Large US stocks have crushed all major asset classes over the last 10 years. Any allocation to small US stocks, international stocks, real estate, bonds, or gold has caused investors to trail the humble S&P 500.
US dominance has caused investors to question why they should bother diversifying into other asset classes. We’re constantly reminded to focus on the long-term instead of day-to-day, so shouldn’t a 10 year track record be enough evidence that US stocks are destined to outperform? Let’s take a look at historical precedence to find out.
In the 10 years ending October 31st, 2000, the S&P delivered a 491% return, destroying the 237% returned by international stocks. Many investors assumed this would continue – the US was the premier economic superpower on the forefront of transformational technology in the internet.
Those that abandoned their international stocks in favor of the US would deeply regret that decision in the following decade – the US went nowhere while international stocks gained 47%.
This same situation, years of outperformance followed by years of underperformance, has occurred for almost every investment you can think of. Value stocks have beaten growth stocks over long periods…
…but growth has flipped the script more recently.
Similar examples exist for real estate, bonds, commodities, hedge funds, Bitcoin, and others; if it’s investible, it has probably had its day (or decade) in the sun. This is why investing can be so difficult. Diversification means you’ll always trail certain segments of the market at different times. It can be tempting to try to forecast the next best performer but that’s a futile endeavor, especially if you’re basing expectations off of recent returns. Investing based on what’s outperformed recently is like playing the lotto with yesterday’s numbers or driving with your eyes fixated on the rearview mirror. Build your portfolio for the next 30 years, not the last 10, because when it comes to investing past is not prologue.
Disclaimer: Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.