The latest thinking from Greenspring Advisors.

Do Foreign Stocks Add Value In A Portfolio?

J. Patrick Collins Jr., CFP®, EA

With the US stock market generating substantial gains over the past several years, many investors are questioning why they should have exposure to foreign stocks in their portfolio.  Over the past 3 years (ending 4/30/14), the MSCI World Index (ex-US) has averaged 5.0% per year while the S&P 500 has gained 13.8% per year, so you can see why investors may be questioning a strategy of diversification.  We must go back longer (over multiple periods) to really see why diversification can add value:

                                                   S&P 500         MSCI World (ex-US)

  • 1970-1980                   5.9%                     9.6%
  • 1980-1990                   17.6%                  20.7%
  • 1990-2000                  18.2%                   7.1%
  • 2000-2010                  -1.0%                   1.6%
  • 2010-4/2014              15.3%                   7.7%

In addition, since 1970 foreign stocks have outperformed US stocks in 54% of all rolling 10 year periods.  Abandoning an asset class just because it has not performed well recently is a bad strategy, especially when you look a the historical data showing the value this asset class can add to a portfolio.  

If you believe that foreign stocks should remain a fixture in a portfolio, the next question logically is how much?  We’ll dive into that question in a future blog post.