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Home Bias Against International Stocks: Lower Past Performance vs. Cheaper Valuations

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One the big decisions in portfolio construction is how much to allocate between US stocks and non-US stocks. You won’t find universal agreement on a correct answer, but this Morningstar article by Ben Johnson does a nice job of outlining the factors behind “home bias”:

“Home bias” is the term used to describe investors’ tendency to tilt their portfolios in favor of domestic stocks (bonds, too, but I’m going to focus on stocks). Here, I’ll discuss how home bias is measured, the factors that underpin this phenomenon, and why it’s probably a good idea to expand your horizons a bit.

Sometimes the US outperforms international stocks for a while. Sometimes it lags. Here is a chart from that helps you visualize these past cycles:

us_intl_cycle

Right now, the market cap of the world’s publicly-traded businesses split at roughly 55% US and 45% international. This ratio has been flipped in the past (45% US/55% International) but the US has performed much better in the past decade.

Right now, the US looks great but International stocks have much higher earnings yields. The most interesting chart from the Morningstar article shows the current Shiller P/E Ratio amid the range of historical valuations for major indexes including the S&P 500, MSCI EAFA (Developed International), and MSCI EM (Emerging Markets). You can see that US stocks are currently on the high (expensive) side, while the international stocks are on the low (cheap) side.

It’s a tug of war. US stocks have done better recently. US stocks have a rosier outlook, which results in them being more expensive. International stocks have a bleaker outlook, but the price-to-earning ratios are much cheaper. If you own a Vanguard Target Retirement 20XX Fund or a LifeCycle Fund, you own 60% US/40% International. Most of the other Target Date Funds break it down differently, so you’ll have to check. I am in the market-weight camp and hold either 50/50 for simplicity. I have seen opinions of what is “best” change over time, and that supports the advice of having a written investment policy statement of what you believe and why.

Top 10 Best Small Business Credit Card Bonus Offers – June 2019

Updated June 2019. Do you have small business income or work as an independent contractor? Uber/Lyft, Amazon, eBay, Etsy, Airbnb? You are eligible to open a small business credit card, which keeps your personal and business expenses separate. If you are not a corporation or LLC, you can apply as a sole proprietorship, with your name as the business name and your Social Security number as the Tax ID number. I did this for years successfully before incorporating my business.

Small business credit cards are offering strong perks and $500+ value for a single card during the first year to try out a new card. Below are the top 10 credit card offers that I would apply for (or have applied for already). Recent changes:

  • Business Delta – limited-time 70k and 80k offers.
  • Business Hawaiian – improved 75k offer.
  • Business American – limited-time 75k offer.
  • Improved Alaska Air Business 40k + BOGO offer.
  • Updated CitiBusiness AA card offer.

This is a companion post to my Top 10 Best Credit Card Bonus Offers for personal cards. Notice that small business bonuses are on average even higher than those on consumer cards.

Note: Certain Chase cards have a “5/24 rule” which is an unofficial rule that they will automatically deny approval on new credit cards if you have 5 or more new credit cards on your credit report within the past 2 years. This rule applies on a per-person basis, so if you are new, you might want to start with those Chase cards.

Chase Ink Business Preferred Card

  • 80,000 Ultimate Rewards points (worth $1,000 towards travel!) after $5,000 in purchases in the first 3 months. See link for details.
  • 3X points on the first $150,000 spent on travel, shipping purchases, internet/cable/phone services, and advertising purchases with social media sites and search engines.
  • Primary rental car coverage when renting for business purposes.
  • $95 annual fee.
  • Subject to 5/24 rule.

CitiBusiness / AAdvantage Platinum Select Mastercard

  • 75,000 American Airlines miles after $5,000 in purchases in first the 5 months. Limited-time offer. See link for details.
  • First checked bag free on domestic AA flights ($60 value per roundtrip, per person).
  • $0 annual fee for the first year, then $99.

Gold Delta SkyMiles Business Credit Card from American Express

  • 70,000 Delta Skymiles after $4,000 in purchases within the first 3 months + $50 statement credit after a Delta purchase within your first 3 months. Offer expires 7/2/19. See link for details.
  • 70,000 Skymiles are worth at least $700 in Delta airfare with “Pay with Miles” option.
  • First checked bag free on Delta flights ($60 value per roundtrip, per person).
  • $0 annual fee for the first year, then $95.
  • Honorable mention: 80k offer on the Platinum Delta SkyMiles Business.

Southwest Rapid Rewards Premier Business Card

  • 60,000 Rapid Rewards points (redeemable for $900+ in Wanna Getaway airfare) after $3,000 in purchases in the first 3 months. See link for details.
  • $99 annual fee.
  • Combine with the Southwest Rapid Rewards Premier Consumer Card and go for the Southwest Companion Pass.
  • Subject to 5/24 rule.

  • $600 cash back. Earn a $200 statement credit after each $10,000 you spend in purchases, up to $30,000, within the first 3 months. See link for details.
  • 1.5% early pay discount on all purchases which stacks on top of the bonus above.
  • $0 annual fee for the first year, then $250.

(Barclaycard)

  • Up to 70,000 Hawaiian miles. Earn 60,000 miles after $1,000 in purchases in the first 90 days, and an additional 10,000 miles after a purchase is made on an employee card. See link for details.
  • One-time 50% off companion discount for roundtrip coach travel between Hawaii and the Mainland on Hawaiian Airlines.
  • $99 annual fee.

