International Diversification

October 25, 2018
We’re facing a year in which the returns on domestic stocks are significantly higher than their international counterparts, which can lead one to question the value of diversification.  We live in a world of interdependent global economies and over the long-term, no single economy can dominate all others indefinitely, which is why we believe in the power of diversification.
 
Having said that, diversification is a two-edged sword; it works, even when you don’t want it to.  The inclusion of international stocks can either help or hinder portfolio returns over any given time period.  Thus the most recent performance of international stocks is not unusual, even if disappointing.  
 
As a general rule, most investors have short memories.  How far back do we have to go to find a year in which international stocks outperformed?  The answer…not very far!  The following table compares the returns of domestic and international large stocks and small stocks for the first nine months of 2018 and for the full year of 2017:
 
    Thru
  2017 9/30/2018
     
U.S. Large Stocks 21.7% 10.5%
International Large Stocks 24.2% -1.5%
     
    Thru
  2017 9/30/2018
     
U.S. Small Stocks 14.7% 11.5%
International Small Stocks 31.0% -2.3%

 

It’s also worth pointing out that the worst performing asset class of 2018 is Emerging Markets, which are down 7.7% through the third quarter.  However, during 2017, it was the highest returning asset class with a positive return of a whopping 37.3%!  This is why we diversify and this is why we take such a long-term view of investing.
 
No one has developed a time-proven method to determine which securities, markets or asset classes will produce the best returns over a particular time period.  Until then, diversification and discipline will remain the cornerstone of our investment policy.    
 
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Beaird Harris Wealth Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Beaird Harris Wealth Management, Inc.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Beaird Harris Wealth Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Beaird Harris Wealth Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.