US v International Stocks?

An article by Bloomberg this week has a provoking headline: “Everyone Hates US Stocks.”  The article said many money managers were underweighting US stocks, based on a Bank of America survey released on Tuesday. The article also cited money being withdrawn from US ETFs and into International stocks. A client forwarded the article to me, wanting our thoughts.

We clearly do not hate US stocks. And we do not dislike International stocks. We think it is important to hold both US and International stocks and have recommended this strategy since the inception of our firm.

We recommend holding a significant percentage of International stocks, approximately 30-40% of your total stock allocation. The money managers and investors cited in this article are trying to take a tactical, guessing game approach to investing. They are trying to move money between countries, trying to pick which one will do better.

We feel a more rational and logical approach is to remain committed to investing in all global markets, as we cannot know in advance which country or geographic area will do best in a given year or period of time. Rather than trying to guess the winning regions, and risk being unsuccessful, we would rather invest our clients’ money in a globally diversified manner over a long period of time.

This approach recognizes that sometimes the US stock market will outperform other world stock markets, while knowing that there will be periods of time that International stock markets will outperform US stock markets. We don’t know when either will occur or for how long a trend will persist.

Historical stock market data shows that owning a globally diversified portfolio, which includes both US and International stocks, will perform better as an overall portfolio. This global diversification can provide a smoother investor experience and temper some of the volatility of owning just one region, such as just owning US large company stocks.

By remaining invested in many geographic regions of the world, our clients will benefit from the long-term economic gains both in the US and overseas. Some years this broad diversification may be to our advantage, some years it may be to our disadvantage. We are confident that over the long-term this will be the best strategy and method to structure a successful portfolio for our clients.


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