I found a way of investing that makes a lot of sense to me.
An example will explain it best.
We show the U.S. versus non-U.S. stock performance attribution in this table.

Unfortunately, I can't get the table to copy over.

Now that we have compared historical returns, let's formulate some expected returns for U.S. and non-U.S. stocks.


First, let's assume earnings growth will be the same in the decade ahead as it was in the previous ten years. Let's also assume dividend yields will stay the same as they are now.


Finally, let's assume valuations for U.S. and non-U.S. stocks stay the same with a price-to-earnings (P/E) ratio of 22.0 for U.S. stocks and 14.9 for non-U.S. stocks.


Here are the expected returns for U.S. and non-U.S. stocks over the next decade using those assumptions. They are essentially the same with an expected return of over 8% annualized.



Let's take a look at another scenario. If we assume the P/E ratio of U.S. stocks falls to its long-term average of 17.7 and the P/E ratio of non-U.S. stocks rises to its long-term average of 18.5, then the expected return scenario is quite different from our first scenario.


In this scenario, non-U.S. stocks are now expected to outperform U.S. stocks by over 4% per year.


Perhaps a decade from now, U.S. stocks' price-to-earnings ratios stay the same, and non-U.S. stocks only get a little more expensive.


Even if that were the case, non-U.S. stocks would still outperform U.S. stocks.


These scenarios ignore the potential impact of currency fluctuations given how difficult it is to accurately predict currency movements. Just know that if the U.S. dollar weakens relative to other currencies, non-U.S. stock returns will be higher. If the dollar strengthens, then non-U.S. returns will be lower.

Decision Time


Based on this analysis, an investor might decide to invest more funds in non-U.S. stocks.


There is a reasonable base case for why non-U.S. stocks will do as well as or better than U.S. stocks.


Even if an investor decides not to invest more in non-U.S. stocks, this analysis could give them confidence not to sell their underperforming non-U.S. stock funds because the return over the next decade could be 8% or more annualized.


An understanding of historical and future returns makes for a more informed decision. That is the power of knowing what drives stock index returns.

Money for the restofus has a product they sell for 149.00 that gives you all the data you need to make these decisions. I am not recommending it, just telling you it exists.