Most investors don’t realize that their portfolio should act as a DIVERSIFIER to their complete financial picture. Your salary and the value of your assets are dependent on the state of the U.S. economy. Don’t you want to hedge against a catastrophic collapse of the U.S. economy and subsequent loss of your job, decline in property value, etc.? So why not DIVERSIFY internationally as a hedge against your huge bet with the U.S. economy?
Why settle for just US markets when almost one half of the value of whole global market is found outside the US.?
Also, international markets can provide some cover for US investors during a downturn in the US economy. For example, in 1977, 1984 and 1987, years when the US market was bearish, foreign markets were bullish.
Then, for the prior ten calendar years (2001 to 2010), international markets outperformed the U.S. in all but 3 years. Emerging markets outperformed in nine of those years. The S&P 500 had an annualized return of -0.95% over that
10 year period. That’s why they call it the “Lost Decade.” However, it wasn’t a “Lost Decade” for investors who were globally diversified.
I’ll bet if this were the case today, you would wonder why the international/emerging markets equity allocation was not higher than the current 32.5%.
Two questions stand out if you’re unsure about diversification. Why do I need international diversification? and Why don’t I just stick with what I’m familiar with?
The fact of the matter is that we have historically seen this “seesaw” effect in terms of which part of the world was the top performer going back to the 1970s.
The thing is that we have no idea when International is going to outperform the US and vice versa. It’s a big world out there and investors are best served by moving outside what is familiar, buying and holding a globally diversified portfolio. And Yes, because we do not know which part of the world is going to be the next top performer, it’s prudent to hold both US and International stocks.
Arlene Brown is a Chartered Financial Consultant and fiduciary who works in her client’s best interest to educate them and help them set and achieve their financial goals.
Advisory services offered through PWI, a Registered Investment Advisor. PWI does not provide tax or legal advice: please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase of sale of any securities. This information is educational in nature and is not intended to be representative of Paul Winkler Inc. (“PWI”) client portfolio returns. PWI client portfolios and returns are determined based on client risk profile and time horizon.