Today I would like to tackle the question, why should I be invested internationally? This question has been asked by investors more frequently after the horrible year’s international stocks had in 2014 and 2015. So lets look at the data and see if there is any reason to keep international stocks in your portfolio.
International Stocks in 2014-2015
Every sector of international stocks lost money in 2014. In 2015, International Large sector lost about 3% and international large value sector lost over 6%. The Emerging Markets sector (stocks in countries that are “emerging”) was down almost 16%. *1. Meanwhile the S&P 500 (US Large companies) was positive in both 2014 and 2015. You are probably wondering why everyone doesn’t just invest in Large US companies?
International Stocks 2000-2015
2000 through 2015 was not necessarily a great time period for any sector of the market, but international stocks definitely held their own. US Stocks are in blue, International Stocks are in green.
Category 2000-2015 Annual Return
S&P 500 Index 4.03%
Intl Large Value index 5.03%
Intl Small index 8.38%
Intl Small Value 9.91%
Emerging Markets Value 7.04%
Emerging Markets Small 8.55%
*1. Obviously this chart doesn’t include every sector, but it illustrates a very important point. International stocks are extremely valuable in your retirement portfolio, but you also have to be diversified in your international stocks and not just own international large stocks, like most of the population. Most retail investment advisors cannot get you into categories like international small value and emerging markets small.
International Stocks From the Beginning
Accurate records for international stock data goes back only to the 1970’s, but lets take a look at the data going back to then. International Large stocks return from 1973 to 2015 was 8.92% per year. International Small Stocks during the same time period had a jaw dropping return of 12.84% per year. *2. This further proves that there is a long term advantage to having a diversified mix of international stocks in your portfolio.
A lot of investors get caught up in what is happening in the market over the last minute, day, month, or year. It is important to keep the long term perspective and stay diversified no matter how hard it is to not drop out of sectors that are under performing in the short term.
by Jimmy Hancock
References
1. Matson Money. Investor Jeopardy Powerpoint. Mason, OH: Matson Money, 19 Jul. 2016. PPT.
2. Matson Money. Portfolio MRI. Mason, OH: Matson Money, n.d. PDF.