a_berger
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.
AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.
![ถ้าพี่วุ้นท้อง แป้งจะท้องไปด้วยกัน !!!! [ดูคลิปเต็มหน้าช่อง] #Short | PANG ORNHIRA](http://i.ytimg.com/vi/FeyEnVMwitA/mqdefault.jpg)
I'm with Jack Bogle, and no longer have investments in straight international stock funds. Now that I've done that, watch international stocks outperform.
You stuck with your strategy of no international exposure? I just made the switch myself.
@@amazinglats6020 less than 5% of my portfolio has direct international exposure, and I currently don't have plans to increase that.
Why does Bogle say that?
@theotherview1716 I think Rob addressed that in the video. Bogle says US companies sell things around the world and the US is the best place for businesses to succeed.
Following Jack Bogle’s advice is always a smart move. He focused on low costs, simplicity, and tax-efficiency. International loses on all 3 counts, yet this is hardly ever discussed.
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
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.
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.
Very informative video. Thank you, Rob! Keep up the good work xxx
I'm Brazilian and my portfolio consists of 60% US, 20% EM and 20% DM. Although it might seem too risky to invest in emerging markets, the return over the long run compensate the risk. A global strategy mitigate the risk of home bias investing and add a lot in terms of diversification. Remember when EM performed a lot better than the US market in the 2000-2008 time frame, but has lagged since then... it might recover spectacularly (we don't know for sure), but mean reversion is a true thing.
Thank you for your clear and concise well supported point of view. Your examples were spot on.
Most SP500 companies do business overseas. Your already in the international market, like it or not. Just look at Caterpillar as an example.
Thank you Rob. This was incredibly helpful.
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
Excellent video!
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.
Great video.
I agree with your diversification conclusions (for me, 80% VT or equivalent funds + 20% US small cap value seems about right).
However, we should be careful into how we analyze things like P/E ratios since sectors are more or less prominent in certain areas.
If you do things like exclude FAANG, the numbers will look quite different. And the US has become more growth oriented, while developed has become more value oriented. At least on average. The more you dig into the details, the US still looks overpriced, but by a smaller number than comparing PE ratios between regions imply.
That’s nuts. Only that much US?
@@wbae1340
VT is 60% or so US. So it's around 68% US at the moment. Which seems on the high side if anything.
Excellent Presentation I agree I own VXUS
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.
Good video, though I like to offer some of my own opinions on the international stocks.
1. The US dominance will not last forever. However, I do not need it to last forever, just for my investment lifetime. I believe the US will outlive me so I am comfortable investing in it.
2. In 1989, if you had invested in the S&P500 and ignored the international stocks, you'd be doing pretty well today. If you decided to diversify into international stocks back then because they were doing well, you would have underperformed today.
3. Diversification is not always better. Adding a basket of rotten apples to a basket of good apples does not make the whole thing better.
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.
Foreign Tax drag (at least in tax deferred accounts) as well as expense ratios and transactional costs for the fund execution have to at least be considered when choosing to add international funds. This could possibly represent a 20-30 basis point difference over a plain vanilla US index fund like VTI or VOO. Placing international in taxable can help with foreign tax credit, but higher dividend yield (vs US) - capital gain tax would offset this benefit somewhat. Not necessarily a deal breaker, but something to be aware of. Vanguard studies suggest 20% international stock portion had provided about 80% of the diversification benefit. World market cap would presumably be the starting point for allocation (currently about 59/41). Other considerations are what currency you plan to spend your retirement in.
Jon, is the long term cap gain from international stocks still taxed at favorable cap gains rate? I know dividend from non-US companies dont qualify as qualified dividend, so we pay higher taxes on non-US
The whole point of investing in a broad stock index fund or ETF is because an individual believes that no one can outperform the market in the long run by picking individual stocks. So, if you buy into that argument, then why wouldn't you apply the same rationale to the global stock market? That's why I invest in "VT" (the Vanguard global stock index). I'm investing in the largest companies by market cap irrespective of whether they are headquartered in the U.S. or abroad. We live in a global economy. Capital is always flowing in and out of countries. Currently, most of the world's capital is flowing into the U.S. stock market. But, as you pointed out in your video, that can and will most likely change over time. So, by investing in VT, I'm taking the guesswork out of where to invest my money.
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).
I believe that if you believe in indexing, that means that you recognize that you are unable to pick the companies that will overperform, and therefore should buy the whole public securities investible market, and that includes international stocks.
Don't you think the top 50 American companies are considered international? Some get between 20 and 40 percent of sales outside the U.S.
Logical fallacy.
