@hecht790 Very good podcast 🤗. Nice debating, just like we do here on this forum 😋. I found the first half very fun to listen to. The second half was mostly on Small Cap Value which doesn't interest me as far as an asset class I would invest in at this stage of my retirement. They had a very interesting discussion on using evidence or not. By evidence they were talking about historical returns. I personally look for evidence since no one can predict the future.
Getting back to the topic of this thread, they did talk about diversification by investing in foreign markets. As usual very little evidence was presented. They both agreed that the US stock market has out performed foreign markets over the past 15 years. That basically was the only reason they gave for investing more in foreign markets now, the US can't possible keep going. Well, why not? There are a lot of other asset classes out there to invest in, REITS, real state, gold, Bitcoin, more bonds, etc. If the US market is relay going to falter, why pick foreign (developed) markets to replace it? I am using developed nations because I assume most people using PRC do not invest much in developing nations, at least not if they are in retirement or very close, but I could be wrong. Foreign equity market's is just another basket of companies, since you are not investing in the actual countries themselves. Is that really going to increase your diversification? I assume you would want to invest is a broad range of company types such as Tech, Retail, Pharmaceuticals, Petrochemical, etc. Well, the US stock market is the most diversified basket of companies there is, representing about 65% of total world wealth. For example, the US has the top 8 tech companies by market cap totaling 17.5 Trillion. That total would make them the 14 largest country by market cap. Number 9 is a Taiwanese company and number 10 is a Chinese company, neither of which is considered a developed nation. https://en.wikipedia.org/wiki/List_of_countries_by_stock_market_capitalization
The US has 6 of the top 10 Pharmaceutical companies included the biggest one, Eli Lilly.
Retail? US has 7 of the 10 biggest including the top 4 spots. Number 5 is Chinese's company which is not considered a developed nation.
Consumer goods? US has 4 of the top 10 including the biggest, P&G. Number 5 is Indian which is not considered a developed nation.
Petrochemical, US has 4 in the top 10. #1 Saudi Aramco as well as China (#4) are not considered developed nations.
I could go on but I think you get the idea. So selling your S&P 500 funds for developed foreign market funds isn't really going to get you anywhere much different 🤔. Not saying it's worse, but given history, not necessarily any better either.
@pizzaman There's still a ton of past and present tense in the case you present. However, we are implementing economic policies that EVERY SINGLE conservative economist agrees are completely insane (WSJ, Barron's, The Economist...), without any clear justification, plan, or math as to the purpose. Just "Tariff beautiful. Trickle down beautiful." This country was made great by always attracting talent from all over the world, the best and brightest, due to our founding principle of openness and opportunity to anyone. Many of them came here to flee the precise ideologies we are now embracing. It was a radically different concept (see: Statue of Liberty inscription). You could literally come here with nothing, not speaking the language, and achieve greatness. Even if you had more melanin, you were gay, worship differently, etc. Still wasn't easy, but still possible here, as opposed to elsewhere.
But now we're going with a completely different take. We're turning our back on science and medicine. Home-grown talent is leaving in droves, future talent are staying away. We are alienating our friends and cozying up with the worst authoritarian countries with poor economies (due to this same ignorant, greed-driven philosophy). China is feasting on this stupidity and making huge moves for their present and future at our expense. Our former partners are trading among themselves, and boycotting our stuff. Will it be long-lasting damage? We'll see in November 2026 and 2028, if there are elections.
You said we can't predict the future. We can't. But if the sky is heavy with thick black clouds, we can be pretty sure it's about to rain, and get that umbrella out. Things can change very quickly. They sure did in 1929. There is safety in diversity. Investing goals are different for those in early career, mid career, pre-retiree, and retiree. We can't just look to the past and put our head in the sand - "We good!"
The same way my hardest task is getting clients to mind shift from asset accumulation mode to asset enjoyment mode, it can be hard to switch gears from chasing every dollar of returns to moving to a place of relative safety (and yes, including making sure to be able to fund the unexpected things you mentioned in a recent post). This is why the massive talent at Vanguard always had that US/international diversity in their simple and effective target date mixes.
From https://www.bogleheads.org/wiki/Domestic/international
“Despite the potential drawbacks of a perceived higher risk, the impact of currency fluctuations, higher investment costs, and an aversion to short-term underperformance relative to domestic markets, international stock investments give you more diversification than an all-U.S. equity allocation.”
…
“This graph shows what is known as an efficient frontier and shows that adding the diversifying effect of the EAFE portfolio (in 10% increments as denoted by the squares) to an all-U.S. S&P 500 portfolio actually increased return while also decreasing standard deviation. “
As someone smart said: "Diversification is the only free lunch in investing".
Interesting Bogle Heads blog link. I know there is a lot in that blog post with many links, but on the page you reference there is also this:
"However, it must be noted that this data is limited in time period and entirely backward-looking - it is unknown what the proper mix may be in the future based only on the past."
The Bogle Head discussion is based mainly on theory as the index funds you and I could have actually invested in don't go back very far. Total world index funds only go back to about 2008 (VT) and developed foreign markets sans USA go back to about 1999 (VTMGX). The time period in the blog post only goes up to 2008. That's missing one of the best periods (last 15 years) that the US stock market has seen. US global wealth went from about 50% to 65% during that same time period. It would be interesting to see if they re-did there analysis including the past 15 years. I don't think their conclusions would be as clear cut. From 2008 to present the S&P 500 has increased about 361%, VT up by 146% and VTMGX by 70%. Not sure how you would compare actual returns for those 3 index funds if they all went back 30-40 years. Do you think there is a way to do that??
Trying to see the other side of the coin (pardon the pun 😏)
The US dollar is under pressure as global investors grow increasingly wary of America's fiscal trajectory.
