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My benchmark is how I do with a 100% buy-and-die S&P 500 portfolio allocation, vs. any conceivable alternative... bonds, small-cap, international equities, Persian rugs, Greek banks, gold, pork-bellies or pet rocks (just to give a brief sample).
Every investment-scheme extols some form of diversification. Yes, many of the companies in the S&P 500 have international exposure, be it lots of sales that happen beyond American shores, or foreign suppliers, foreign real-estate holdings or whatever else. But these companies are by definition part of a benchmark American stock index. Most paeans to portfolio diversification say that we ought to hold some representation of companies that are listed on the London, Frankfurt, Tokyo and whatever other stock-exchanges.
Last year's story of a muscularly ascendant stock-market was really the story of three marquee indices: Dow, S&P 500 and NASDAQ. Those three are featured on the newscast-ticker in every airport or hotel-lobby in America. This year's story about a January run-up followed by correction/malaise, is also really the story of the three marquee indices. And for most investors, the Dow and NASDAQ are sideshows, since it is the S&P 500 that's the darling of index-funds, and not the other two.
So, who cares? Well, the basic idea, is that diversification beyond the S&P 500 benefits us in at least two ways: less volatility, and higher cumulative gains. There's all sorts of wisdom on the "right" mix of other kinds of equities, and obviously, there's no agreement about the right mix (if there were, the financial services industry would obviate itself out of existence). But there is something approaching agreement, that in general, we should NOT just be 100% in the S&P 500.
Well, my observation is that recent decades' experience does appear to favor a 100% S&P 500 portfolio. Is this a fluke?
Most people on this forum are Americans, based in America, investing American dollars. Fine. But this skews our perspective. If we were British, based in Britain, investing in British Pounds, presumably we'd be investing mostly our home-index, the FTSE. And instead of celebrating a pretty substantial gain since 2009, we would instead be lamenting how our marquee equity-index has gone nowhere for 20 years.
This is why I keep getting so frustrated! First, there's a big world out there, outside of America. Yes? Second, for Americans, it seems like willfully being oblivious, and ignoring that world, is actually a good investment strategy. It's not dumb, it's not benighted... it's actually quite profitable. It shouldn't be that way, should it? But it is. This is why I'm so frustrated.
diversification only benefits most of the time , return wise , not mentally , when the assets diversified in to have the same gain potential.
unless you are a good market timer odds are bonds will not equal returns on stocks over time so just holding bonds worsens returns most of the time .
harry brown found that once we go beyond the basic four as he called it there is little extra added by diversifying farther .
the s&p 500-long term treasuries -gold-cash
he never felt adding foreign stocks or bonds , commodities ,reits , etc added much to the basic 4 and only confused things as they reacted to the business cycle in an unpredictable manner .
once you add foreign you have so much more to worry about and there was nothing a weak dollar did for foreign stocks that gold seemed to not do .
so he believed in keeping things very simple and not add other layers of risk like currency exchange rates to the mix
Last edited by mathjak107; 05-08-2018 at 03:01 AM..
...cause he most likely doesn't exist? yeah, that's it.
Strange. I must be a figment of your imagination...
Or a little too old for you to know what I'm talking about.
But I digress.
I've had better luck since finding a few MLPs.
But that aside, I'm going to stick with business.
Thank you for your words of encouragement everyone.
Last edited by KurtGibson; 05-17-2018 at 12:35 PM..
Reason: To say thank you
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