This article is the third part of a study looking at global and domestic investing from the perspective of local investors.
In Part 1 and Part 2, we took the position of a local investor in one of 16 countries of interest and we explored opposite positions of either investing 100% global or 100% domestic. In Part 2, it became clear that global bonds tend to hurt local investors, while global stocks definitely helped for most scenarios. It is now time to try a middle ground and study portfolios mixing global and domestic stock investments. We will notably look at the mitigation this could bring to the countries having fared the worst, but also consequences for countries having fared better. Of course, it is easy to look at such numbers in hindsight and draw hasty conclusions, so let’s keep in mind that nobody could have predicted winners and losers ahead of time.
Many North American investors tend to look carefully at historical returns in the US and in Canada and draw various conclusions. Occasionally, some references are made to Japan and the UK, but few people look any further. The world changes though. The UK was undoubtedly the world economic leader at the end of the 19th century, while the US clearly dominates nowadays. Japan was on a roll in the 80s, with a bigger market capitalization than the US at some point, and yet badly faltered since then. The world changes in ways we cannot predict and it would be naive to assume that a few decades in the future, the situation will be similar to today’s environment. One thing we can do to get some perspective is to analyze what happened in a larger sample of economies.
This article focuses on the historical returns from 16 developed countries over the past 50 years, looking from the perspective of a local investor and assuming a strong home country bias to begin with (i.e. solely using domestic stocks and domestic bonds). We will look at more diversified portfolios mixing domestic and global investments in Part 3.
Bogleheads know the power of diversification. And yet many such investors (including John Bogle himself!) are reluctant to diversify beyond domestic investments.
This raises an interesting question. Could one simply invest in the world, using global stocks and global bonds? And if this proves unsatisfying, is there a proper middle ground between domestic and global allocations?
This article is the first part of a study looking at global and domestic investing from the perspective of local investors.
This article provides updated Telltale charts, including returns up to 2019. It analyzes the relative past performance of value and size factors compared to the total US market, as well as studying international and real estate market segments.
Using Telltale charts can be very informative, truly ‘telling the tale’ of what happened over time to portfolio trajectories, illustrating return to the mean properties or lack thereof.
In the past decade, a specialized type of fund gained increased popularity, funds implementing leverage over a given index. A previous article explored funds leveraging the S&P 500 index. This article will focus on a portfolio-level approach mixing stocks and …
Leveraged Portfolios – Quantitative Analysis Read More »
The following table lists 2019 total returns for various examples of “lazy portfolios”. Some of the portfolios (Coffeehouse and Coward’s) are designed as 60/40 stock/bond portfolios. Other portfolios (Armstrong Ideal and Swensen) are designed as 70/30 stock/bond portfolios. The two-fund, three-fund, and …
Lazy Portfolios in 2019 Read More »
William Bernstein, investment manager and author, first introduced a version of his “Coward’s portfolio” in 1996. The “coward” refers not to the investor’s risk tolerance but to the strategy of hedging one’s bets and having slices of a number of …
William Bernstein’s Coward’s Portfolio – 2019 update Read More »
Frank Armstrong III, investment advisor and author, offers the following seven fund “Ideal Indexed” portfolio in his book, The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio (published December 16, 2003). The portfolio employs a 70% equity …
Frank Armstrong Ideal Index Portfolio- 2019 update Read More »
David Swensen, investment manager of the Yale University Endowment Fund, has addressed how investors should set up and manage their investments in his book, Unconventional Success: A Fundamental Approach to Personal Investment. The Swensen portfolio consists of six core asset …
David Swensen’s portfolio (from Unconventional Success) – 2019 Update Read More »
The Coffeehouse portfolio is an indexed seven-fund portfolio popularized by financial planner and author Bill Schultheis. The portfolio holds the following asset classes: US large cap stocks US large value stocks US small cap stocks US small cap value stocks …
The Coffeehouse Portfolio-2019 update Read More »