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.

Whether your political views are right, left, or somewhere in between, you should check out this video. Election years tend to heighten everyone’s anxiety. This video does a great job of helping us as investors understand what to do.

As changes to tax reform, foreign policy, and social issues loom, it’s totally natural to be tempted to make short-term portfolio changes to profit from the uncertainty, or to minimize losses. But, as we know, markets are extremely efficient at processing new information and adjusting prices based on future expectations, so research would tell us any fears or expectations about the results of the presidential election are already baked in.

So, what’s a savvy investor to do? Our friends at Dimensional Funds skillfully reframe the perspective provided by the regular media.

Going back to 1928, when Herbert Hoover was elected president over Al Smith, the S&P 500 has returned on average 11.3% during election years and 9.9% in the subsequent year. In fact, there have been only three presidents in history that have seen negative returns in the stock market over their presidential tenure: Herbert Hoover during the Wall Street Crash of 1929, Franklin Roosevelt during the Great Depression, and George W. Bush in the 2000s during a time known as the Lost Decade.

How do you beat inflation without stock picking and market timing? You get exposure to systematic sources of excess return, a.k.a. premiums. This is one of our favorite slides because it highlights the premiums that savvy investors want exposure to, going back to 1927. Get low-cost, diversified, tax-efficient exposure to these factors, take the long view, and you’ve put the odds firmly in your favor.