If you’ve looked at your portfolio and wondered exactly how much US stocks have outperformed the rest of the world, Charlie Bilello shares in his July 4th post USA! USA! USA!:
Over the last 16 years, US stocks have gained 502% vs. 104% for International stocks and 65% for Emerging Markets. This is by far the longest cycle of US outperformance that we’ve ever seen.
Will the gap continue to grow? I still don’t know, which is why I will continue to hedge my bets. Sometimes you shell out for insurance and it doesn’t pay out a claim. That doesn’t necessarily mean you should complain. I’m satisfied with my portfolio performance over the last 16 years. I couldn’t predict what happened, and I can’t predict how the next 16 years will go. I’d happily take another 16 years of the same, even if it means lagging the S&P 500 by a lot.
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You can see in the graph that the U.S. really separated itself from the rest of the world after the lower 21% corporate tax rate was passed.
After Covid is where we’ve really separated, from 200% to 500%. The growth from 2010-2015 was roughly the same as 2015-Covid.
It’s kind of remarkable with all the doom and gloom you feel like you see/hear, but the Covid rebound has been a success compared with everyone else.
A 2018 Forbes article (How Most Investors Get Their International Stock Exposure Wrong) suggested an allocation of 30-50% exposure to international stocks, with “one notable exception… Warren Buffet and Jack Bogle recommending buying only U.S. stocks”. At that time my portfolio had 40% in VXUS; I sold it in May of 2019.
My portfolio today consists of 75% VTI, 5% VBK, 20% CD’s. Per Morningstar Portfolio Manager my 15 year performance a little over 15%. (Note: I am 82 years old and have been managing my own portfolio for about 20 years)
Your chart shows conventional advice about diversification for the last 16 years, add BND to get an even better look. I agree about your thoughts on the past and future, no one knows what the stock market will do. But, my horizon (next 10 years) looks good. The US STK MKT is 60% of the world market and it’s still going strong. My wife and I have been slowly moving the ship for the last 10 years.
70-30 allocation
70 made up of 60% US Total MKT, 10% emerging/INTL
30 made up of iBonds, Treasuries and CD
Final thought, IMHO if the US stk Mkt takes a hit I believe the INTL stk market will take a corresponding dip.
I think my main concern is due to globalization, international and US market are highly correlated for the past 10 or 15 years. Where as before, each country is more of in its own bubble. So does diversification outside of the US equal to insurance/safety? Don’t diversify for the sake of diversity. Safety is the main reason behind diversification.
Low and negative correlations would be nice, but what if what the opposite simply happens: the next 16 years is just that the US returns 100% while the rest of the world returns 300% and they are highly correlated? I’m not saying it will, but if the gap shrinks that is a plausible scenario.