Once seen as a reliable safe haven, the greenback is now facing renewed skepticism, with strategists telling Yahoo Finance that capital is shifting toward undervalued currencies in Europe and Asia amid expectations of foreign stimulus and more attractive valuations abroad.
"Investors now have a very strong reason to hedge their long US asset exposure, and the dollar is no longer behaving like a safe haven," Jayati Bharadwaj, FX and macro strategist at TD Securities, told Yahoo Finance on Wednesday. "I would say it's actually following much more of an emerging market playbook, which is the unfortunate truth that we need to come to terms with."
Bharadwaj cited mounting US debt and policy uncertainty as key catalysts behind the dollar's decline. Last week's credit rating downgrade by Moody's only deepened market concerns. Adding to the fiscal anxiety, the House of Representatives on Thursday approved President Trump's sweeping tax reform package, otherwise known as the president's "big, beautiful bill."
Pizza Man, I don’t think that we can resolve this debate. I think we should postpone this discussion for the next 30-40 years. At that time Pralana-QUANTUM-AI will have the capability to predict the future.
Attached is an update to my 7/2023 post looking at long term trends for SP500 vs International Developed fund performance. No change yet on the relative performance over the long term. The recent increase in International Developed relative performance looks like a counter-trend rally in the overall down trend so far. There are several examples of that counter-trend relative performance behavior in the record since 2008 through several calamities.
We will see with time if the future performance morphs into the 2004-2008 period where International Developed outperformed the SP500.
@hecht790 But we were having so much fun 😆. Maybe Pralana members can develop an ETF containing all firms that are developing QUANTUM-AI products, charge a 1% management fee which can be dispersed to Pralana members 🤑, which of coarse we would then invest in developed foreign market index funds 😏.
Anyway, this thread wasn't intended to pick a winner in this debate. Hopefully, it provides different points of view that people can use to help them determine what works best for them and their individual situation🙂.
@wallace471 Can you explain what your last two charts are saying? Thanks!
Taken from my prior post in July 2023:
"Attached is another version using a Stockcharts Perf Chart.
The second chart shows the relative performance of VEA to VOO (=VEA/VOO). One notes the long downtrend of the relative performance of VEA since the start of the available (ETF) data (around 2012).
The last chart looks at analogous mutual funds which have a little longer track record (apparently since 2004). One can see that from (at least) 2004 to 2008, the Developed Market Index (VTMGX) outperformed the US Large Cap Index (VLCAX). Not sure how long that period of VTMGX outperformance was though, given the available data."
Taken from my prior post in July 2023:
"Attached is another version using a Stockcharts Perf Chart.
The second chart shows the relative performance of VEA to VOO (=VEA/VOO). One notes the long downtrend of the relative performance of VEA since the start of the available (ETF) data (around 2012).
The last chart looks at analogous mutual funds which have a little longer track record (apparently since 2004). One can see that from (at least) 2004 to 2008, the Developed Market Index (VTMGX) outperformed the US Large Cap Index (VLCAX). Not sure how long that period of VTMGX outperformance was though, given the available data."
Technology companies and relative market size.
Attached is from a recent WSJ article:
https://www.wsj.com/tech/europe-big-tech-ai-1f3f862c?st=Same2u&reflink=desktopwebshare_permalink
I swear I did not pay @wallace471 to post the most excellent WSJ article 🤗. From the article:
BERLIN—The world’s technology revolution is leaving Europe behind.
Europe lacks any homegrown alternatives to the likes of Google, Amazon or Meta. Apple’s market value is bigger than the entire German stock market. The continent’s inability to create more big technology firms is seen as one of its biggest challenges and is a major reason why its economies are stagnating. The issue is even more urgent with the prospect of higher tariffs threatening to further curb economic growth.
Investors and entrepreneurs say obstacles to tech growth are deeply entrenched: a timid and risk-averse business culture, strict labor laws, suffocating regulations, a smaller pool of venture capital and lackluster economic and demographic growth.
Having largely missed out on the first digital revolution, Europe seems poised to miss out on the next wave, too. The U.S. and China, flush with venture capital and government funding, are spending heavily on AI and other technologies that hold the promise of boosting productivity and living standards. In Europe, venture capital tech investment is a fifth of U.S. levels.
“This is an existential challenge,” wroteMario Draghi, the former European Central Bank president who was tasked by the European Union’s top official to help diagnose why Europe’s economy is stagnating. In a report published last September, Draghi pinpointed the lack of a thriving tech sector as a key factor. “The EU is weak in the emerging technologies that will drive future growth,” he wrote.
Only four of the world’s top 50 tech companies are European, despite Europe having a larger population and similar education levels to the U.S. and accounting for 21% of global economic output. None of the top 10 companies investing in quantum computing are in Europe.
You get the idea.
Trying to find comparisons of US vs International investing longer term, I found Paul Merriman's Boot Camp #4 podcast Fine Turning your Asset Allocation
In it at time stamp 15 minutes, he compares 3 stock asset allocations (AA), 50% US and 50% International, 4-fund US, and 2-fund US which includes S&P 500 and US Small Cap Value. His tables go from 1970 to 2024. Where he got the International info from the 1970's I don't know. Anyway, of the three AA, the one that did the best was 2-fund US. The worst was the International. To be fair the differences were not great but gives us a longer time frame to look at International performance compared to US.
Pizza Man, here is my suggestion to you. Buy a very little International (less than 1% of your portfolio) and track it religiously as you do with this thread. If International does good, you will feal great. If the US does good, you will also feal great (99% of your investment). I did it before with another investment that I was not sure, and it works. It is a psychological trick; you maneuver yourself and sleep well.
