If an investor makes a concentrated bet, he thinks he knows something that the market doesn’t. If an investor diversifies, he admits he doesn’t know what comes next. We are the latter, and the data constantly reminds us to be humble. Here is an image showing the developed markets’ ranking and respective returns over the last twenty years. Would we have predicted Denmark as the standout market or Ireland in the last position? And who will it be twenty years from now? Guess what? As you know, when you own global capitalism, you’re the winner, and guessing isn’t required to succeed.

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Diversification neither assures a profit nor guarantees against loss in a declining market.

Have you found yourself asking, “Who cares about diversification? Shouldn’t I put everything in the US market?” Here are a few reminders as to why we go global with our clients. 

It’s no secret the US market has performed exceptionally well over the past several years. Still, as the saying goes, you shouldn’t put all your eggs in one (market) basket.

• The US market hasn’t been the best performer this year. Sweden, Denmark, Finland, Ireland, and Norway all outperformed the US market in the third quarter of 2020, with Sweden pulling ahead of the US by almost 8%. In fact, over the past year, Sweden has outperformed the US market by 12.7%.
• There’s no reasonable way to predict which country’s market will outperform and when. Less than a year ago, Finland, for example, went from the third worst-performing market to the third-best market this past quarter.
• Guessing wrong could have a significant impact on returns. The difference between the best performing developed market (Sweden) and the worst-performing market (Portugal) was 20.7%. The gap was even wider amongst emerging markets, with 30.5% separating India at the top of the list and Turkey at the bottom.

2019 served as a reminder of just how unpredictable the market is. It’s crystal clear to observers that the prediction game is often a losing one for investors. Our friends at Dimensional wrote an insightful piece on the futility of forecasting. We think the story and the data shared here are both worth your attention. (Estimated reading time of 5-7 minutes)

Read Now