INVEST ABROAD TO MAXIMIZE PROFITS
who “stayed at home” over the past several decades have missed out in a big way. Of course, a well-performing market can continue to rise, as evidenced by the historic bull run of the S&P 500 (more on that in a moment)... just like a poorly performing one can suck wind for a long time. Just ask investors in Japan how that felt. But at some point, mean reversion kicks in – that’s when the pendulum swings back... when extreme movements, one way or the other, tend to reverse and trend toward a long-term average. In market terms, that means that after a period of rising prices, a well-performing market tends to deliver average or poor returns. And markets that have been long- term laggards will – all else equal – get their time in the sun again. Diversification is not only a smart way to insulate your portfolio against the damage of a few eggs in your basket being broken... It also helps improve your portfolio’s performance. While U.S. stocks have soared over the past decade – and more – those in emerging markets have massively underperformed, as shown in the table below...
concepts of valuation and profitability apply in all markets. And many top emerging market stocks are actually very familiar to most investors in the U.S. Think Taiwan Semiconductor, whose computer chips power many of our devices, gadgets and electronics... or South Korean electronics giant Samsung. Those are products you use and know. Doesn’t it make sense to have some investment in them? As far as tax issues and stock selection, we can use index funds to take care of the tricky issues. And if you are concerned about political stability, we solve that problem by diversifying across countries. What may be more vital, though, is that today looks like the ideal time to put some capital into emerging markets... PERFORMANCE TRAVELS AROUND THE GLOBE Different economies and markets outperform at different times. Investing in a range of geographical markets can boost your returns. Take Japan, for example…The Japanese stock market index was at approximately the same level in 1987 as it was in 2020. Today, the country’s index trades well
below the all-time high it hit in December 1989. (By contrast, the S&P 500 Index is around seven times higher than its 1987 levels.) Japanese investors
EMERGING MARKETS UNDERPERFORM
One Year
Three Years Five Years
10 Years
U.S. market
51.2% 68.2% 125.6% 271.8%
Emerging markets
49.8% 26.0% 73.1% 36.5%
Note: Performace data is cumulative. As of April 30, 2021
Source: Vanguard
74
June 2021
Made with FlippingBook - professional solution for displaying marketing and sales documents online