My wife and I have four daughters, ages 12 to 5. We started in our early 20s, so I fully expect all the girls to be moved out by the time I am 50. It is hard to be on Facebook and see our peers posting the cliché photos from a beach in Greece or a bakery in Paris. I have to tell myself, "Don't worry Austin," they will just get started much later and when they are changing diapers in their 50's it will be my turn to visit Europe and they can see my see my Facebook and wish they waited until they had a little more money to do Europe right in their 50s! However, as much as Americans love visiting Europe, we don't love investing in Europe.
We have neglected investing in Europe and much of the rest of the world. To be fair, that has worked out very well for the last fifteen years or so. However, a more complete view of history demonstrates the US and international stocks have back-and-forth nature. The 80s, for instance, saw massive outperformance of international stocks over US stocks. There are many reasons why these trends exist and reverse, mostly revolving around the macroeconomic factors that set countries or regions up for a run of strong growth.
Knowing when the inflection point is for a trend reversal is hard. However, challenges to the status quo can sometimes be a catalyst. Right now, there are plenty of challenges to the status quo. Whether you agree with some of the changes being sought after or not, it is essential to realize that when the first match is lit, there is no absolute certainty about how that will all play out.
Investors need to consider all contingencies and allocate accordingly. Some of those contingencies should look at international opportunities. For a while now, the valuations of developed non-US have been much less expensive than domestic valuations. While that is not a catalyst, it is fuel to sustain a prolonged run. While a compelling case can be made for investors to consider international equities, there are equally persuasive rebuttals. Does the fractured cultural and political environment of Europe lend itself to the synergy that creates innovation? Does the location of business even matter anymore? It's not 1980, back then computers were still new, now think of how much business is done remotely as opposed to in person? All good questions should be considered when evaluating your current portfolios and any contingency.
Should you be like the many investors with no or large underweights to international markets, what if we get a sustained reversal? How does that affect your goals? What if you agree that you need some international, how or what do you invest in? Many people have gotten by on passive US ETFs over the last decade. A lot of uncertainty is present, what are you doing to reduce the uncertainty as much as you can? Maybe it is time to think of Europe as more than a vacation destination?
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.