Today's conversation was sparked by the excellent piece penned by today’s guest, Victor Haghani, back in November of this year: There's No Place Like Home: The Case For And Against Extreme Home Bias In Equity Investing. With U.S. equities outperforming their international counterparts by as much as 170% over the past decade, it's no wonder that surveys show that U.S. investors typically allocate as much as 80-85% of the equity portion of their portfolios to U.S. domiciled stocks, a condition Victor refers to as "extreme home bias".
In the aforementioned article, Victor lays out 10 different arguments investors often make in favor of "extreme home bias", and then debunks them one by one. During our conversation, we take a step back and start by evaluating the evidence for being properly "globally" diversified. We then get into some of the arguments Victor lays out against "extreme home bias", trying to stress test them where we can. Finally, we end with a discussion of the specific ETFs Victor and his partner James White use in constructing properly diversified portfolios - both for their clients and themselves.
Show Notes:
2:30 - Why do "long-form" research? You never learn anything as well as when you have to "teach" it
5:00 - Dynamic vs. static asset allocation: Establishing a baseline for global allocations
7:30 - How to allocate a portfolio globally: Getting specific
12:00 - Discussion of "Home Bias" issues
13:30 - How much should momentum be applied to country ownership allocations?
16:15 - How much should expected returns be applied to country ownership allocations?
21:30 - How does geopolitical risk factor in to allocations?
25:00 - Why isn't "invest in what you know" relevant for international investing (or possibly ever)?
31:30 - Breaking down the data: Historical returns from home biased vs. globally diversified portfolios
36:00 - Why shouldn't US investors limit themselves to just dollars? Currency hedged equity funds.
43:30 - 9 basis points: Expense ratios on international index funds are now negligible
48:00 - Specific ETF suggestions for building low-cost, globally diversified portfolios: (VXUS), (VT), (VGK), (VPL), (VWO), (IEMG), (IEUR), (IPAC)
ETF to avoid: (EEM) and its 67 basis point expense ratio
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