It’s becoming harder and harder to convince families and corporate clients that international diversification is good for them.
Back in 2013
It’s completely understandable. US stocks have done far better over the last 6 years. I wrote about this back in 2013 when I first sensed investor frustration that their professionally constructed portfolios were under-performing the S&P 500 (which is almost all Large US companies).
3 More Years Have Passed
Three more years have passed since then, and investors are getting very tempted to plow a lot more of their capital into US stocks. We certainly don’t recommend any such shift. It may feel like a safe move, but don’t be fooled. Making changes like that comes with risk. Shifting into the wrong place at the wrong time can drastically lower your returns if you do it at the wrong time.
Click here for a great video on this from David Booth (University of Chicago Booth School of Business is named after him)
Try to Remember the End of 2009
At the end of 2009, the S&P 500 had negative returns for the 10 year period. International stocks, and especially developing markets, had huge returns over that decade. At the end of 2009, it was hard to convince people to keep their US stocks. Remember how there were predictions of a currency crisis in the US, and emerging economies were buying all the US debt? Dumping US stocks to shift more heavily into foreign stocks at that time would have serious negative consequences. Our current investment environment could be a mirror image of 2009.