Summary of "Is It Time To Dump International Stocks? (SB1647)"
Podcast: The Stacking Benjamins Show
Host: Joe Saul-Sehy
Guests: OG, Paula Pant (Afford Anything), Jesse Kramer (Personal Finance for Long Term Investors)
Release Date: February 21, 2025
Introduction to the Discussion
In episode SB1647 titled "Is It Time To Dump International Stocks?", hosts Joe Saul-Sehy and OG engage with financial experts Paula Pant and Jesse Kramer to dissect the recent underperformance of international stocks compared to U.S. markets. The conversation delves into the merits and drawbacks of maintaining international exposure in investment portfolios amidst evolving economic landscapes.
Performance of International Stocks
Joe Saul-Sehy kicks off the discussion by referencing a blog post by Nick Magiulli, which questions the viability of international funds given their trailing performance over the past decade. The central debate revolves around whether investors should continue holding international stocks or reallocate their investments.
Joe Saul-Sehy [12:51]: "We can't predict when the tides will turn, so why arbitrarily exclude a significant portion of the global economy?"
Paula Pant counters by emphasizing the importance of diversification, noting that international exposure historically mitigates portfolio volatility by balancing U.S.-centric market risks.
Paula Pant [09:19]: "Diversification and having a mix of assets that have low correlation with one another—there's some meat to that."
Diversification vs. Performance
OG argues that excluding international stocks is akin to ignoring other asset classes, such as small-cap stocks or commodities, that also exhibit periods of underperformance. He underscores the unpredictable nature of market cycles and the intrinsic value of a diversified portfolio.
OG [10:28]: "The benefit of diversification is you get all of the return of all of the stocks without having to guess what's going to do well."
Jesse Kramer adds that asset allocation should align with individual financial goals and risk tolerance, advocating for maintaining a balanced approach rather than reacting to short-term performance metrics.
Jesse Kramer [25:11]: "The only logical solution is to always be invested the same way all the time. Then, over your lifetime, you'll work out to have a good outcome."
Evaluating Asset Classes
The panel expands the discussion to other asset classes beyond international equities. Jesse Kramer highlights his avoidance of collectibles and private equity due to their lack of intrinsic cash flow and liquidity constraints.
Jesse Kramer [37:19]: "I don't own baseball cards in my portfolio because I don't understand the intrinsic cash flowing value that comes from owning a baseball card."
Paula Pant shares her investment strategy, which includes a barbell allocation that avoids intermediate-risk assets like bonds, focusing instead on either highly risky or entirely safe investments.
Paula Pant [50:24]: "I have a barbell allocation. I don't hold bonds. I want my money to either be highly risky or totally safe."
OG reinforces the importance of aligning investment choices with long-term financial plans, dismissing trends that suggest shifting away from diversified portfolios without substantial reasoning.
OG [46:10]: "What's the purpose of this investment in my overall portfolio?"
Key Takeaways
- Diversification Remains Crucial: Despite recent underperformance, international stocks play a vital role in mitigating risk through diversification.
- Asset Allocation Should Align with Goals: Investors should prioritize their financial goals and risk tolerance over short-term market fluctuations when deciding on asset classes.
- Avoid Market Timing: Attempting to time the market by excluding entire asset classes based on recent performance can lead to missed opportunities and increased portfolio volatility.
- Evaluate Investment Based on Intrinsic Value: Investments should be chosen based on their alignment with long-term goals and intrinsic value rather than speculative trends.
Notable Quotes
- Joe Saul-Sehy [12:51]: "Why arbitrarily exclude a third of the economy or 40% of the world economy and say I don't want to invest in that anymore."
- OG [10:28]: "You get all of the return of all of the stocks without having to guess what's going to do well."
- Jesse Kramer [25:11]: "The only logical solution is to always be invested the same way all the time."
- Paula Pant [50:24]: "I have a barbell allocation. I don't hold bonds."
Conclusion
The episode concludes with the consensus that maintaining a diversified portfolio, including international equities, is essential for long-term financial health. The panelists advocate for steadfast investment strategies aligned with personal goals rather than reactive measures to market performance. Listeners are encouraged to evaluate their asset allocations thoughtfully, ensuring that each investment serves a clear purpose in their overall financial plan.
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