Donald Trump has been discussing building a wall between the United States and Mexico since he began running for President of the United States. However, that is not the “wall” that I am referring to. The wall I am referring to is one that many began to slowly build over the past several years. The wall I am referring to deals with the natural tendency to go with what is working in the moment or what has worked in your recent memory. The wall I am referring to began to be built by many in 2009. It is the wall around our investments.
If you were investing in the 1980’s and 1990’s you were probably shown the value of investing in the international markets. In fact, you were likely shown that by further diversifying your assets with some international companies you could reduce the volatility of your portfolio while increasing your potential for return. And It worked wonderfully until late 2007. The Great Recession saw domestic and international stocks alike plummet over the next 17 months. Domestic stocks rebounded and began an 8 year winning streak over their international counterparts. The international stocks were becoming the Buffalo Bills of investing (The Buffalo Bills are an NFL football team that played in four consecutive Super Bowls from 1990-1993 and hold the record for most consecutive losses). Since 2009, investors have been slowly pulling funds from the international markets, building an ever-increasing wall of domestic equities. Please, stop building. Domestic stocks as a whole have returned approximately 8% in 2017, while the international stocks (mainly Europe and Japan) have returned approximately 14%, and the emerging market stocks (mainly China, South Korea, India, etc.) have returned approximately 18%. The domestic markets have rebounded from the Great Recession and are looking more fairly valued at current levels. Conversely, the international markets have yet to rebound and are looking relatively cheap at current levels. Thus, we have seen the oversized performance of international equities in the first half of 2017.
From 2009-2016 you were likely rewarded handsomely the less diversified your were. However, I believe the time for simply buying any domestic stock and seeing great returns has largely passed. This is not to say that you should not invest in domestic stocks. Simply that the time of oversized performance of domestic stocks compared to international stocks has passed. The benefits of diversifying your assets is returning as the world continues to normalize in the wake of the Great Recession. I assure you that diversification is not dead. It was just on vacation for a while. It’s back, and like Ronald Reagan, it’s telling us to “tear down this wall!”
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
