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
"On April 2, the US announced wide-ranging tariffs on imports from most of the world’s countries, postponed some of them until July, and opened individual negotiations with many trading partners. With the resulting uncertainty clouding the future of the global economy, this may seem an unlikely time for individual US investors to look abroad for opportunities.
However, Fidelity’s Asset Allocation Research Team says diversifying your portfolio with international stocks may be more important now than ever. That’s because after decades during which the US led the way toward global economic integration, a new order may be emerging where individual countries’ economies and markets may deliver a far wider set of investment opportunities than before. {OCHOTONA COMMENT this is a polite way for Fidelity to say that American Exceptionalism and also Globalism, died on April 2, 2025}
So far in 2025, markets have provided a vivid example of why diversification is important. While the S&P 500 has been volatile and is flat so far in 2025, the MSCI ACWI ex. US Index, which tracks global stock markets excluding the US, is up by double digits for the year. Past performance is no guarantee of future returns, but the difference in performance between US and international stocks this year is a reminder not to put all your eggs in one basket."
We vilify the foreign countries where our past production now sits… but the truth is, every American manager and CEO who made a decision to offshore, and then got richly rewarded with bonuses and stock option, is the guilty party.
Working class Americans got sold out by rich Americans. Same as it ever was, I suppose. What was China supposed to say…“no we won’t take your investment money?”
In return, we exported inflation and imported deflation. We got cheap stuff. Then the Dollars we gave China and other got recycled into US Treasury debt, so that’s why China, Japan, and others own so much of our National debt.
But now they are getting nervous that we won’t pay, either we (1) default outright, (2) sanction them like we have done to Russia and Iran, or (3) we pay their Treasury interest, but with highly devalued Dollars. That’s why other countries are running to gold for their central bank reserves.
This forces Dollar down, Treasury bonds down, Treasury interest rates up, mortgage rates up, corporate borrowing costs up, import costs up, inflation up, stock market down… so many interlocking effects.
Globalism flourished because capitalists made decisions that capitalists get paid to do. They lowered costs, improved products, and increased profits.
The winners of those decisions were CEOs, board members and stockholders of those for-profit companies and the average US consumer.
The losers were factory workers, the Department of Defense, taxpayers, rustbelt cities and, because globalization required a quantum leap in supply-chain infrastructure (shipping,) the global environment.
The thing most likely to drive the next stage in this ever-changing need to feed the human demand for “stuff” is technology. Imagine the supply chain being replaced with instantaneous instruction sets sent to robot-powered production facilities located near the places where consumers live. Sorta like today’s 3-D printers operate but many times the flexibility and speed.
Quantum computers will be a big part of that evolutionary step. And he who owns the technology will own the market.
Oh, one more thing … in the meantime we need to address the national debt.
Of course, it’s just speculation… I’d say when this happens, gold will double, then maybe double again.
" The level of debt our country faces is unprecedented in all of history. If we don’t effectively deal with it — and soon — our system will experience a financial heart attack . It all comes down to the numbers. The US currently pays about a trillion dollars a year on interest rates." Ray Dalio on X
But as you say, the steeper the rise, the steeper the fall. Markets do not go up in parabolic trajectories. If gold went to $10,000 in 14 months, I’d sell most of mine too.
If it were to go to $10,000 I’d expect it by mid-2030s.
Yes I’d agree that’s reasonable for it to hit $10,000 in the mid 2030s.
I didn’t follow my own advice but I did stay at around 12-15% in international stocks.
I wonder how much that 15.4 was due to foreign currency exchange rates. Looks like it was 7.5% so it means the EFA earned 6.6% more then the S&P which earned 1.3% if you perfectly hedged the currency risk
A Federal debt of 120% is probably sustainable as long as the buyers of that debt have confidence in the debtor’s continued stability and ability to perform.
Given the decisions our current leadership is making, I can see that confidence rapidly eroding. We are likely nearing the tipping point.
