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John Bogle recently stated that he does not invest overseas. Much of Bogle’s good fortune is luck and has to do when he was born. Some of the best companies in the world are international. John Bogle, founder of Vanguard and major proponent of index funds, recently stated that he does not invest overseas. This article will discuss why it is a bad idea to follow this particular piece of advice and lay out why an investor should hold stocks and funds based in foreign countries. There is no doubt that the Vanguard S&P 500 Index (MUTF: VFINX ) has worked well for Mr. Bogle. According to this handy little calculator that I found, the S&P has averaged 11.217%, with dividend reinvested, over the last forty years. I’ll use 40 years for two reasons: that was when Vanguard was founded and that was the year I was born. You’ll see why I added myself into this equation pretty soon. A few years ago, I heard Mr. Bogle speak to the CFA Society in Los Angeles. He stated that an attorney for Vanguard invested in the fund back then. According to my calculations, $10,000 would now be worth $212,000. With that type of return, you’d be beating your chest too. I started my career at Merrill Lynch (NYSE: BAC ) in Naples, Florida, in the summer of 1998. Since then, the S&P 500 has averaged 5.813%, with dividends reinvested. Pretty dismal. I’ve been in the business for a little over 17 years. $10,000 invested in the S&P 500 would now be worth $16,130. I wonder if anyone would have done business with me had I told them that I thought they get a little over 5% a year? Back then, the famous Merrill Lynch Cash Management Account (CMA) was paying 5% in its money market. So why would I be bold enough to interject my own experiences with the great John Bogle? To prove a point. Much luck in life depends upon when you were born. Mr. Bogle was born on May 8, 1929. Mr. Bogle’s life went something like this: he was born during the stock market crash of ’29 and was brought up during the Great Depression, was a teenager during World War II, attended college in the late 1940s and early 1950s, and then went to work when the U.S. was booming. In John Bogle’s investing life, he hasn’t really experienced a bad market. Sure, he lived through the 1973/1974 crash but it quickly recovered in 1975. Sure, he lived through the 2008/2009 crash but it too recovered. For the last 30 years, interest rates have been falling, Baby Boomers have been driving the economy, and the stock market has exploded. I’d put all of my money into an S&P 500 fund too. In the interview with CNBC mentioned above, Mr. Bogle stated that he did not like investing in international funds. Why would he? If you can make 11% returns investing domestically, why do anything else. However, the world has changed and it would be foolish to eschew foreign stocks. What company is the number one beer manufacturer in the world? Anheuser-Busch InBev (NYSE: BUD ), which is based in Belgium and denominated in the euro. What is arguably the number one food manufacturer in the world? Nestle ( OTCPK:NSRGY , OTCPK:NSRGF ), which is based in Switzerland and denominated in the franc. How about automotive? Toyota ( TM or Volkswagen ( OTCQX:VLKAY , OTCQX:VLKAF , OTCQX:VLKPY ). Or tractors? CNH Industrial (NYSE: CNHI ). Distilled spirits? Diageo (NYSE: DEO ) or Pernod Ricard ( OTCPK:PDRDF , OTCPK:PDRDY ) are the undisputed leaders in liquor. Mining? There are too many miners to mention and the U.S. has none of them. The U.S. is number one in only a few categories: technology, finance, oil and gas, entertainment, and maybe real estate. Sounds like a pretty lopsided portfolio. Many of the industries above like beer and liquor have long track records of dividends and high profit margins. Tech companies on the other hand come and go. Name a tech company that has been around since the 1960s other than IBM (NYSE: IBM ) and Hewlett-Packard Co. (NYSE: HPQ ). I will give Bogle one thing. At this point when comparing international funds to domestic, domestic funds win. Of course, we are measuring at a high point. The American markets are close to an all-time high and the US dollar has been very strong. Go back a few years and it’s a different story. Go forward a few years and it may be different too. There are many text book reasons to invest internationally. One is to reduce volatility. When your US funds are zigging, your foreign funds will be zagging. John Bogle has had a storied investing career but has had substantial tail winds. Folks born in my generation have witnessed nothing but mediocre returns and view the financial markets with a jaundiced eye. I love the stock market and truly feel that there are better years ahead (just not for the next 10 or 15). I feel that the Millennials will be buying my stocks as I am getting into retirement. If you are an index fund person, consider the Vanguard Global Equity (MUTF: VHGEX ) or add an international fund like Vanguard International Explorer (MUTF: VINEX ). Scalper1 News
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