Recently, I heard on a podcast that if we cut off the performance comparison between international stocks and the US to before 2010, you will observe that their performance are rather identical.
I sort of think international stocks should have done well in the past to warrant certain dual momentum strategies to always compare the past 6 to 12-month momentum difference between the USA market and international market but like many, it surprised me that they are on par.
Perhaps that is what recency bias does to us.
Here is the annualized return if you invested in the S&P 500, MSCI USA and MSCI World ex USA from 1970 to Dec 2009:
|MSCI World ex USA||9.54%|
It looks really close.
Do note that MSCI World does not include emerging market stocks.
MSCI USA and S&P 500 have different ways they compose the index (which more or less tells you the index is kinda active in a way as well!)
If you observe the growth of $1 over this time, you may realize your experience may be a little different:
The first thing you would notice is that if you compound your wealth over 41 years, there is a difference between 9.87% and 9.54%.
Secondly, we could cut this off in 1995 and you would conclude that we should invest in international stocks and not USA, or have a smaller allocation to USA.
But your tune would change if you cut off in say 2002.
The reality is that if we use backtested data that goes back 3 years, 5 years, or 10 years because we think these are long enough, this will lead us to perhaps the wrong conclusions.
How would the USA and international stocks do for the next decade?
It is hard to say. Some have said that the market has changed and tech has changed things. I tend to believe that the market is always changing. Within that 1970 to 2020 timeframe, many things have changed. The US went off the gold standard, there was LTCM crash, we endured a 3-year bear from 2000 to 2002, there was a tech boom, we had 2 big tax changes in the USA, and many presidents around the world have changed.
Sometimes I wonder if people overweight the uniqueness of current changes too much.
Here is the annualized and cumulative performance of these three index by the decade with the best bolded.
|Index||MSCI USA||S&P 500||MSCI World ex USA|
|1970 to 1979||3.3%||5.9%||9.6%|
|1980 to 1989||15.6%||17.6%||20.7%|
|1990 to 1999||18.1%||18.2%||7.1%|
|2000 to 2009||-1.8%||-1.0%||1.6%|
|2010 to 2019||12.9%||13.6%||5.3%|
|2020 to Mar 2022||17.8%||18.0%||6.6%|
|Index||MSCI USA||S&P 500||MSCI World ex USA|
|1970 to 1979||39%||77%||150%|
|1980 to 1989||325%||403%||555%|
|1990 to 1999||429%||432%||98%|
|2000 to 2009||-16%||-9%||17%|
|2010 to 2019||235%||256%||68%|
|2020 to Mar 2022||45%||45%||15%|
Ten years is a long time in a human being’s life, and if you live through it, you wonder what kind of experience you would get if you lived through the 1980s versus the 1990s.
You would be telling yourself different stories.
I do have a few other data-driven Index ETF articles. These are suitable if you are interested in constructing a low-cost, well-diversified, passive portfolio.
You can check them out here:
- IWDA vs VWRA – Are Significant Performance Differences Between the Two Low-Cost ETFs?
- The Beauty of High Yield Bond Funds – What the Data Tells Us
- Searching for Higher Yield in Emerging Market Bonds
- The performance of investing in stocks that can Grow their Dividends for 7/10 years
- Should We Add MSCI World Small-Cap ETF (WSML) to Our Passive Portfolio?
- Review of the LionGlobal Infinity Global – A MSCI World Unit Trust Available for CPF OA Investment
- 222 Years of 60/40 Portfolio Shows Us Balanced Portfolio Corrections are Pretty Mild
- Actively managed funds versus Passive Peers Over the Longer Run – Data
- International Stocks vs the USA before 2010 – Data
- S&P 500 Index vs MSCI World Index Performance Differences Over One and Ten Year Periods – Data
Here are some supplements to sharpen your edge on low-cost, passive ETF investing:
Those who wish to set up their portfolio to capture better returns believe that certain factors such as value, size, quality, momentum and low volatility would do well over time and are willing to harvest these factors through ETFs and funds over time, here are some articles to get you started on factor investing passively:
- Introduction to factor investing / Smart Beta investing.
- IFSW – The iShares MSCI World Multi-factor ETF
- IWMO – The iShares MSCI World Momentum ETF
- Investing in companies with strong economic moats through MOAT and GOAT.
- Robeco’s research into 151 years of Low Volatility Factor – Market returns with lower volatility that did well in different market regimes
- JPGL vs IFSW vs Dimensional Global Core vs SWDA – 22 years of 5-year and 10-year Rolling Returns Performance Comparison
- 98 Years of Data Shows the US Small Cap Value Premium over S&P 500
- 42 Years of data shows that Europe Small Cap Value premium over MSCI Europe
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