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My wife and I recently engaged with a financial consultant. He’s taken a look at our investment portfolio and suggested we buy International ETFs because we don’t have enough exposure to those markets.
I. I’m making the argument that we already have significant exposure through our holdings in US based companies:
US Companies derive a large portion of their revenue from overseas. According to Chat GPT:
These 3 holding comprise the lion’s share of our investments.
A few other considerations tilting away from adding International funds:
Looking for the collective wisdom of the HumbleDollar community to find holes in my argument.
– Bruce Roberts
For a long time I have followed the logic that major US companies in S&P derive significant revenues from their international operations.
But recently, I have started moving towards a still more diversified portfolio. Rather than VTI, based solely on US stocks, I have moved towards VT. Both are ETFs offered by Vanguard.
Yes, the wisdom here comes from JL Collins.
I use index funds because I like owning a diversified mix of good companies instead of trying to pick individual winners. By including an international fund in my portfolio, I own companies like Samsung, Nestle, Toyota, Canon, Roche, Mercedes, LG, Honda, Novartis, Shell, AstraZeneca, KIA, and Airbus, along with dozens of others. Will it move the needle on my total return? Probably not too much, but I like having these companies in my portfolio.
I think there is an important distinction between where a company earns its revenue and where its stock is priced. Owning US multinationals isn’t the same as owning international equities.
The stronger argument for international diversification is that concentrating in one country exposes us to uncompensated risk. By excluding international equities, we are effectively betting on continued US outperformance. Given today’s considerably higher US valuations, that seems an especially questionable bet.
Diversification isn’t about predicting which market will outperform. It’s about avoiding risks we don’t need to take. Why deliberately exclude a substantial portion of the world’s investable equity market when we can own it cheaply and easily?
“By excluding international equities, we are effectively betting on continued US outperformance.”
Also if you want a maximally diversified portfolio if you only hold US equities you are excluding 1/3 of the world’s companies.
As an example our equity holdings are 2/3 US, 1/3 international, and our largest holding is 2%, Apple. If it were to go completely belly up it’s effect on our portfolio would be no worse than a somewhat average bad day on Wall Street.