This chart compares three investments: short-term US government bonds, in green; large US stocks, in yellow; and the global stock market, in blue.
The clear conclusion: being globally diversified pays off.
Specifically, $1 invested in 1970 grew to $349 in the global stock market, but only $90 in large US stocks and only $9 in short-term US government bonds.
This may not surprise some people. But over the last three years, large US stocks, also known as the “S&P 500”, have been, by far, the best place to be. So plenty of people ask us: why diversify? Why own small stocks or non-US stocks?
This chart gives you the answer. There are no guarantees the future will look like the past, but I wouldn’t bet against this trend.
So before you decide to limit yourself to the kinds of stocks that have done well in recent memory, take a longer look back.