We've seen unprecedented cracks in the global market space in the past 5 years. Authoritarian COVID19 lockdown policies, war in modern countries, and stock delistings in Russia and China. The harshest sanctions in history have also caused the most volatile commodities and bond markets in the modern world.
The whole idea of diversifying your eggs in a global basket is good in theory, but that does not pan out in our current world. The reality is not every country has a free market or as close to a laissez-faire market as the US. Investing in global baskets in many ways actually poses more risk than domestically. Thinking about this objectively, if you invested in VXUS which the reddit dogma would suggest somewhere between a 30% allocation, you would be down over 16% in the past 5 years! We often hear counterarguments such as VXUS having cyclical performance every 30 years. Seriously, unless you somehow have the fountain of youth, no one can wait through 30 year cycles. And, this is evidenced from the last century of data, back before the internet, smartphones, and modern cars. The calculus has changed, why take on unnecessary foreign risk when we know despite everything betting on the home team with a free market has been proven to pay dividends over the entirety of the markets time horizon?
My opinion: if you want to diversify, use various asset classes such as bonds, stocks, money market funds, and real estate. Stocks enjoy a risk premium but not all stocks are equally risk compensated! Look what happened to the Russia and China stocks. No one knows what will happen to the EU in the next few years. But know this, the US is oil independent and all currencies have been devaluing while the dollar has been strengthening! Read the room from institutional investors.
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