Quote:
Originally Posted by SlackMan
The point of having international exposure is to provide diversification. With diversification, the overall portfolio (U.S. + international) should have lower volatility over time than a pure U.S.-based portfolio.
|
theory often differs from practice, especially when it comes to economics. You are assuming that events that lead to volatility is evenly distributed whereas this isn't valid. Historical performance of the EAFE (what many foreign equity indices seeks to emulate) in the last 15-20 years isn't nearly as high as that of S&P 500 or small cap, and the historical trend has been quite a bit more volatile. It goes through corrections (-10%) a lot more often compared to S&P, though you could argue that the latter has been recently propped up by investors pumping money into the U.S. stock market in search of better returns. It still hasn't recovered the value of the index pre 2007.
With the future of the eurozone uncertain, Japan continuing in its slumber, and three of the BRICs reeling, you get the feeling it's troubling times ahead.
Quote:
|
Moreover, international stocks are much cheaper relative to U.S. stocks right now.
|
What good does cheap do when it can't generate positive returns? People aren't buying index funds shares in order to accumulate enough shares to influence the direction of a company. People invest in index funds in the hope that the increase would hopefully be the equivalent of 7-8% annualized.