Portfolio Shift: It’s Really Different This Time

I have a confession to make: Over the past year, I’ve been moving money out of U.S. Treasuries and into international stocks. For someone who’s long preferred safety over risk, this marks a major shift.

The catalyst, somewhat surprisingly, was a 2024 memo: Howard Marks’ “Sea Change.” Marks—a legend in the investment world—made the case that we’re living through only the third true inflection point in markets since the 1970s. He highlighted structural shifts: the end of a four-decade era of declining interest rates, rising inflation, and a reversal (or at least stalling) of globalization. The playbook investors used from 2009 to 2021 may no longer apply.

I once relied on Treasuries as my security blanket. More importantly, the relationships I once counted on—stocks and bonds moving oppositely, Treasuries as a “risk-off” haven—seem less reliable now. Instead of cushioning equity losses, bonds have occasionally fallen in tandem with stocks, particularly in inflationary shocks. That safety net? It’s not what it used to be.

So, why international stocks? For one, they’re cheaper. And now I’m seeing more evidence to support the shift. A recent Morningstar article breaks down research showing that valuation expansion—the increase in the price investors is willing to pay per dollar of earnings—has driven most of the U.S. market’s gains since 2008. Fundamentals took a backseat. From 2008 to the end of 2024, the CAPE ratio for U.S. equities more than doubled. In contrast, the MSCI EAFE index (which tracks developed markets outside the U.S. and Canada) saw its CAPE rise just 36%. Historically, when valuations double, markets often underperform in the following decade. It’s a sobering correlation.

Are you sticking with the old playbook? Or have you made similar moves? I’d love to hear how the HumbleDollar community sees the future of investing—especially when we tune out the political noise.