How much of your portfolio do you invest in international funds?

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  • #85498 Reply

      I had been keeping a small amount in an international index fund but the results have underperformed the other index funds I have (US funds).

      Is it worth keeping something in international investments for the purpose of diversification even if returns are lower?

      #85500 Reply

        I do 50% of my stocks as Ex-US. Yes, they have underperformed for a long time. But I kind of consider it like eating vegetables. It’s testing whether or not I am able to follow an asset allocation, which requires always throwing money at laggards.

        Over the next 45 years, I think having a global portfolio will yield better risk-adjusted returns over only investing in the US. Look at what happened to Japanese investors after the 1980s.

        Now, Frank and others will come in here and say international funds are worthless because in this global economy everything is so correlated. Maybe so.

        But looking at the long sweep of history and investing theory, I think they offer long-term benefits.

        #85501 Reply

          I know all the experts say to have some international exposure, but I pulled out of international over 15 years ago. It really boosted my returns over the last 15 years, because domestic has done so well and international has not.

          I still won’t touch international at this point.

          #85502 Reply

            International returns have underperformed lately, but there have been long stretches where they outperformed domestic stocks. I won’t try to predict the future, but international stocks today are priced lower than domestic ones by quite a bit.

            If you move from international to domestic and the domestic starts lagging, will you move it back to chase returns?

            This is a great way to trail the market. Pick a split you’re comfortable with and let it ride.

            #85503 Reply

              I kept ~15-20% in international, but it’s been a huge lag for a long time, so I stopped added for a while. It also seems to drop when domestic stocks drop, making it not super useful for diversification.

              Once I hit my fi number I started adding a bit here and there again just to “own the world” for whatever happens.

              I didn’t need maximum returns at that point though.

              Also, check out: Part of me wants to just have her transfer the funds to a high yield savings account considering the market risk

              #85504 Reply

                I invest 50% of my stock allocation in international. The popular view of international stocks has been poisoned by their recent poor performance but history shows (1968-1998) that there can be long periods of foreign outperformance, and combined with domestic stocks can actually increase portfolio returns while reducing volatility.

                Recency bias is one of the biggest mistakes an investor can make.

                #85505 Reply

                  Less then 15%. I stopped adding to it a while back because it was discouraging to put 50% of my contributions into it for decades only to see it underperform so badly.

                  I’d be way further ahead if I hadn’t allocated so much in it.

                  #85506 Reply

                    I would be selective in your choices. Large-cap “total international” funds are actually highly correlated with similar large-cap US funds so you are really getting diversification in name only, and not that much in fact. Ford and Toyota do business in largely the same markets.

                    To the extent they differ much in performance, its largely due to currency speculation on the relative value of the US dollar. When the dollar is strong, international stocks are weak and vice-versa.

                    Suggested: Considerations to make when moving current Fidelity Roth IRA investments to one of Fidelity’s zero-fee index funds?

                    #85507 Reply

                      Mathematically the efficient frontier is at around 10-15% allocated to international stock index. However, one has to really understand what it means to “diversify“ their portfolio allocation, which is different at different stages of the journey, and certainly different than simply maximizing return.

                      #85508 Reply

                        Keeping a small amount in an international index fund of developed markets is probably worthwhile to smooth the ride.

                        Most of the time, domestic stocks will outperform international stocks. However, the US and international markets have moved in cycles; for example, 2000-2010 wasn’t a great decade for the S&P500, but international stocks did relatively well then.

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