@@geoffgordon9569 nope. You should also index stock markets. A catastrophic event in the us could tank our whole market regardless of international exposure or not. You need to diversify stock markets too
@@astrahl Added FTIHX to portfolio. Going with three index funds strategy.
That’s not necessarily, rational
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.
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.
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!
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?
Rob, VTWAX Total World Stock index launched in 2019. What are your thoughts on it? Rebalance automatically...low cost. Would like your thoughts. Thanks
Did you look at the difference of valuations at the beggining of the decades (or periods) where international stocks did better than US ? Was the difference in valuations similar to todays ?
You are looking at this after a 13 year bull market in US stocks, so of course it would seem that one should not invest in international stocks. If you go back to the "Lost Decade" for US stocks (2000-2009), international stocks actually outperformed.
So...are you willing to bet the 13 year bull market in US stocks will continue (don't invest internationally) or does regression to the mean exist and US stocks will most likely underperform going forward (invest internationally).
Thanks for pointing that out the same would be true in late 1980s
Vanguard consistently chides me to have at least 30% International. I. Have shaved that to 20%. I agree,the odds that USA will slip in prominence are significant
The international stocks may have outperformed some during the "lost Decade", but what about the decade before and the decade+ since. This has been my investment horizon, and international has just been an overall drag in my portfolio. Of course, nobody really knows how anything will perform in the near future.
@@wd3574 John Bogle, who I respected greatly, also did not believe that international investing was necessary so there's that. His reasoning was that over long periods of time you pretty much end up in the same place with both equity assets classes, so why introduce currency risk into your portfolio. Plus companies in the S&P already have international exposure. Even so, if an investor believes in portfolio diversification and regression to the mean, then betting that the asset class that has outperformed over the past decade will continue to do so and putting all your equity eggs in that basket does not seem wise.
@Jim Spencer Doesn't matter who the president is. We are sitting atop of a massive bubble in US stock valuations and just about everything else. It's going to be very ugly when things turn, regardless.
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%.
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!
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
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.
Portfolio Visualizer is just for finance guys, they just play with numbers and make things come out how they want. Finance guys do not take into account the environment, political structure, legal system, accounting standards, competitive nature. This has to be done on a 'by country' basis, you can not just invest in 'international' or 'emerging markets'. The USA has an innovative engine well developed, a real legal system, GAAP and and open market capitalism, very competitive. Stay with USA 100%.
All of those factors are priced in, dude.
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.
Can anyone recommend a good international etf minus China? . I am buying individual Chinese stocks for greater gains.
I have started a 3 fund portfolio with VTI (60%), IJR (20%) and VXUS (20%).
Congrats!
Two Questions as i am listening from Europe: what about currency risk? Especially for Europeans investing into the US Market? Our so called MSCI World Index ( includes developed countries around the world, market cap weighted - no emerging markets) is exposed to round about 60% Dollar based US companies. So if the Dollar changes to Euro in valuation i could lose money even if the ETF rises in value nominal?
Vice versa for Americans investing into foreign stocks?
Same doubt 🧐
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.
If the whole point of index funds is not picking stocks because we can't know which one will be the winner, why would we pick which country will be the winner.
1989 is such a cherry-picked year, Rob, that it made me roll my eyes. That was the peak of the biggest economic bubble the world has seen in recent historical memory. What if you had chosen 1987? Or 1992? Or 1983? I felt that choosing that year actually detracted from your other (excellent) points.
I'm sure international stock funds lowers the portfolio beta, it helps during the period of distress
To be fair the year you chose for the list of top 20 stocks, 1989, was a massive bubble for Japanese stocks. They were way over valued compared to US and every other countries stocks on every metric. I wouldn't base that as an argument for against owning US stocks...
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.
The list from 1989 is NOT indicative of international exposure. It is strongly skewed towards Japan. The newer list has China mainly, and a few others making it slightly more ' international '. Whatever gains one may garner from powerhouse nations could be offset by laggard nations or collapses (as happened in Japan)
This is what I was thinking. Even if the us fails and another country has just as much success, It's still going to likely make up a very small portion of your international fund that the gains will still lagg.
Brilliant observation. “International” is broad
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.
This is such a tricky question to talk about publicly, you've contradicted yourself several times and well done for doing so as it's a balanced video. You're very brave for talking about the topic itself! For myself, diversification is absolutely key. It's why the single biggest country weight in my portfolio is 35%.
Would you be willing to share how your portfolio has performed and what it consists of? I battle with this continually.
