Very reasonable post.You invest in businesses (either via their equity or their debt) because both generate cash flows and therefore are investments not speculations. So that narrows down the haystack considerably. Arguably with all the Fed intervention bonds weren't really investments post GFC (offering return-free risk) but thankfully that's changed now.
The argument for not investing outside the USA is that a) US companies are mostly multinational businesses so you are getting exposure to foreign markets and foreign currencies b) US exceptionalism c) over 150 years of historical data supporting the US stocks for the long run thesis.
These are sound and strong arguments but the problem is with stock markets is that once investors become incredibly certain about an investment outcome they drive prices up to a level whereby future returns are likely to disappoint. So the relative valuation gap between the US and the ROW is a bit of a cause for concern and this valuation risk can be diluted by a sensible allocation to EAFE/EM etc. The US market is also increasingly concentrated in technology stocks and that creates a sector risk which can also be diluted by a sensible allocation to EAFE/EM. And you can still participate to a large extent if US outperformance continues over the next decade or two. But if it doesn't then you'll be thankful that you've got some exposure to international stock markets that may well do better given more modest valuations, earnings expectations and tech exposure.
Statistics: Posted by HomerJ — Wed Jul 10, 2024 10:37 am — Replies 6477 — Views 1624337