Investing in the international market

Nirav · July 18, 2020, 2:51am

What do people think about investing in the international market.

I always thought we were supposed to have a little bit of international stocks in our portfolio according to jack bogles books and fundamentals.

Even all the target day funds have a small portion in international markets.

Then why is he saying that he doesn’t put any money in international funds?

dgurgan · July 19, 2020, 2:09pm

Hey Nirav, I cannot get the video to play. But I don’t see why you wouldn’t want some portion of international securities in your investments. One example of “Why?” can be found within the book “Your Money and Your Brain” by Jason Zweig. Zweig states, from compiled research, that we have to fight these innate cognitive biases which can limit our perspectives. Like employees who only invest in their company’s stock, only investing in national industries or companies can limit your growth and risk potentials.

Nirav · July 19, 2020, 3:34pm

Hi @dgurgan,

Thanks for the response.

Please look up “Why Jack Bogle Doesn’t one Non-US Stocks” by Morningstar Inc.

Everything I have read states that there should be a percentage of your assets in international stocks. Including the Bogleheads philosophy, but here is Jack Bogle claiming that he does not like international stocks.

Let me know what you think of the video.

Nirav

Jeremy · July 20, 2020, 6:00am

Hey @Nirav!

Both Jack Bogle and JL Collins don’t recommend investing in the international market. I think the reasoning is as follows:

It adds complexity (more funds to manage) without likely increased returns
It adds expense (international funds are slightly more expensive)
It adds currency risk
Some foreign countries may have very weak accounting regulations that could allow fraud, or even currency manipulation
Big companies in the US do so much business with the rest of the world, that tons of international diversification is baked into a total US stock market fund

That said I like investing in international. Even Vanguard recommends 40% goes toward international. Here’s why:

I believe the world markets are very efficient. And all the benefits of the US market are already “priced in”. So owning just US likely gets you more volatility without increased expected returns.
I’m hedging against something unexpected happening. Like the US not staying the global economic super power, or some other country figuring out a better form of capitalism.
US and international markets often alternate which outperforms. You can’t know when each will outperform, so I like to own both.
International index funds are still very cheap. (VTWAX world index fund is at 0.10%. VTIAX international index fund is at 0.11%, FZILX international index fund is 0.0%)
It diversifies away US currency risk

All that said. I think everyone on this page would agree this is a nuanced conversation that is really fine tuning different versions of very good things. I would totally support someone who didn’t want to include an international fund. I think the “wrong” thing to do would be to oscillate back and forth between strategies based on what the market is doing.