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In this video, Chris discusses the correlation between U.S. and international markets. He highlights that historically, U.S. stocks have outperformed international stocks, especially in recent years, with the U.S. outperforming international markets in seven out of the last eight years and nine out of the last 11 years.
However, Chris emphasizes that it’s essential to dig deeper and consider more than just the rate of return when determining the appropriate mix for an investment portfolio. He presents a chart that shows the correlation between U.S. and international market returns during different periods.
The key insight is that when U.S. returns were less than 6%, international markets outperformed the U.S. 94% of the time. When U.S. returns were less than 4%, international markets outperformed the U.S. 100% of the time. This underscores the importance of diversification and asset allocation in a portfolio, allowing for more flexibility and the ability to pull out funds at a gain, especially when one market is underperforming.
The video encourages viewers to consider the correlation between different assets in their portfolio rather than solely focusing on historical returns.
Hi everyone, Chris here making a short video to discuss the correlation between US markets and international markets. What we have here on the screen is a simple comparison showing the rate of return for US versus international stocks. You can see it’s nearly even, but historically US stocks have outperformed international stocks, especially in the most recent years.
So for example, the US has outperformed international seven out of the last eight years and nine out of the last 11 years. However, we really need to dig deeper into this, looking deeper than just what is the rate of return and we need to look at really what’s the correlation here when deciding what is the appropriate mix for your investment portfolio.
So the next screen does just that. If we start at the bottom of this chart, this is just looking at all return periods. So 54% of the time US outperformed 46% of the time international outperformed. What’s very important to look at again, like I mentioned, is the correlation.
So when the US returns were less than 6%, international markets outperformed the US 94% of the time. When US returns were less than 4%, international outperformed the US 100% of the time. So it’s very important not just to look at this from what’s the rate of return of each of these.
It’s looking at how are these correlated. This is the importance of asset allocation. If we have diversification across multiple market indexes, if you’re retired, for example, that always gives us a better opportunity to pull out money at a gain. For example, what we just saw by the data here, if the US markets are not doing great, it is likely that international markets are at a gain.
So while instead of locking at a loss and sending you funds from a US position in your portfolio, we can sell it again with an international holdings. And again, this comes back to the correlation of each fund that we’re putting in your portfolio, rather than just looking at what is the historical rate of return.
I hope this helps. Please feel free to reach out with any questions.
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