Diversification and international stocks

Is Portfolio Visualizer a good Monte Carlo simulator?

I was trying to decide whether I should be 37% in large cap and 37% small cap with 24% dedicated to international or stick with 44% domestic large cap, 44% small cap, and 12% international. I’d be willing to go 25% in large cap US and 75% small cap US

Does an international investing make sense or does the potential for long term underperformance negate any diversification benefit? Are international stocks highly correlated with the US market.

I suspect most US stocks that are large cap have some international exposure already. So investing in large caps give you some indirect exposure to international investing.


International equity: I think that the “best” international allocation is somewhat of a gray area. Below is a link to an article that looks at the returns since 1970 of various portfolios with the international allocation ranging from 0% to 100%. The long-term returns were similar although the risk was lowest with a 20% international allocation.
It is interesting to note what the large financial firms recommend. Vanguard currently recommends allocating 30-50% of equity to international funds. The Target Date funds of Fidelity and Schwab would show what percent of international funds those firms are using.

Yes thanks for information. Sounds like the ideal allocation for me is between 15-30% international

Looks like > 20% but less than 40% in international stocks leads to the lowest standard deviation

The last 10 years does make me want to overweight as a value investor but it’s easy to be fooled by randomness over relying on reversion to the mean. The PE ratio of EAFE is not much of a bargain