In 15 of 20 years in the returns chart, Orange is either first or last. I'd say some might be better off with less Orange in their Port.
Thank you very much for the chart Audrey. It looks like 13/20 years would have been tops with just S&P 500 Growth and MSCI Emerging Market Shares, add a dollop of Russell 2000 Value and one is set. Too bad no guarantees the future will look like the past...Yes - I see things differently. International has outperformed in the past, and will again sometime in the future. I don't know when, so I just stay fully invested.
I believe diversification improves long term risk-adjusted performance, so I'm sticking with my allocation.
International can go through long periods of underperforming, but also long periods of outperforming, and you never know when. This table gives a good historical perspective on asset classes and relative performance.
And, actually, the international funds I added to after 2014 (pretty much MSCI EAFE class - I don't mess with emerging markets), because they were down, outperformed the rest of my portfolio in 2015.
It's been brutal -- recently international (especially emerging markets) have been a boat anchor. But unless you believe trees grow to the sky, the rally in the dollar can't last forever, and when the rally ends and the dollar mean-reverts, it will be a different story.
Recently (say since late January), emerging markets have gone up more than 20%. Maybe when the gains go above 30%, it might be time to start taking some money off of that table.
[FONT="]To recap: [/FONT]
- [FONT="]European equities trade at a huge valuation discount to the U.S. [/FONT]
- [FONT="]European equities have underperformed at a historical rate over the past five years. [/FONT]
- [FONT="]European equities currently sport a 1.2% advantage in terms of dividend yields. [/FONT]
- [FONT="]This information won't matter until it matters as fundamentals in the stock market require patience and don't work on a set schedule.[/FONT]
Somebody has to get lucky, so it might as well be me.If you were lucky enough to buy at those Jan lows that would be a good trade. But the EM index is only now back to where it was last Dec, and it's still 20% below where it was last April. Plenty of bottom fishers are still underwater.
And if you take a longer view, the secular trend for the dollar is lower.
And if you take a longer view, the secular trend for the dollar is lower. The most recent dollar rally isn't nearly as strong as the one in the early 80's or late 90's. And each successive low after those rallies bottomed out lower than the one before.
With the U.S. continuing to run structural trade deficits, there's good reason to think that long-term downward trend for the Dollar will continue as well.
It should be if monetary policies of the Fed and Eurozone stay on course. If I recall correctly the Fed wants to average between 2% and 3% inflation while the ECB wants to be "close to, but below 2%".
Multiple choice test here, pick one :
1) There is a clear trend line down if we do a linear regression fit.
2) The US dollar is just a bit under where it was in the 1970's. Just returning to it's natural place in the universe of currencies.
3) This past data in this chart doesn't tell us where we are going in the future.
4) None of the above.
I choose #5. Economists and their theories can help explain (sort-of) why exchange rates (of strong currencies) are where they are, but aren't good at all for predicting where they will be at any time in the future.Multiple choice test here, pick one :
1) There is a clear trend line down if we do a linear regression fit.
2) The US dollar is just a bit under where it was in the 1970's. Just returning to it's natural place in the universe of currencies.
3) This past data in this chart doesn't tell us where we are going in the future.
4) None of the above.
I choose #5. Economists and their theories can help explain (sort-of) why exchange rates (of strong currencies) are where they are, but aren't good at all for predicting where they will be at any time in the future.
I'll choose #1, and here's why:
Economic theory says that when you run a trade deficit one of two things happens. Either your currency falls relative to your trading partners. Or your trading partners stabilize the exchange rate by buying your currency with the cash they've earned through trade.
In practice, both of those things have happened. Trading partners like China have bought massive amounts of USD reserves to prevent their currency from rising. But they still haven't bought enough to completely stabilize the exchange rate. And other trading partners like Europe don't do this at all. So, on balance, you expect out currency to fall.
Now the U.S. has run a trade deficit pretty much consistently since the Bretton Wood's international monetary system fell apart in the early 70's. Which pretty much explains the long-term downward trend since then.
And because the U.S. continues to run trade deficits, we can expect the dollar to continue a downward trend until something changes.
With China's trade surplus, they receive USD. They either buy treasuries, gold, oil, or hotels. They do not need to buy anymore USD, they have a surplus. They do not need to buy USD to trade with us. All other countries take their surplus USD.
The Dollar will get stronger, if and when they raise rates. It really is that simple. Nowhere else can you get the stability and a return that the USD has.
.... John Templeton and John Greaney have both opined that there is no reason to invest outside the USA. Maybe they are right...