USA can’t be beat?

Hi Carl.

Good question.

The short answer is because we can’t know if the US will keep outperforming as it has since the GFC.

During the 2000s decade, the US performed horribly (zero returns from 2000 to 2013 in fact), and ASX way outperformed during that decade. Up until the GFC, international shares as a whole and US shares had basically the same long term performance. Since then the US has broken away, but it remains to be seen if this sustains itself indefinitely.

And since 1900, US and ASX have actually performed about the same – among the best markets in the world.

You can of course make a bet that the US will continue dominating… but remember US companies (tech especially) is priced very highly right now by basically all metrics because everyone is expecting such an outcome. The high valuations themselves mean companies have to actually perform incredibly well just to meet expectations, let alone beat them.

Betting your portfolio on a single market, driven by a relatively small bunch of companies might seem like a one-way bet. But the reality is the world can and does change over time, and the future is far from certain, so diversification makes sense in my view. You may see it differently.

All the best :)
Dave

Investing predominantly in the US market has been a popular strategy for many investors, especially given its historical performance. The US market, particularly represented by indices like the S&P 500, has indeed shown robust growth over the past few decades. Companies like Apple, Amazon, and Microsoft have provided substantial returns to their investors, which can make the US market seem like a preferable choice.

However, there are several reasons to consider diversifying your investments beyond just the US market:

1. Risk Management: Diversification is a fundamental principle of investing. By spreading investments across different geographical regions, you can reduce the risk of significant losses that might occur if one market underperforms. For instance, during times when the US market might be experiencing volatility or downturns due to domestic issues, other markets might not be as severely affected.

2. Potential for Growth in Emerging Markets: Emerging markets, such as those in Asia and Africa, often offer higher growth potential. While these markets come with higher risk due to political instability, lower market liquidity, or less regulatory oversight, the growth potential in these regions can be substantial. For example, countries like India and China have shown impressive growth rates that can translate into significant investment returns.

3. Currency Diversification: Investing in non-US markets allows you to benefit from potential gains through currency appreciation. If the US dollar weakens against other currencies, your investments in those currencies will be worth more when converted back to dollars.

4. Valuation Opportunities: At times, markets outside the US may offer better valuations compared to the US market. This can provide opportunities to buy quality stocks at lower prices, potentially leading to higher returns as these valuations normalize.

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