In the past, the logic seemed to be that a retirement portfolio for a 40-something should consist of the following:
60% domestic stocks
20% international stocks
10% bonds
and 10% cash (5% of which I used to snap up cheap stocks during a market correction)
I've (kinda) followed those rules of investing, but since my domestic stocks have consistently outperformed my international stocks and bonds, it's really more of a 66/17/9/8 split now.
What I'm wondering... is the 60/20/10/10 split as big of a deal as it used to be? All the big companies like Microsoft/Apple/Google/Coca-Cola/McDonald's, etc all have a huge international presence now, so even my co-called "domestic" stocks are really international.
So that is a tough question and one with enough data, graphs and various considerations that anyone came make the case for pretty much any recommendation they want. Over long timeframes a 20-30% allocation in international stocks have
tended to a provide a portfolio that nearly mimics US only returns but has smoothed out standard deviations\volatility. Will this continue to be the case? Who knows. How much international is a very common debate with institutions and individual powerhouses (ie Jack Bogle) giving conflicting (or at least very heavily nuanced) answers. Fidelity does a good job of a general overview
here and talks about some of your points like domestic stocks that are multi-national.
There are additional things that give me pause and, for disclosure on where I stand, I have ~30% in international stocks
-Low CAPE ratios often signal good growth ahead while high CAPE ratios signal low growth ahead. The US continues to have a
very high CAPE ratio. But even then CAPE is influenced (for now) by the very low valuations immediately after the Great Recession so how much of those numbers are inflated by that recovery?
-The US market is an exceptional market from historical perspective. No where else has done as well as we have in aggregate for as long as we have. Will the political, business, education and consumer environment continue to support such exceptionalism throughout the remainder of your investment horizon? There is already historical precedent for international doing better than the US for decent periods of time without us resorting to "Will the US become like Japan" types of investment comparisons
-When you say you are invested in domestic stocks - what does that really mean? FAANG and FAANGM (Facebook, Amazon, Apple, Netflix, Google and Microsoft) have come to dominate many stock funds. For example those 6 companies comprise 23% of the S&P 500. Just 4 of those drive
significant returns in the S&P 500. Will 4-6 companies continue to dominate and drive US returns? If they falter will others rise in their place to continue to drive above average returns? If replacements show up will those show up in the US or overseas? Of course you can see warnings of FANG\FAANG\FAANGM stock concentrations going back years so anyone who worried about that in 2017 and made changes has missed out on some impressive gains.
For me it's striking a balance at "this will probably work well" that will likely give me comfort in the future when I look back. I might miss out on some gains (who wouldn't want to go back to a certain date and put all their money in one or two select stocks?) from what turns out to be the perfectly optimized portfolio over the coming 10-40 years but it should mean I miss out on worse outcomes.
I have other considerations that also cause much debate when talking about including them in discussions on international allocations. Some argue that some to all of them should not have an impact on what your investment portfolio looks like. And to some extent I like to hedge bets more than I suspect most would but I do that for two reasons: I am on track to meet or exceed my investment goals and it prevents additional stress in my life. Basically I work in the US, I get paid in US dollars, Social Security is US based etc. If international under performs I have extraneous home country benefits that will likely cushion that blow. And those vise versa. Or at least so my thinking goes. I'll let you know how that turns out in a few decades.
