John Bogle says investors don’t need to own international stocks
Famed Vanguard founder says venturing outside the US involves unnecessary exposure to currency risk, economic risk and societal instability risk.
John Bogle founded The Vanguard Group — the nation’s largest mutual fund company, introduced the world to index funds, and has saved investors trillions of dollars in fees and commissions. And he doesn’t care for international investing.
“Everyone tells me I’m wrong,” Mr. Bogle said. “In my book, ‘Bogle on Investing,’ I said, for a lot of reasons, you don’t need to own international stock.” His argument: International investing involves extra risk, ranging from currency risk and economic risk to societal instability risk.
“The reality is that we do better than the rest of the world. You don’t need currency risk, but if you want, don’t go over 20% in international,” he said.
‘I’VE BEEN RIGHT’
Mr. Bogle was quick to note that since “Bogle on Investing” was published in 1993, the S&P 500 has gained 779% cumulative vs. 309% for the Europe, Australasia and Far East index. “I’ve been right,” Mr. Bogle said.
“Does that mean I’ll be right in the future? I could be wrong,” he said. But, he added, when you buy the S&P 500, you buy a portfolio where roughly half the earnings and revenue comes from abroad.
“What are you buying in non-US-stocks?” said Mr. Bogle. “The largest country in EAFE is Britain; the second-highest, Japan; and the third is that soul of hard work, France. I can’t see that I’d make more money in Britain, with Brexit; or Japan, a very structured, aging economy — or France, where they couldn’t pass a law saying you had to work 35 hours a week.”
And, he noted, international investing hasn’t provided much diversification. “If you look at the last 10 years, the correlation between EAFE and the U.S. has been something like 92,” Mr. Bogle said. “That doesn’t seem to change your risk.”
What about the argument that overseas stocks are cheaper than U.S. stocks? “One reason could be they are underpriced,” Mr. Bogle said. “The other could be that they have higher risk. PE ratios don’t come out of nowhere.”
Think of it this way: Suppose you constructed a portfolio that mirrors the composition of the global stock market: 45% U.S., 55% overseas. If non-U.S. stocks were to outperform by two percentage points a year, that leaves only a one percentage point difference. “You could find that by investing in cheaper funds,” Mr. Bogle said.
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