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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.
Jonathan,
I have gleaned incredible insights over the years by your articles and this forum of diverse writers. As I near the bend for retirement, I was wondering if there are any organizations that help promote and educate financial literacy to the next generation. I have encouraged many young investors along this path to open a brokerage account and Roth IRA starting with S&P Index Fund. Just wondering how to pursue this from volunteer basis? Open to suggestions from you and your readers.
Grace and Peace,
Kevin Cady
This is a great organization that’s doing wonderful work to advance financial literacy, though it uses high school teachers, rather than volunteers:
https://www.ngpf.org/
Thanks Jonathan for quick response.
Lovely! And what a great idea for the royalties.
That’s a great find. And the book and direction of its proceeds is a great idea.
You, Bill Bernstein and others don’t write about market history just for academic reasons. This article reveals how important and practical such knowledge is, and why we should stay the course and continue rebalancing, despite under performance of some sectors.
I’m sure that article was a satisfying find–thanks for sharing. Great idea for the book project. We know that HD is mostly populated by us older folks, but the crying need is among the audience targeted by the education effort you describe. It will be a great legacy for you.
Thanks for the reminder Jonathan. I must admit after reading a recent article about the difference in the returns between foreign and domestic stocks over the past decade I was wavering.
But I just kept repeating this mantra I have as a retiree: Index, Diversification, Allocation, Rebalance!
Jonathan, thanks for the cautionary tale. Vicky and I bought American during those scary days in 2008 and beyond. Mostly it was on autopilot – automatic withdrawals from our paychecks invested in index funds. Our retirement a decade or so later was partially fueled by that decade of maximng out savings.
I look forward to your next book.
Jonathan, I think the book idea is wonderful. I didn’t know about your former writings and wish I did. I was one of those young people they would have helped. I only know you from HD and grateful for you, and the other writers too. I was blessed to find HD at the beginning. Chris