The U.S. stock market has been on a tear for nearly five years. It’s sometimes hard to keep that in mind when we have a terrifying dip like we did last week. But over this five year period the U.S. stock market has nearly tripled.
Most foreign stock markets haven’t fared nearly as well. A month ago, the U.S. stock market represented 52 percent of the value of all global stock markets, according to Dimensional Fund Advisors. At year end 2007, the U.S. represented 41 percent of the world stock market value. That may not sound like a big deal but it amounts to $4.7 trillion.
In practical terms, many investors are getting discouraged about international investing when the U.S. is doing so well. But over the long term, international markets have outperformed the U.S.
With only five percent of world population and 25 percent of world Gross Domestic Product, it seems unlikely that in coming decades the U.S. will dominate global stock markets to this extent.
Prudent investors should look beyond the recent past and try to envision the world economy over the long term. If they do, they’ll realize that international stocks should be part of most well diversified portfolios.