In January we reviewed the topic of international diversification. With the conclusion of 2016 it had been four straight years that US stocks had outpaced international stocks. We heard from many people why should they continue to hold international stocks? The prospects in Europe looked bleak with the UK leaving the EU, China was a constant source of volatility and Japan posted another year of meager growth and inflation.
Our message was to remain disciplined to an equity strategy diversified globally. There are periods of time when the US outperforms and there are times when international markets outperform. We believed that eventually the recent trend would reverse. There have been multiple decade long periods over the past 110 years when international stocks outperformed and we believed they would eventually be in favor again. When exactly it would occur is unknowable, but if an allocation is not maintained an investor would miss out if there was a sustained rally. Also, with roughly 50% of the world stock market and more than 10,000 companies outside of the US, there is a significant investable universe that you would lose exposure to if only focused on the US.
What have we seen in 2017? A significant reversal in global stock market performance. While US stocks certainly continue to perform well, up almost 11% for the year, international stocks have soared, gaining over 18%. Going back over the past 12 months international stocks have outpaced US stocks by over 3%.
While the recent performance is not a guarantee of future results, it does show the benefits of remaining disciplined to an asset allocation strategy that has set targets to US and foreign stocks. By keeping that broad diversification, the portfolio is set to benefit if either perform well. It also likely reduces the overall volatility of the equity allocation.
We believe that an investor with a long time horizon and a desire for growth from their portfolio is best served by investing globally, and, by avoiding market timing, can best positon themselves to meet their long term investing goals.
|Index Performance||July||YTD||Trl 1 Yr|
|US Stock (Russell 3000)||1.89%||10.99%||16.14%|
|Foreign Stock (FTSE AW ex US)||3.54%||18.20%||19.15%|
|Total US Bond Mkt. (BarCap Aggregate)||0.43%||2.71%||-0.51%|
|Short US Gov. Bonds (BarCap Gov 1-5 Yr)||0.28%||1.08%||-0.20%|
|Municipal Bonds (BarCap 1-10yr Muni)||0.68%||3.67%||0.62%|
|Cash (ML 3Month T-Bill)||0.08%||0.31%||0.49%|
Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services. We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets. Visit us at www.raffawealth.com
There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.