US Stocks Have Never Outperformed For This Long
If you asked a bunch of investors which asset is the most sure-fire bet out there, most would say the US stock market.
Its hard to disagree: its home to some of the planets highest-quality companies, thrives on the globes wealthiest consumer market, and enjoys the backing of the world’s leading reserve currency. Plus, it’s got an unparalleled number of buyers and sellers, it’s a hotbed of innovation and growth, and it has a bunch of highly trusted rules for corporate and regulatory governance. (And so on).
Its hardly surprising, then, that US stocks have often left their global counterparts in the dust. Over the past ten years, for example, the S&P 500 has broadly outpaced emerging markets (on a rolling, five-year basis, in orange) and has breezed past stocks in 21 global developed markets (represented by the EAFE index, in blue).
This is the longest stretch of outperformance in history.
But that doesnt mean you should put all your chips on the US market. The S&P 500 might (or might not) be on the verge of a downfall. It might (or might not) be outpaced by stocks from other places. The fact is that the future is unpredictable, and the past is – more often than not – a poor guide of the future.
Even the almighty US stocks have seen sharp and extended periods of underperformance relative to other regions, as you can see from the chart.
So unless you’ve got a working crystal ball, spreading your investments across regions is one of the most reliable strategies for harnessing stocks’ attractive long-term returns.
And, sure, there are times when an economic storm is so intense that it hits all markets everywhere.
But over the long-term, different regions tend to move with their own economic rhythms, growth trajectories, and opportunities. In fact, even some of the bigger crashes – Japan in the 1990s, the US in the early 2000s, or China in 2007 – remained relatively contained to one market, highlighting the value of a geographically varied portfolio.
So, by all means, keep the US market as your portfolio’s cornerstone if you’re happy with it. Just don’t turn a blind eye to opportunities abroad.
If you ask me, adding some international flavor to at (the very) least a third of your portfolio is prudent.
With the next decade looking potentially very different from the last, that may be the closest thing you get to a free lunch.
How much do you allocate to non-US stocks in your long-term portfolio?
Its hard to disagree: its home to some of the planets highest-quality companies, thrives on the globes wealthiest consumer market, and enjoys the backing of the world’s leading reserve currency. Plus, it’s got an unparalleled number of buyers and sellers, it’s a hotbed of innovation and growth, and it has a bunch of highly trusted rules for corporate and regulatory governance. (And so on).
Its hardly surprising, then, that US stocks have often left their global counterparts in the dust. Over the past ten years, for example, the S&P 500 has broadly outpaced emerging markets (on a rolling, five-year basis, in orange) and has breezed past stocks in 21 global developed markets (represented by the EAFE index, in blue).
This is the longest stretch of outperformance in history.
But that doesnt mean you should put all your chips on the US market. The S&P 500 might (or might not) be on the verge of a downfall. It might (or might not) be outpaced by stocks from other places. The fact is that the future is unpredictable, and the past is – more often than not – a poor guide of the future.
Even the almighty US stocks have seen sharp and extended periods of underperformance relative to other regions, as you can see from the chart.
So unless you’ve got a working crystal ball, spreading your investments across regions is one of the most reliable strategies for harnessing stocks’ attractive long-term returns.
And, sure, there are times when an economic storm is so intense that it hits all markets everywhere.
But over the long-term, different regions tend to move with their own economic rhythms, growth trajectories, and opportunities. In fact, even some of the bigger crashes – Japan in the 1990s, the US in the early 2000s, or China in 2007 – remained relatively contained to one market, highlighting the value of a geographically varied portfolio.
So, by all means, keep the US market as your portfolio’s cornerstone if you’re happy with it. Just don’t turn a blind eye to opportunities abroad.
If you ask me, adding some international flavor to at (the very) least a third of your portfolio is prudent.
With the next decade looking potentially very different from the last, that may be the closest thing you get to a free lunch.
How much do you allocate to non-US stocks in your long-term portfolio?
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ZnWC : Thanks for giving us the big picture about the S&P500 performance. Perhaps you can give us the big picture about Hang Seng Index (China stocks) and Nikkei Index (Japan stocks) if other regions can also bring in long term outperforming investment.