United Explorer Business Card

  • 50,000 United miles after $3,000 in purchases in the first 3 months. See link for details.
  • Free first checked bag for both you and a companion (a savings of up to $120 per roundtrip).
  • Expanded award availability. Having this card makes it easier to redeem for that saver award economy ticket.
  • Primary rental car coverage when renting for business purposes.
  • $0 annual fee for the first year, then $95.
  • Subject to 5/24 rule.

Chase Ink Business Unlimited Card

  • $500 bonus cash back after $3,000 in purchases in the first 3 months. See link for details.
  • Flat 1.5% cash back on all purchases with no limit.
  • No annual fee.
  • Subject to 5/24 rule.

Chase Ink Business Cash Card

  • $500 bonus cash back after $3,000 in purchases in the first 3 months. See link for details.
  • 5% cash back on the first $25,000 spent in combined purchases at office supply stores and on cellular phone, landline, internet and cable TV services each account anniversary year.
  • No annual fee.
  • Subject to 5/24 rule.

Capital One Spark Cash for Business Card

  • $500 cash bonus after $4,500 in purchases in the first 3 months. See link for details.
  • Flat 2% cash back on all purchases with no limit.
  • $0 annual fee for the first year, then $95.

Capital One Spark Miles for Business Card

  • 50,000 bonus miles after $4,500 in purchases in the first 3 months. 50,000 miles is redeemable for $500 towards travel. See link for details.
  • Flat 2X miles per dollar on all purchases with no limit.
  • $0 annual fee for the first year, then $95.

Marriott Bonvoy Business American Express Card

  • 75,000 bonus points after $3,000 in purchases in the first 3 months. See link for details.
  • Free night award upon card anniversary (worth up to 35,000 Bonvoy points). Earn an additional Free Night Award after spending $60K in purchases on your Card in a calendar year.
  • Annual fee is $125.

(Bank of America)

  • 40,000 Alaska miles + Companion Fare Voucher after $2,000 in purchase within 90 days. See link for details.
  • Companion fare voucher is “Buy one ticket, get one for $99 taxes and fees” ($99 fare taxes and fees from just $22).
  • Free checked bag on Alaska flights for you and up to six other passengers on the same reservation.
  • $50 annual fee for company, $25 per card.

My Money Blog Portfolio Income and Withdrawal Rate – June 2019 (Q2)

One of the biggest problems in retirement planning is making sure a pile of money lasts through your retirement. I have read hundreds of articles about this topic, and still haven't a perfect solution to this problem. Most recently, I looked into … [More]

Free Websites Reveal Your Address History and Names of Relatives (How to Opt Out)

Updated 2019 with more websites. "People would care more about privacy if they knew how exposed they already are online," says Geoffrey A. Fowler in his WSJ article Your Data Is Way More Exposed Than You Realize. I hear this all the time: “I … [More]

My Money Blog Portfolio Asset Allocation Update, June 2019 (Q2)

Here's my portfolio update for the second quarter of 2019. Most of my dividends arrive on a quarterly basis, and this helps me determine where to reinvest them. These are my real-world holdings, including 401k/403b/IRAs, taxable brokerage … [More]

Rates Drop Under 4% = Refinance Check! 7 Million People Can Lower Mortgage Rate By 0.75%+

A mortgage broker once told me that he didn't care if rates were high or low. He just wanted them to change. As long as interest rates move enough in either direction, more mortgages will be created. He's probably getting a lot of calls right … [More]

Top 10 Best Credit Card Bonus Offers – June 2019

Updated June 2019. That space in your wallet or purse is more valuable than you think. Credit card companies are fighting it out, offering strong perks and $500+ value for a single card during the first year to encourage you to apply and try it … [More]

Southwest Credit Card Bonuses (Companion Pass to Hawaii!)

Southwest Airlines offers a unique feature called the Companion Pass, which lets you pick one person to fly with free when you book either paid or award flights. If you either fly 100 qualifying one-way flights or earn 110,000 qualifying points in … [More]

Hawaiian Airlines World Elite MasterCard Review – 60,000 Bonus Miles + Annual Fee Waiver

The Hawaiian Airlines World Elite MasterCard is the official co-branded card with perks like Hawaiian miles for purchases, a free checked bag, and companion ticket discounts. Sometimes it has the Bank of Hawaii logo on it, but in all cases it is … [More]

Official Warren Buffett / Berkshire Hathaway Book Reading List 2019

At every annual shareholder meeting, Berkshire Hathaway publishes an official reading list and sells discounted copies through a local Omaha bookstore called The Bookworm. Both Warren Buffett and Charlie Munger have consistently attributed a … [More]

Boeing Engineer: From Dream Job to Nightmare

The most depressing thing I read today was Former Boeing Engineers Say Relentless Cost-Cutting Sacrificed Safety at Bloomberg Businessweek. If you want to know why I am not part of the "I love what I do and I'm going to plan to work forever" … [More]

Vanguard Target Date Retirement Funds Nudge Younger Investors To Own More Stocks

Vanguard has a blog post about their Target Retirement 20XX funds (TDFs) with a few interesting stats (via Abnormal Returns): 97% of all Vanguard retirement plan participants had a target-date fund as an available investment option. 77% of … [More]

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