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The iShares S&P 500 ETF has returned about 11.6% annualized over the past ten years. Their Ex-US ETF: 2.8%. Point being: the third variable no one ever takes i

by 015a 4y ago

The iShares S&P 500 ETF has returned about 11.6% annualized over the past ten years. Their Ex-US ETF: 2.8%. Point being: the third variable no one ever takes into account when considering Buffett's advice: "just invest in broad market indexes" literally only works in the US, and only has worked historically. It's not a coincidence that the US is the youngest developed economy on the planet. In other words: How high would US stock returns have been if interest rates were near-0% throughout the 1900s? Have interest rate adjusted returns actually decayed in the past ten years? How long before the US stock markets stop behaving "historically" and start behaving "globally"? I'm not asserting entire bearishness on the us economy. The US is still the nerve center of global finance, software technology, education, retail spending, every economic metric you look at the US leads in. That doesn't disappear. Just that: the story of the next twenty years may be the US financial indicators trending more toward historical global norms.

zamfi 4y ago
Maybe it only works in the US equity markets, but that's not "only works in the US" -- the S&P 500's companies are: not all based in the US, and in total derive only 75% of their revenues from outside the US. For reference, the US share of world GDP is about 25%. It would not surprise me at all if the most scalable, profitable, and growth-oriented companies ended up on the S&P 500 regardless of where in the world they started or where their revenues originate. I'm not saying anything about interest rates -- your point there might be spot on -- but US stock markets have huge global exposure, and your implied assertion that there's some kind of "global" benchmark equity growth rate doesn't seem that sound.
- BeetleB 4y ago
  The point he's making, which is well known, is that while in the US stocks and index funds derived from them dominated all other forms (bonds, real estate, etc), it's almost never the case in any other developed country. For most of the recent past (recent meaning the last century), putting money in index funds would have been suboptimal in almost every country out there. The fact that the companies get a lot of their revenue from other countries is moot. In those countries, investing in index funds is not the highest performing long term investment.
  - executesorder66 4y ago
    What is typically the highest performing long term investment outside the US?
    - zamfi 4y ago
      Rents. /s (maybe?)
  - zamfi 4y ago
    Yes I didn't make any claims about this fact. My post was in response to the prior poster's claim that US exceptionalism here doesn't have a clear rationale, and that one might expect some sort of "reversion to the mean" where "mean" there is the performance of broad equity markets in other countries. In my post, I'm saying that one shouldn't expect that broad markets indices to grow comparably in other countries, and the fact that they don't says little about how well they do/should/will perform in the US.
ericpauley 4y ago
The US is at least as old as the concept of a contemporary “developed economy”, so it doesn’t seem like this part of the argument holds.
- ChuckNorris89 4y ago
  Sure, but if you compare to EU companies, their stock growth had been pitifull in comparison. Everyone invests in US stocks/ETFs/companies if they want to see good returns.
  - howinteresting 4y ago
    Isn't the EU lagging due to post-GFC austerity?
    - marvin 4y ago
      It’s much more than that. EU policies stunt growth on a structural level. The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes.
      - hef19898 4y ago
        Growth =/= increasing share prices (or company valuations)
      - mclightning 4y ago
        >> The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes I used to be a believer in this. But I recently moved from Sweden to UK, from a very socialist country to a very capitalist one. In capitalist societies people live in survival mode. This doesn't work well in every profession, especially managerial roles become very predatory. It does work well in tech/individual contributor roles though. Some mundane tasks that are needed for tech development to go smoothly over long periods of time, is easier to manage in socialist Sweden. Whereas in UK, I suspect in US too, people tend to gloss over mundane managerial processes/goals like scrum, roadmap planning, business goals etc.

by 015a 4y ago

zamfi 4y ago

Maybe it only works in the US equity markets, but that's not "only works in the US" -- the S&P 500's companies are: not all based in the US, and in total derive only 75% of their revenues from outside the US. For reference, the US share of world GDP is about 25%. It would not surprise me at all if the most scalable, profitable, and growth-oriented companies ended up on the S&P 500 regardless of where in the world they started or where their revenues originate. I'm not saying anything about interest rates -- your point there might be spot on -- but US stock markets have huge global exposure, and your implied assertion that there's some kind of "global" benchmark equity growth rate doesn't seem that sound.

BeetleB 4y ago
The point he's making, which is well known, is that while in the US stocks and index funds derived from them dominated all other forms (bonds, real estate, etc), it's almost never the case in any other developed country. For most of the recent past (recent meaning the last century), putting money in index funds would have been suboptimal in almost every country out there. The fact that the companies get a lot of their revenue from other countries is moot. In those countries, investing in index funds is not the highest performing long term investment.
- executesorder66 4y ago
  What is typically the highest performing long term investment outside the US?
  - zamfi 4y ago
    Rents. /s (maybe?)
- zamfi 4y ago
  Yes I didn't make any claims about this fact. My post was in response to the prior poster's claim that US exceptionalism here doesn't have a clear rationale, and that one might expect some sort of "reversion to the mean" where "mean" there is the performance of broad equity markets in other countries. In my post, I'm saying that one shouldn't expect that broad markets indices to grow comparably in other countries, and the fact that they don't says little about how well they do/should/will perform in the US.

ericpauley 4y ago

The US is at least as old as the concept of a contemporary “developed economy”, so it doesn’t seem like this part of the argument holds.

ChuckNorris89 4y ago
Sure, but if you compare to EU companies, their stock growth had been pitifull in comparison. Everyone invests in US stocks/ETFs/companies if they want to see good returns.
- howinteresting 4y ago
  Isn't the EU lagging due to post-GFC austerity?
  - marvin 4y ago
    It’s much more than that. EU policies stunt growth on a structural level. The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes.
    - hef19898 4y ago
      Growth =/= increasing share prices (or company valuations)
    - mclightning 4y ago
      >> The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes I used to be a believer in this. But I recently moved from Sweden to UK, from a very socialist country to a very capitalist one. In capitalist societies people live in survival mode. This doesn't work well in every profession, especially managerial roles become very predatory. It does work well in tech/individual contributor roles though. Some mundane tasks that are needed for tech development to go smoothly over long periods of time, is easier to manage in socialist Sweden. Whereas in UK, I suspect in US too, people tend to gloss over mundane managerial processes/goals like scrum, roadmap planning, business goals etc.