Once again, my friends, diversify
For most investors, the goal is not to maximize returns but to maximize risk-adjusted returns. Putting all of your assets into U.S. markets, at a historically high price level, is assuming a substantial amount of risk. Buying into foreign markets, at better valuations, can help diversify that risk—and, on a year-to-year basis, provide exposure to better returns.
The argument to stay in the U.S. usually gets most attractive when the U.S. has been outperforming, like right now, but this is also the time it is most dangerous. As with any other investment, when everyone wants to get in is usually not the best time to do so. My advice? Keep your eye on your goals, and keep your investments diversified.
The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The S&P MidCap 400® Index measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The S&P GSCI® Index measures general price movements and inflation in the world economy. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.