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Should We Invest Outside of the US?

The United States stock market has outperformed international stocks in the past 1, 3, 5, 10, 15, 20, 25, 30, 35, 40, and 45 years, when comparing the S&P500 to the MSCI World ex USA index.  

So why would we want to invest anywhere else?  Diversification across countries seems unnecessary.  

Well, according to Jason Zweig in the Wall St Journal (potentially behind a paywall) - those numbers can be deceiving.  When looking back over those 1 through 45 year periods, the US has indeed outperformed - but only because of the recovery since The Great Recession of 2008-09.  US companies recovered much faster than the rest of the world, and their returns over the past 10 years have propped them up when measured against their international counterparts.  

Just for fun, I ran two comparisons of the US ($SPXTR), emerging ($MEMMN), and developed international ($MSDMXUS) markets from October 2002 through October 2010, and again from October 2010 through October 2018, giving us two equal 8 year periods to look at.  They’re pretty telling (see below).  

So although the US has been the clear winner recently, that’s no guarantee for future returns and is why I believe in a well diversified portfolio across the globe, loosely framed around the total market makeup of US, developed international, and emerging countries.  

 
Interesting Resources 

1. Tax Foundation - What are Universal Savings Accounts and Why Are They Important?
There was a vote in the House of Representatives last month (HR 6757) that addressed several things.  One that especially intrigued me was under Title III - establishing a Universal Savings Account (USA).  These would allow anyone, regardless of age or income, to save up to $2,500 per individual per year into a savings account (that perhaps could be invested?) and not pay any capital gain tax on the interest or gains earned.  I’m a fan of this, because that money has already been taxed as income, and depending on its use could eventually be taxed as sales tax or depending on your situation even gift or estate tax.  This still has to pass the Senate, but this could be a great tool for intermediate-term savings goals.  


2. Dear Abby (Pauline Phillips)
“If you want your children to turn out well, spend twice as much time with them and half as much money.”  I came across this Dear Abby quote this week and it struck me.  No commentary necessary - just think about it.  
Just want to end this week with a Thank You.  Thanks for taking the time each week to read these, respond back to them, and spark conversations.  Time is one of the most precious and non-renewable assets we all have, and I sincerely appreciate you taking the time to read and respond.   

Gratefully,
Jeremy
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