Why We Invest Globally (Not Just in the US)

With the recent declines and tariff news, I've spent a lot of time reminding ODs to be patient - declines are an expected and normal part of investing.

They happen with consistency - they may start differently, but tend to end up just about the same way with recovery over time.

They're also opportunities for long-term investors (that's you!) to continue investing and buying shares of everything you want to own for decades at discounted prices. Essentially - a sale!

The Power of Global Diversification

The questions and concerns with the US economy and policies are also a reminder of why we invest in the global stock markets, not just in the US or any one country.

Diversification is primarily about managing risk. It's about making sure your hard-earned dollars aren't subject to the risks of any one...

• Company or management team
• Industry
• OR country, political system, economy, or currency - this is where global diversification comes in

Recent Performance vs. Long-Term Perspective

Many investors tend to see recent US returns and think "wow, why would I ever invest in anything outside the US? All you need is the S&P 500!"

And it's true, in the last 14 years, large US companies have had a heck of a ride.

In the chart below, you can see what investing $1 in either the S&P 500 (large US companies) or the global stock market would have done starting in 2010.

However, this is recent performance. If we look at the previous decade, we'd see a much different story.

From 2000-2009, US stocks provided no return, and you would have lost money after inflation. For an entire decade.

This is often called the "lost decade" - if we rewinded to January 2010, the same investors would wonder "why in the world would we own US stocks?"

Interestingly, during this period, both small US companies and global stocks provided positive returns - demonstrating the value of diversification.

Returns Come in Cycles

If we look further back for a longer-term historical perspective, we see that returns are cyclical.

There will be times where US companies perform well, and others where companies in other countries lead. The timing is entirely unpredictable.

Your Investment Strategy - Are Your Properly Diversified?

The ultimate conclusion is, we don't know the future. We don't know all of the possible ways the world will unfold, and what can impact any particular country, economy, or currency.

To help manage that risk and uncertainty, and to make our investments as robust to all the ways the world that can unfold, we diversify into thousands of businesses all over the world.

And fortunately, it's pretty easy to do and without major expenses - even as simple as one fund!

While I can't directly advise ODs that aren't clients, as a general guideline I always say the starting point as we think about how to invest should be the global stock market.

If we have research-backed reasons to adjust - and recent returns are not one of those reasons - we can adjust from there.

If you'd like to review your investments to make sure you're on the right track, or if you have questions, reach out!

Happy investing, and have a great weekend.

New From our Education Hub

Episode 132: Creating a Clear Pathway to Partnership Erich Mattei and I dive into how to create a clear pathway from associate OD to partner, and ensure a succession plan in your practice. Listen to the Episode!

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