A global portfolio gives a family the best chance of having positive return and beating inflation over the long term.
It sounds like an obvious, banal statement, but there is more to it when you look at the components of a global portfolio over the decades. Financial markets, especially stock markets, will do wild and unexpected things. Japanese stocks and their amazingly bad run since 1990 (over 22 years ago) helps illustrate what I’m talking about.
The ride with Japanese stocks
I recently mentioned Japan’s horrible stock market returns since 1990 in another post. What I didn’t mention was how Japan’s returns would have averaged had you counted years prior to 1990.
Below is a chart of the MSCI Japan Index since January 1, 1970 (as far back as I have data).
You can see the long flat-line since 1990, but it did quite well prior to that time. Total returns over this time period are 4,733.21%, which translates into 9.33% annualized returns! It isn’t off the charts, but 9.33% over 42 years isn’t bad at all, especially considering 22 of those years were flat.
Japan would have provided a powerful diversification element to a family’s long term portfolio during the 1970s and 1980s. Returns during the 70s in the US were poor. Having a Japanese slice in the portfolio would have helped a lot. Sure, Japan was down in the 1990s, but remember how great the US did during that time period. A portfolio that consistently included both components would have had strong, positive returns each decade. Likewise, the 2000s were bad in the US, but Europe and Emerging Markets did quite well.
You can see where I am going with this. Consistently owning stocks from all of these global markets is one of the smartest investment decisions a family can make.
Photo by Taiyo FUJI