We Aren’t the World - Old Peak Finance

We Aren’t the World

March 23, 2011

2011_we arent world

We Aren’t the World

March 23, 2011

I’m not being unpatriotic, but the US is slowly and inevitably becoming a smaller percentage of the world economy.  Not surprisingly, the US stock market is steadily becoming a smaller percentage of the global stock market.  That has important implications for investors.

Historically, US investors have had almost all their stock portfolio in the US market.  But today, the US market is only 42% of the global market.  If more than 42% of your stock portfolio is in US investments, you’re counting on the US market to out-perform the world.  That has not been the case over the past 10 years, when the US market rose 3.7% annually, vs. the rest of the world at 6.2% … a big difference.  The US market has out-performed in the last 3 years, and you could bet it will continue to do so.  But a safer course may be to keep your US investments around 42% of your portfolio.  Fortunately, there are plenty of low-cost and easy-to-buy mutual funds that invest internationally.

Remember that you’re actually exposed to two separate trends – the US market’s relative performance and the US dollar’s relative performance.  The dollar is down 25% over the past 40 years against a weighted basket of currencies.  If such a trend continues and you have all your money in US stocks, your investments suffer, and your personal budget suffers, as you are buying imported goods whose price goes up as the dollar falls.

Putting over half your money outside the US market may sound risky.  I would argue the riskier move is putting most of it in the US.

This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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