American Consequences - June 2021


workers in, say, health care, can set themselves up to gain from technology, energy, and global industries. That’s what we’re going to do today. THE RISKS OF ‘STAYING HOME’ WITH YOUR PORTFOLIO I get it... If you’re going to be living in the same place for a long time, maybe forever, it might make sense to have most (or all) of your assets in that country. If you live and work in the U.S., what’s wrong with holding all of your assets in American stocks, bonds, and dollars? Here’s the thing... You’re putting all of your eggs in the same basket. What if the banking sector goes bust? What if your home currency massively devalues? What if the real estate market crashes or the government starts searching for ways to plug a massive budget deficit, and your assets are all in that country? That might sound more like something that would happen in an emerging market like Russia or Indonesia – not the U.S. But it was barely a year ago that the U.S. stock market fell an emerging-markets-like 34% in about a month. In April 2020, the U.S. unemployment rate exploded by more than 10 percentage points, as nearly 16 million people lost their jobs due to the COVID-19 panic. The U.S. economy shrank by one-third in the second quarter last year. Currently, the U.S. dollar is the world’s reserve currency. But looking forward, unprecedented spending by the U.S. government, and debt issuance from the Federal Reserve, will increasingly call into

question the status of the U.S. dollar. As of March 1, just over three-quarters of all dollars that have ever been printed were created over the previous year. The federal deficit is forecast to hit 15% of U.S. gross domestic product (“GDP”) in 2021 – the biggest deficit since World War II. That compares with a deficit of just 2.4% of GDP as recently as 2015. None of this means that the U.S. economy, the U.S. dollar, or U.S. stock markets are headed for a collapse tomorrow... or even anytime soon. But for your portfolio, “staying at home” by investing in what you know means taking on a lot more risk than you might realize. The United States won’t forever be the dominant power that it has been over the past decades. It only makes sense to hedge your bets by putting some of your investments in other markets. And in the evolving post-COVID-19 world of hugely divergent economic growth and prospects, it’s more important than ever to look away from home – and outside the scope of what you know from immediate, first-hand experience – for the most attractive investment opportunities. Of course, there are reasons people stay home. And some of them make sense. But we can find ways to get abroad and stay smart... THE COMFORT OF HOME Sometimes, it makes sense to invest in something that you don’t know that well.


June 2021

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