Should You Invest in International Stocks? Yes. Here's Why.
The U.S. stock market isn't always king, and it doesn't really matter if it has been historically. Here I'll explain why that's the case and why it's probably a prudent idea for U.S. investors to also invest in international stocks.
// TIMESTAMPS:
00:00 - Intro - International Diversification
01:27 - “U.S. Companies Get Revenues From Abroad”
03:16 - Performance
10:24 - Risks and Overcoming Biases
13:30 - Conclusion
// SUMMARY:
Make no mistake that the U.S. stock market usually dominates the global market in terms of sheer size. At their market weights, U.S. stocks usually comprise a little over half of the global stock market. But that doesn't at all mean that we should ignore the other half.
International stocks don't move in perfect lockstep with U.S. stocks, offering a potential diversification benefit. If U.S. stocks are declining, international stocks may be doing well, and vice versa. This is particularly important for retirees.
For U.S. investors, diversifying globally in stocks is also a way to diversify currency risk and to hedge against a weakening U.S. dollar, which has been gradually declining for decades. International stocks tend to outperform U.S. stocks during periods when the value of the U.S. dollar declines sharply, and U.S. stocks tend to outperform international stocks during periods when the value of the U.S. dollar rises. Just like with the stock market, it is impossible to predict which way a particular currency will move next.
Global diversification in equities has huge potential upside and little downside for investors, U.S. companies receiving foreign revenues doesn't get us there, and U.S. outperformance hasn't been as juicy as it appears at first glance due to the evolution of valuations.
If we're honest with ourselves, most investors would probably rather be able to sleep easy at night knowing their wealth is insulated against unpredictable black swan events and extended bear markets. Those who don't acknowledge the non-zero probability of such risks are simply underestimating them, either purposely or accidentally.
Any purveyor of market history will recognize the tangible benefits of global diversification, but it can still be a large behavioral hurdle for novice investors in the face of recent performance. Remember that past performance does not indicate future results, so rationally it should have no bearing on today's decision to diversify globally going forward.
Read the blog post here: https://www.optimizedportfolio.com/in...
#diversification #investing #homecountrybias
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Disclaimer: This is not financial advice, investing advice, or tax advice. The information presented is for informational, educational, and entertainment purposes only. Investment products discussed are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here: https://www.optimizedportfolio.com/te...
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