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In late November, I wrote an article that encouraged readers to stick with foreign stocks. I suspected the article would receive a mixed reaction. I wasn’t disappointed.
Meanwhile, there’s a move afoot to put out a compilation of my old Wall Street Journal columns, which will likely appear after my death. The book’s royalties will be used to fund what I hope will be a unique financial-literacy effort geared toward young adults from less-affluent families.
To pick out articles for the compilation, I’ve been scrolling through my old Journal columns. I came across an article that appeared not long before I left the newspaper in early 2008. In that article, I was again trying to persuade investors not to throw in the towel—this time on U.S. stocks.
“If you’re a regular reader of this column, you know the drill: You want to build a globally diversified mix of stock and bond funds, preferably index funds, with each fund assigned a target portfolio percentage,” I wrote on Jan. 9. 2008. “Thereafter, you should occasionally check on each fund, to make sure it hasn’t strayed too far from its target.”
I continued: “What if you check today? You will likely find you are below target on struggling investments like U.S. stocks, municipal bonds, high-yield ‘junk’ bonds and real-estate investment trusts. Meanwhile, you’re probably overweighted on foreign stock markets, especially emerging-markets funds, which posted sizzling 37% average gains in 2007.”
What advice did I offer? “If you have a disciplined bone in your body, you ought to shun today’s international-investing craze, lighten up on foreign funds—and start buying American…. There is an added reason to shift money back home, and that’s valuations. Emerging-markets stocks have notched a cumulative 383% total return over the past five years, versus 83% for the Standard & Poor’s 500-stock index. Result: Today, emerging markets are no bargain.”
No, you can’t divine the direction of stock prices by studying the past. Still, it’s important to have a sense of market history. One key lesson: It’s foolish to assume that recent market trends will last forever.
The notion of “American Exceptionalism” is driving global investors to pile into US stocks.
This could be creating a bubble.
https://finance.yahoo.com/news/mother-bubbles-us-sucking-money-215345592.html
Jonathan thanks for every article you write, especially those in Humble Dollar, we all are very much appreciative. I have records since 1968 and I have had 9 years with losses overall, so 48 years with a plus, most of those pluses were in the low teens, like an average of 12% or so. 2022 was the shocker with a Minus 25.7%, sure glad I did not have to sell Anything, that is the secret to success which luckily, I learned early on, and 2023 and 2024 will both be over 30%. So take it from me, no one can predict the market, and it will go up some years and down the others, that is why indexing is so protective. My stocks are mostly in indexing. Jonathan keep writing these great articles and books for the good of all. You are to be rewarded and then offering the proceeds to charity. Great Wonderful Work.
Jonathan – nice article on being diversified. I held international ETFs for many years with no improvement.
Regarding: Emerging-markets stocks have notched a cumulative 383% total return over the past five years, could you provide additional information where this data came from? I must be looking in all the wrong place as I’m not finding the same results.
The data almost certainly came from Morningstar. It would have been the five years through year-end 2007.