@@DicksonMaimouth Looking at historical performance, it's underperformed. However, I've only started investing just over a year ago, after the US stock market outperformed a global index. I guess I believe that a lot of the upside and growth of the US stock market has already been priced in and don't have much faith in it's ability to again, outperform over the next few decades. If it does outperform, the US stock market would make up 80%+ of a global stock market, which I don't believe think is probable.
Why is this a tricky topic to talk about? Is there some sort of taboo against talking about investing outside the US?
It's just diversification, which is overall a good thing.
The argument for US companies doing business abroad is a poor one because international companies also gain a significant portion of their portfolio abroad too in the same way. As for political instability for foreign countries many argue this risk is “priced in”.
The are “global growth” funds that are pretty good, but individual stocks require doing your homework pretty diligently!
It's no wonder Japan had the best cars in the early 1990's. Their economy was just dominating. Imagine the Industrial Bank of Japan being a meme stock. :-)
Thanks, Rob - very informative - I will never invest int'l - foreign countries are unstable. Countries like China can change the rules and regulations at any time. Foreign markets follow the US markets - when US has a correction or rally, so go the foreign markets
International stims beyond China. China is only 9% of vxus its the same weighting as the UK. So you're talking 9% of 20% to 30% is why International is bad?
Rewatching this a year later, despite 2022 I'm still convinced international funds are worth the risk.
Why?
Yesterday, I was sure I could live with my allocation of international stocks for the next few decades. Now, I’m not so sure. 😂
Did this make you want to add more or take some away?
VTI/VXUS vs VT?
I just make it easy an go with VT. No bias
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.
100% 🇺🇲
Great video! Can we get a recommendation on how to make a good / safe high yield 5% to 8% div yield portfolio?
I am thinking about QYLD, JEPI and NUSI and maybe DIVO? What are you thoughts and recommendations on that? Which of these ETF's to
Include to have a well balanced portfolio and what % allocation in each one?
Also, which of these ETF's provide good downside protection?
Thoughts on actively managed ETF's like JEPI vs passively managed ones like QYLD.
Thank you!
Rob, Thanks for a great video again! I am with Pete, no INTL for me either! Especially the coming deglobilization after COVID and decoupling from specifically China as well as the horrendous demographics of EurAsia, in particular China, Japan, Korea, Germany, EU in general etc etc etc...All these countries depend on a Global free trade environment for their mostly export driven economies...Many in EU have been stagnant for many years, to say the least about Japan. The only bright side was China, and that is going to change dramatically in the coming years unfortunately. Time will tell of course, but it doesn't look Rosy to me overseas. I am with Buffett and Bogle 100% and stick to US broad index only...
In general, every time the US economy crashed Int. stocks have crashed(in many cases even more). US companies mostly operate for the benefit of the shareholder, Chinese companies obviously don't(hence they are valued way cheaper). Eurozone has gone too socialist,. The US has the most business friendly environment in the world hands down. 100% snp or 90% snp & 10% vsgh.
Ding ding ding, we have a winner here. I don't spend a dime on international stocks.
What's your opinion on VT?
I love VT. Makes things a lot easier lol!
Presumably all advantages of the US economy are priced in in an efficient market. Even if you can predict the Us economy will outperform the world (not sure if we can) You can't predict the market cuz it whould have priced in economy predictions better than you, Unless you have insider info. So there is NO reason to believe the US is more likely to outperform and as the world is more diversified we whould expect better risk adjusted returns. Aka if everyone knew the US whould outperform the rest of the world they whould sell the rest of the world and buy US till the point they are both equally good investments, owning both gives more diversification and risk adjusted returns than owning either one. That's why the world has lower PE ratios!
I just invest in VTWAX and call it a day. It adjusts to the global market, so if the US is only 30% of the total global market in 30 years the fund will adjust itself to that.
Do you know how it adjusts? Being weighted by market capitalization it simply lets the winners gain and the losers lose.
Isn't that the same with s&p 500 or a total US index?
@@Gary-ib8dz I believe VTWAX is around 50% US equities
Rob so you backed your argument for foreign diversification by bringing up an example of Warren Buffet a man who thinks international exposure is not necessary
I think Rob presented both sides of the argument and told us what he does.
US stocks are the most expensive in history. Guaranteed very low return on S&P next decade even with money printing.
Robs level of “research”. -plugging stuff into portfolio visualizer hahah
this guy is in his 50s, you think in 30years the US is dead? You have to consider your age really. Europe is having issue right now, Israel and the middle east. Canada and Australia are very strict on the pandemic. China, Japan and Singapore are loosing people. Id rather bet US going to up than these countries. there's only few international companies that can rival the US's, and i dont think it will change for the next 30years
But realistically as a globe, most of the countries will become wealthier as time progresses