I have gotten the following question several times this year:
If the S&P 500 Has Done So Well, Why Not Just Invest in the S&P 500 or the U.S. Stock Market?
It’s a question we hear often, and it’s understandable. People always want the winners (I.e Prior to 2014 there were no Golden State Warriors fans. Yes, I just took a shot at all you bandwagon fans).
The U.S. stock market, led by the S&P 500, has had a remarkable run over the years, making it easy to fall prey to recency bias—the tendency to believe recent performance will persist indefinitely. But here’s the reality: while the U.S. market has delivered strong long-term results, it has not consistently been the top-performing market year after year.
In fact:
-Historical data shows that market leadership rotates unpredictably.
-For example, New Zealand was the top-performing developed market in 2019, only to rank last in 2021.
-Even the U.S., despite its prominence, ranked in the lower half of developed markets eight times over the past 20 years.
This unpredictability highlights the dangers of relying solely on one market—even a seemingly dominant one like the U.S.
So, what’s the solution? Global diversification. By spreading investments across multiple markets worldwide, investors position themselves to:
1-Strong market performance can come from unexpected places, and a globally diversified portfolio ensures you don’t miss out.
2- Diversification can smooth out the bumps in performance.
3-Avoid the pitfalls of market timing and concentrated risks. Trying to predict the next winning country or market is notoriously difficult, and focusing on one market increases vulnerability to localized risks. The data does not lie here.
While the S&P 500 is a strong performer, no single market holds a monopoly on returns. I know it is boring and you will always hate something in it but a globally diversified portfolio provides a more resilient path to long-term growth, reducing reliance on speculation and geographic concentration.
Recency bias feels like we are missing out but letting dictate investment decisions can lead to horrible outcomes. Diversification across markets is not just smart—it’s essential for your peace of mind and achieving your financial goals.
#Investing #GlobalMarkets #Diversification #WealthManagement
