It’s the region, stupid. James Carville once famously made the point to Bill Clinton, “It’s the economy, stupid.” The economy was such an important issue for Clinton’s future that Carville may have been bolder than usual with his boss. But that’s the kind of point I want to make.
Let’s say 10 years ago on October 1, 2000, you invested $10,000 into each of the following four Global Regions: North America, Latin America, Asia Pacific (Ex-Japan), and Europe. How did that work out?
The results, using Morgan Stanley Indexes (MSCI), would have been as follows:
The MSCI North America Index would have an ending value of $8,663 with an average annual return of negative 1.43%. The MSCI Europe Index would have an ending value of $12,138 with a return of 1.96%. The MSCI Asia Pacific (ex-Japan) Index would be valued at $25,389 with a return at 9.77%. And lastly, the MSCI Latin America Index would have an ending value of $51,328 with an astounding 17.77% return. Looking at those ending values and returns, not only for the 10-year period but for five and three-year periods, it was obvious what regions of the world were outperforming others.
My point is that picking the right region of the world is more important to your long-range plans than the selection of an individual fund within the region and makes the expense charge an incidental factor next to the huge differences in performance. Most of us tend to focus on decisions that we’re comfortable with instead of thinking about bigger issues that could make a real difference in our lives.
Who wouldn’t like to pay less to a fund manager? On one level, that makes sense, but your most important investing decision is your consideration of larger economic trends, and, particularly, what regions are demonstrating large growth. In this illustration, the U.S. has gone nowhere (and even slightly down) while Latin America and Asia have blossomed.
I can hear you thinking, “Come on, Bill –– that’s Monday-morning quarterbacking –– anybody can pick the best regions looking backward.” Actually, that’s part of a diversified portfolio. Granted, some emerging market funds were hurt in the 2008 down market, yet they had spectacular returns in 2009.
The question today is: where is the next opportunity for growth?
Performance Disclosure: The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate thus an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than return data quoted herein. For information current to the most recent month-end, please visit https://advisor.morningstar.com/familyinfo.asp.
Bill Sheehy is owner of Sheehy Associates Inc. which specializes in Retirement Planning for individuals and corporate 401(k) plans. He is a Certified Financial Planner, a Certified Employee Benefits Specialist, a Certified Fund Specialist and a Chartered Retirement Plan Specialist. He can be reached at bill.sheehy@lpl.com or by calling 609-586-9100.
Sheehy Associates. 3812-B Quakerbridge Road, Suite 208, Hamilton. 609-586-9100. bill.sheehy@lpl.com
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