Hi Rob. I'm thinking about investing in an international dividend ETF. Are there tax consequences that should be considered when investing in international stocks, such as double taxation (foreign country and US taxes)?
I have a hard time investing in international stocks based on the past 30 years performance when compared to the U.S. market. I'm 70, retired, and my holdings are 70% U.S. stocks/30% U.S. bonds. If I was concerned about volatility of U.S. stocks, I think I would be better off increasing my shares of bonds rather than diversifying into international stocks.
I thought this was an eye-popping example of the power of compound growth.
$10,000 invested in U.S. and international stocks in 1988, no additional contributions, all dividends reinvested. As of December 1, 2024.
CAGR of 11.12% vs 4.96%.
Final balance of $491,139 vs. $59,618.
The return from U.S. stocks over the last 11 months is more than double the return from international stocks over the last 37 years combined ($105,882 vs $49,618).
This doesn’t include the higher costs/taxes of international investing, which would make the difference even more stark.
People can verify this for themselves on Portfolio Visualizer using their Backtest Asset Allocation tool.
Can someone please enlighten me, What is the purpose behind owning bonds, It seems like theres no rhyme or rhythm behind it? As far as international stocks is concerned. I am perfectly happy having my portfolio split 50/50 America/India or 33% each with China
Id rather lose that 1% or so every how ever many years betting on the S&P500 rather than losing 3-4% per year every year hoping and waiting that one day international stocks over perform the US (which no one knows when) only for the US to likely over perform again after that. The big tech companies of the US isn’t going anywhere. Tech is allowing the world to become more and more intertwined compared to the other decades prior to the age of smartphones. There will be new tech companies sure, but tech will continue to be the future. It will be more and more integrated into our lives. That’s why i’m investing into a global tech ETF rather than international/emerging markets
Many of those "companies" in 1989 in Japan were banks or investment companies. They didn't produce anything, and the exchange rate quickly changed everything.
I worked in IT for an inter-dealer brokerage in NYC from 1986 until my retirement this year. The yen bonds desk went kaput in a very short time… our Japanese customers were…. you guessed it: those banks.
I'm sorry Rob, but your 1989 example isn't compelling or relevant in my estimation. You have an A1 channel & I've learned much from you for which I'm thankful.
I'm currently 60/40 US/international. I hold the world market roughly by market weight. I also think that international will outperform over the next 10 – 20 years.
Sequence of return risk is the main the reason for me to own some EAFE index ETF exposure in addition to US equities as one nears drawing from the investments. Use Portfolio Visualizer to compare 100% EAFE to 100% US, and look at decades like Rob did in this video. Ben Felix and James Stack are worth watching on the international diversification topic, in addition to the points made by Rob Berger.
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.
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 .
Wouldn't even DREAM of investing outside of countries where their legal systems aren't based upon the principals/ethics of British Common law..with the possible exceptions of Japan and S.Korea. They're just too prone to corruption and "creative accounting", otherwise. China? Forget it. I wouldn't even be foolish enough to travel to a country, with an Asian-Hitler in charge of the place, as they currently have; much less invest in it. The rest of the globe, including N.America, W.Europe, Austrailia/New Zeland, and POSSIBLY India; seem like acceptable bets.
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.
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?
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.
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%.
I think it is difficult to compare domestic versus international investment returns unless they are post tax returns. Even with treaties, the limits are pretty low and one often does not receive the entire distribution directly or after taxes even with treaties. Plus, it adds to complexity. As a result, instead of a percentage, one option I share that I applied in my own portfolio is to keep 1-year's expenses in International. That gives me another option (e.g. emergency fund), with the hope like the Ray Dalio portfolio that if I have to cash out in the event of an emergency, that one of my diverse categories of investments may be relatively uncorrelated with the others so that I do not have to sell at a loss (which results in more shares being sold and diminishes future growth/sequence of returns risk). Would be grateful for another video that goes into tax considerations a bit more with respect to international index funds. Otherwise, I agree, once I changed my timeline to intergenerational, it makes it difficult to justify anything other than an all or near all equity portfolio with the core concentrated in the S&P 500 or total market (e.g. 2000-3000). Sovereign risk, such as no recourse in China for defrauding international investors, is another reason/consideration in whether or not to invest internationally in non-U.S. charted companies.
The Trump tariffs brought me here.
This video aged well given how the US stock market is behaving currently
I'm looking for an international small cap value fund. Do you have any suggestions?
Hi Rob. I'm thinking about investing in an international dividend ETF. Are there tax consequences that should be considered when investing in international stocks, such as double taxation (foreign country and US taxes)?
I'm glad I bought an international fund with US stocks. However, if your president gets his way he will weaken the $.
