On today’s episode of The Financial Commute, Chris Galeski is joined by Sasan Faiz, Managing Director of Investments at Morton Wealth. They discuss the importance of investing in international companies and being aware of the home-country bias many investors may have.

The years from 2000–2010 are commonly referred to as the “lost decade” for U.S. stocks, where the S&P 500 lost over 9% for an annualized return of less than 1% per year. This era marked the aftermath of the dot-com bubble and the onset of the GFC (Great Financial Crisis). Meanwhile, this decade saw considerable growth and investments in emerging economies, especially in China. The MSCI EAFE, a measure of developed international stocks, and MSCI EM (emerging markets) were both up during this time. This highlights the importance of global diversification for an investor’s equity portfolio. 

In the aftermath of the GFC, the U.S. implemented aggressive monetary stimuli in the form of ZIRP (zero interest rate policy) and QE (quantitative easing, or bond purchases), which led to the outperformance of U.S. equities relative to international markets. Following the COVID-19 pandemic, the U.S. government also engaged in aggressive fiscal stimulus. These combined events had created very high valuations in the U.S. equity markets by the end of 2021. As inflationary pressures picked up in late 2021 and into 2022, the Federal Reserve responded aggressively by raising interest rates, which has led to a significant pullback in the prices of stocks and bonds.

Overall, there may be challenges ahead, as the U.S. and global economies face slower growth and a possible recessionary period. U.S.-based investors will normally have a home-country bias by having most of their equity portfolios invested in the U.S. Nevertheless, it is important for investors to consider having at least some exposure to international markets, as they could potentially outperform the U.S. and provide a degree of diversification.