The Performance of International Stocks was on Par with USA before 2010

The Performance of International Stocks was on Par with USA before 2010

Recently, I heard on a podcast that if we cut off the performance comparison between international stocks and the US to before 2010, you will observe that their performance are rather identical.

I sort of think international stocks should have done well in the past to warrant certain dual momentum strategies to always compare the past 6 to 12-month momentum difference between the USA market and international market but like many, it surprised me that they are on par.

Perhaps that is what recency bias does to us.

This post was originally posted here. The writer is a veteran community member and blogger on InvestingNote, with a username known as @Kyith.

Here is the annualized return if you invested in the S&P 500, MSCI USA and MSCI World ex USA from 1970 to Dec 2009:

Index Annualized Return 

It looks really close.

Do note that MSCI World does not include emerging market stocks.

MSCI USA and S&P 500 have different ways they compose the index (which more or less tells you the index is kinda active in a way as well!)

If you observe the growth of $1 over this time, you may realize your experience may be a little different:

The first thing you would notice is that if you compound your wealth over 41 years, there is a difference between 9.87% and 9.54%.

Secondly, we could cut this off in 1995 and you would conclude that we should invest in international stocks and not USA, or have a smaller allocation to USA.

But your tune would change if you cut off in say 2002.

The reality is that if we use backtested data that goes back 3 years, 5 years, or 10 years because we think these are long enough, this will lead us to perhaps the wrong conclusions.

How would the USA and international stocks do for the next decade?

It is hard to say. Some have said that the market has changed and tech has changed things. I tend to believe that the market is always changing. Within that 1970 to 2020 timeframe, many things have changed. The US went off the gold standard, there was LTCM crash, we endured a 3-year bear from 2000 to 2002, there was a tech boom, we had 2 big tax changes in the USA, and many presidents around the world have changed.

Sometimes I wonder if people overweight the uniqueness of current changes too much.

Here is the annualized and cumulative performance of these three index by the decade with the best bolded.

Annualized Return:

Cumulative Return:

Ten years is a long time in a human being’s life, and if you live through it, you wonder what kind of experience you would get if you lived through the 1980s versus the 1990s.

You would be telling yourself different stories.

I do have a few other data-driven Index ETF articles. These are suitable if you are interested in constructing a low-cost, well-diversified, passive portfolio for yourself.

Once again, this article is a guest post and was originally posted on Kyiths profile on InvestingNote.

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