The variable in that equation is a reasonable alternative for those current US debt investors. It could be gold or…??
Just a random observation today… everyone is cheering Dow and S&P 500 up 1.2%, NASDAQ up 1.5%. I own US stocks, so that’s great. But if you only focus your gaze on US Large Caps, you don’t even see what’s going on in other places:
Gold (IAUM) up 2.8%
Japan (EWJ) up 1.95%
US Small Caps (SCHA) up 1.9%
Brazil (FLBR) up 1.8%
Emerging Markets (IEMG) up 1.4%
Germany (DAX) up 1.3%
OVER THE LAST YEAR:
Gold (GLDM) up 56.9%, S&P 500 (VOO) up 15.54%, Vanguard broad International ETF (VXUS) up 20.94%.
Now, International outperformance only really started Summer 2024. Gold started Summer 2023. For years, VOO has crushed VXUS and GLD(M). But, in the investment world, things run in cycles. There are regime changes… they take place “slowly at first, then all of a sudden”, and once in place, they can last for years.
I can’t predict a thing… as a trader, I follow the price action, informed by valuation. I’m not “timing” anything… I’m following. I do not recommend that anyone trade without devoting serious time and effort into deep study as I did.
And if you aren’t willing to get trained, and not everyone has the cognitive skills needed let’s be honest… I know my limits, I stay away from leverage, options, and shorting… then just follow the Bogleheads, have significant slices of International stocks and bonds, and don’t think about it any further.
Diversification is important but sometimes it’s difficult to know what will underperform and what won’t. I believe international did well in 2000-2009 but not sure which years it outperformed. It had done poorly so either it was at a bargain last year or the international markets are expected to grow at a faster rate in 2026. In 41 and underperformed in the S fund. I like small caps
Had a person retiring this year invested 30% of their equities in international stocks from 2010, there would have dramatically underperformance vs the S&P. In 2025, international stocks performed substantially better then domestic large cap and small cap.
So there it is… there were many totally opposite discussions after the 2001 Tech Crash!
“Had a person retiring this year invested some of their equities in US stocks from 2001, they would have underperformed vs the ACWI ex-US index.”
If you’re not willing to trade, then you must diversify, or else you’re just chasing. And it becomes emotionally desperate.
The point of diversification is not not not to have the portfolio that performs best at all times. No one can do that. The point of diversification is to avoid retirement-ending overconcentration errors. Overconcentration either by asset type, or country, or interest rate risk, or credit risk, or market cap size… all of those things.
If you have only S&P 500, and many do, you have a US mega-cap growth-tilted IT sector heavy portfolio which is highly valued (expensive) and you’re betting it will continue that way. That’s a brave bet.
Portfolio Visualizer is a solid free tool for Monte Carlo simulations - good for comparing portfolios, just know it uses historical data so treat the results as estimates, not predictions.
As for your international exposure, emerging markets still have a diversification effect on portfolios because markets don’t move in perfect lock-step with one another. I know U.S. stock returns and correlation with the rest of the world have gone up in the past five years, but if you have 20-30% allocation abroad, it should dampen returns because some assets will be moving in the opposite direction whenever U.S. stocks underperform.
In conclusion, I would say the Portfolio Visualizer is a solid tool for scenario testing your asset allocations, and to make sure you keep an international allocation as it will still provide some longer-term diversification.
Portfoliovisualizer.com is an excellent tool, another one to look at is portfoliocharts.com
PV has a free tier with limited historical length, PC is free and goes back to 1970
I’m satisfied with the performance I have received over the last 25 years from Vanguard and Fidelity mutual funds. I’m married, retired and in my eighties.
What does the gang here feel is a good method or tool to use to choose the ETFs to replace my current holdings in mutual funds, like VWENX, to ETFs?
Also, any suggestions for choices in long-term ultra-conservative investments currently available in Vanguard & Fidelity?