US vs Global Stock ...
 
Notifications
Clear all

US vs Global Stock Market Returns

 

(@pizzaman)
Estimable Member Customer
Joined: 2 years ago
Posts: 112
Topic starter  

Interesting site about US stock returns over time: https://sparkrental.com/historical-stock-market-return/

And one on Global stock returns: https://www.mindfullyinvesting.com/historical-returns-of-global-stocks/

MSCI EAFE Index Developed Market stocks excluding the U.S. and Canada (1970-2021)

Nominal Annual Return = 9.35%

Inflation Adjusted = 5.23%

S&P 500 (1972-2021)

Nominal Annual Return = 11.17%

Inflation Adjusted = 7.00%

The following table and conclusion are from the mindfully investing web site:

I’ve argued that global stock diversification is a mindful way to invest, and I’ve presented some example portfolios that fit the bill. But I’ve also said that stock diversification is no guarantee of better performance as compared to a less diversified approach like a U.S.-only portfolio.

While it may seem like I’m trying to sell the idea of a globally diversified stock portfolio, I wouldn’t go so far as to “recommend” it. That’s because we can never predict the next decade of stock performance, or the future in general. Just as we have to learn to live with many of life’s uncertainties, investors have to live with the uncertainty inherent to stock investing. Consistent with the four cornerstones of mindful investing, you’ll have to wrestle with this uncertainty yourself and rationally decide the extent to which you want to globally diversify your stock holdings.


Quote
(@golich428)
Eminent Member Customer
Joined: 2 years ago
Posts: 40
 

Thanks for sharing. It is not easy to eliminate home country bias and it is possible that the US will continue to outperform but we need to recognize the fact that there have been prolonged periods where international has outperformed US equities. We could be entering into one of those periods now given the relative valuation advantage that international stocks have over US and the higher dividend payouts. We will never know so each investor needs to feel comfortable with their allocations. I have an allocation to international because of the relative valuation advantage and higher dividend payouts. I do not know what the future will bring and want to be as diversified as possible.


ReplyQuote
(@pizzaman)
Estimable Member Customer
Joined: 2 years ago
Posts: 112
Topic starter  

It is also difficult to determine if investing in the MSCI EAFE Index (and by extension foreign developed markets) is a worthwhile idea. The problem is the relative short history of that index and even shorter history of index funds that follow the MSCI EAFE index. The MSCI EAFE index was created in 1969 https://www.investopedia.com/terms/e/eafe_index.asp. Buying stock of the individual companies in the MSCI EAFE index is, I assume, not something most people in this forum have done historically. As far as I can determine, index funds that cover the MSCI EAFE index didn't start until the early 2010's (IEFA is an example). Saying that there are good foreign companies is one thing, being able to invest in them historically in index funds here in the US, is another. If you chart IEFA which started in 2013 vs the S&P 500 index (both from 2013 to 2022) IEFA increased in value by 31.9% while the S&P 500 increased 198%. In fact there hasn't been prolonged periods (for me that means greater than 5 years) in which foreign developed markets out performed the US during the time you could actually invest in index funds that follow the MSCI EAFE index. Is it possible that foreign developed markets could outperform the US over the next 5 or more years, sure. All the big boys are predicting that will be the case. But remember, that's exactly what they predicted in 2010, but of course that didn't happen. Not saying investing in foreign developed markets is a bad idea, just that there is not a lot of history to go on.


ReplyQuote
(@pizzaman)
Estimable Member Customer
Joined: 2 years ago
Posts: 112
Topic starter  

Another reason I am dubious about investing too much in developed foreign markets: https://fortune.com/2022/09/24/europe-energy-crisis-winter-natural-gas-putin/

The size and diversity of the US market and its abundant fossil fuels (until we tradition to clean energy) helps the US weather global shocks better than other countries.


ReplyQuote
(@hines202)
Estimable Member Customer
Joined: 2 years ago
Posts: 184
 

I'm with @golich428 on this. We could say "Well stocks always outperform bonds, especially during this past 11 year bull market (recency bias) so I'm not going to get any bonds in my portfolio. They didn't look at the lost decade, 1999 on, when the S&P returned nada, nuttin' and bonds returned 7.5%. That's why we diversify, folks.

It's for the long haul, not biased away because of some looming energy crisis this year caused by Russia. There's a pretty good chance that when this Ukraine situation is settled, Europe will go on a boom as everyone spends and helps to rebuild that country and its major cities, and it returns to prosperity. I want in on that.

Since Russia was in the emerging markets sector, that looked like something to bail on as well - until India, Brazil and the other EM countries start doing well due to economies shifting away from Russia and toward those other EMs.

Vanguard has sound reasoning derived by the best people and tools in the business that says *over the next ten years* ex-US will outperform US. I wouldn't put all my eggs in that basket, but I'll have a reasonable allocation to VXUS. It's diversification. win-win.


ReplyQuote
(@hines202)
Estimable Member Customer
Joined: 2 years ago
Posts: 184
 

I'm with @golich428 on this. We could say "Well stocks always outperform bonds, especially during this past 11 year bull market (recency bias) so I'm not going to get any bonds in my portfolio. They didn't look at the lost decade, 1999 on, when the S&P returned nada, nuttin' and bonds returned 7.5%. That's why we diversify, folks.

It's for the long haul, not biased away because of some looming energy crisis this year caused by Russia. There's a pretty good chance that when this Ukraine situation is settled, Europe will go on a boom as everyone spends and helps to rebuild that country and its major cities, and it returns to prosperity. I want in on that.

Since Russia was in the emerging markets sector, that looked like something to bail on as well - until India, Brazil and the other EM countries start doing well due to economies shifting away from Russia and toward those other EMs.

Vanguard (and Dimensional, Black Rock, Fidelity) have sound reasoning derived by the best people and tools in the business that says *over the next ten years* ex-US will outperform US. I wouldn't put all my eggs in that basket, but I'll have a reasonable allocation to VXUS. It's diversification. win-win.

This post was modified 2 months ago by Bill Hines, Flat-Fee Fee-Only Investment Advisor, Tax/Retirement Planner

ReplyQuote
(@pizzaman)
Estimable Member Customer
Joined: 2 years ago
Posts: 112
Topic starter  

A research report was just published titled The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets (attached). The researchers developed a comprehensive new dataset of asset-class returns in 38 developed countries as well as the US going back to 1890 to examine the popular 4% spending rule among others. They start with the typical 60/40 asset allocation using two models to implement their analysis; investing the 60% stock allocation in the 38 developed countries, and then using the US stock market. Using the developed countries the 4% rule leads to financial ruin in 17.4% of simulations runs. In contrast a model based on the historical US experience leads to a failure rate of 3.5%. I found Figure 1 and Table IV very interesting.


ReplyQuote
Share: