Fisher Investments Reviews Why Investors Should Invest Globally

Transcript

Ken Fisher:

So in the last couple of years —and in 2024 included— US stocks, as represented by indexes like the S&P 500, have outperformed non-US stocks. And so a logical question is: "Gee, does it still make sense to think globally, or, instead, is it just better to concentrate on the US only?"

Now, let me say that differently. Whenever any category does better for a long time, there's a part of the world that just wants to focus on that one category. And that, of course, is resultant from the legendary "FOMO": fear of missing out. But the fact of the matter is, and people don't do this, but it's simple enough and it's true enough. The US market—not solely represented by the S&P 500 but best represented by the S&P 500—is hugely, compared to the rest of the world, overweight in big Tech. Tech is concentrated in the land of the free and the home of the brave. And Tech has outperformed non-Tech hugely over the same period.

If you take Tech out and look at the S&P aside from Tech, actually the stocks in other categories have done about the same inside America as outside America. There is not a big performance spread there. That's why global investing makes sense. Because if—and I'm not saying it will happen, I'm not making a prediction here— I'm saying, if you run into a period where Tech lags for a long time, which at some moment in time, and I don't know when exactly, will happen, when that happens, the S&P 500 will lag the non-US world. That's exactly the basic concept behind diversification. The whole concept behind diversification is not to get yourself overweighted into categories that do badly in the future.

So yes, it does make sense now, still to think— and even maybe more so after years of Tech and big Tech in particular dominating the S&P 500, but actually also unlike decades ago now overweight and things like the Dow Jones Industrials— it does make sense to think globally. Because that effectively diversifies you against the risk that for a period ahead Tech doesn't lead. It is ironically interesting that at this moment in time—when so many people will tell you that these tech stocks are overhyped and what have you. And I don't want to get into whether that's true or not, that's a whole different topic. But that they'll say that and at the same time they'll say they should focus— you should focus—on US only. But when you're focusing on US only, you're focusing on that part.

Global diversification gives you equity returns over the long term. That spreads you out more proportionately to the way the whole world's sectoral makeup is made up. And therefore, if Tech leads, you still do pretty well. If Tech lags, you still do pretty well. If you're in US only and Tech lags, you're hurting because it's well over a quarter of the index.

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