I have a hard time investing in international stocks based on the past 30 years performance when compared to the U.S. market. I'm 70, retired, and my holdings are 70% U.S. stocks/30% U.S. bonds. If I was concerned about volatility of U.S. stocks, I think I would be better off increasing my shares of bonds rather than diversifying into international stocks.
I thought this was an eye-popping example of the power of compound growth.
$10,000 invested in U.S. and international stocks in 1988, no additional contributions, all dividends reinvested. As of December 1, 2024.
CAGR of 11.12% vs 4.96%.
Final balance of $491,139 vs. $59,618.
The return from U.S. stocks over the last 11 months is more than double the return from international stocks over the last 37 years combined ($105,882 vs $49,618).
This doesn’t include the higher costs/taxes of international investing, which would make the difference even more stark.
People can verify this for themselves on Portfolio Visualizer using their Backtest Asset Allocation tool.
Global stocks are insurance against the US having a major stock market downfall like Japan did.
My 401k only has expensive international options. .65 or so. Is there an expense at which the math and thinking changes?
Can someone please enlighten me, What is the purpose behind owning bonds, It seems like theres no rhyme or rhythm behind it? As far as international stocks is concerned. I am perfectly happy having my portfolio split 50/50 America/India or 33% each with China
Id rather lose that 1% or so every how ever many years betting on the S&P500 rather than losing 3-4% per year every year hoping and waiting that one day international stocks over perform the US (which no one knows when) only for the US to likely over perform again after that. The big tech companies of the US isn’t going anywhere. Tech is allowing the world to become more and more intertwined compared to the other decades prior to the age of smartphones. There will be new tech companies sure, but tech will continue to be the future. It will be more and more integrated into our lives. That’s why i’m investing into a global tech ETF rather than international/emerging markets
Many of those "companies" in 1989 in Japan were banks or investment companies. They didn't produce anything, and the exchange rate quickly changed everything.
I worked in IT for an inter-dealer brokerage in NYC from 1986 until my retirement this year. The yen bonds desk went kaput in a very short time… our Japanese customers were…. you guessed it: those banks.
I'm sorry Rob, but your 1989 example isn't compelling or relevant in my estimation. You have an A1 channel & I've learned much from you for which I'm thankful.
BTw your price to earnings point is well-taken.
I'm currently 60/40 US/international. I hold the world market roughly by market weight. I also think that international will outperform over the next 10 – 20 years.
Want to do 20% international stocks fund like VSUX and the rest domestic 80%.
Sequence of return risk is the main the reason for me to own some EAFE index ETF exposure in addition to US equities as one nears drawing from the investments. Use Portfolio Visualizer to compare 100% EAFE to 100% US, and look at decades like Rob did in this video. Ben Felix and James Stack are worth watching on the international diversification topic, in addition to the points made by Rob Berger.
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.
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 .
Wouldn't even DREAM of investing outside of countries where their legal systems aren't based upon the principals/ethics of British Common law..with the possible exceptions of Japan and S.Korea. They're just too prone to corruption and "creative accounting", otherwise. China? Forget it. I wouldn't even be foolish enough to travel to a country, with an Asian-Hitler in charge of the place, as they currently have; much less invest in it. The rest of the globe, including N.America, W.Europe, Austrailia/New Zeland, and POSSIBLY India; seem like acceptable bets.
Excellent video!
Thank you Rob. This was incredibly helpful.
I'm sure international stock funds lowers the portfolio beta, it helps during the period of distress
Rob, VTWAX Total World Stock index launched in 2019. What are your thoughts on it? Rebalance automatically…low cost. Would like your thoughts. Thanks
Thank you for your clear and concise well supported point of view. Your examples were spot on.
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.
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?
What's your opinion on VT?
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.
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%.
I think it is difficult to compare domestic versus international investment returns unless they are post tax returns. Even with treaties, the limits are pretty low and one often does not receive the entire distribution directly or after taxes even with treaties. Plus, it adds to complexity. As a result, instead of a percentage, one option I share that I applied in my own portfolio is to keep 1-year's expenses in International. That gives me another option (e.g. emergency fund), with the hope like the Ray Dalio portfolio that if I have to cash out in the event of an emergency, that one of my diverse categories of investments may be relatively uncorrelated with the others so that I do not have to sell at a loss (which results in more shares being sold and diminishes future growth/sequence of returns risk). Would be grateful for another video that goes into tax considerations a bit more with respect to international index funds. Otherwise, I agree, once I changed my timeline to intergenerational, it makes it difficult to justify anything other than an all or near all equity portfolio with the core concentrated in the S&P 500 or total market (e.g. 2000-3000). Sovereign risk, such as no recourse in China for defrauding international investors, is another reason/consideration in whether or not to invest internationally in non-U.S. charted companies.