Our Perspective: The Wall Street Journal on The Importance of Global Diversification

The Wall Street Journal recently published an article by noted columnist Jason Zweig titled “The ‘Dumb’ Money Is Bailing on U.S. Stocks. That’s Smart. ” We want to call your attention to it, because, in our opinion, it deftly demonstrates the importance of global diversification, particularly when an individual market has demonstrated an extended period of out performance.

Sage’s longstanding view is that diversifying holdings across geographies and industry sectors increases the probability that our clients will realize their long-term financial goals while also minimizing their exposure to excessive risk. Global diversification, in particular, is another way to add balance to a portfolio and protect it against unpredictable market swings. But as Zweig points out, the S&P 500’s recent out performance of international stocks has some investors asking, “Does it make sense to invest anywhere but in the U.S?” Zweig’s answer, with which we fully agree, is that “Now more than ever, investors need to consider investing in overseas stock markets.”

Over this current economic cycle, dating from the end of the global financial crisis, U.S. markets have outperformed foreign stocks by a wide margin.  But “The U.S. was among the worst-performing stock markets worldwide in the 1970s and the 2000s; it also earned lower returns than the average international market in the 1980s.”  Although U.S. large-cap stocks via the S&P 500 have been one of the best investments over the last nine years, that has not always been the case, and it likely will not continue indefinitely. As Zweig notes, “Markets tend to lose their dominance right around the time it seems most irresistible.”

We can’t predict when the tables will turn, but they will. Investing in foreign stocks, especially now when they are significantly undervalued on a relative basis, can help prepare investors for the moment when U.S. markets start to move in the opposite direction. Foreign asset under performance is not characteristic of every economic cycle, and, in some important ways, these markets may be less vulnerable than a pricey U.S. market.

 

 

 

The information contained in this report has been obtained from sources we believe to be reliable but cannot be guaranteed. Any projections, market outlooks or estimates in this letter are forward‐looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly impact our opinion. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non‐investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any discussion or information contained in this communication serves as the receipt of, or as a substitute for, personalized investment advice from Sage Financial Group. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Sage Financial Group is neither a law firm nor a certified public accounting firm and no portion of this communication should be construed as legal or accounting advice. A copy of the Sage Financial Group’s current written disclosure statement discussing our advisory services and fees is available for review upon request