A Wealth of Common Sense: Does Long-Term Investing Work Outside of the United States?
While investing with the long term in mind can be volatile, it does offer substantial benefits for investors who follow through and stick with it. However, that performance is generally viewed through the lens of investors based in the United States.
That’s because the U.S. has built up its capital markets substantially. That’s made it possible to inexpensively invest in a market index. That allows investors to earn the return of the overall stock market over time.
However, this may suffer from a survivorship bias. As some companies decline or even go bankrupt, they’re replaced from the index with younger, faster-growing ones.
Investors in individual stocks may suffer – or benefit – from owning the biggest losers or winners. But index investors continue to earn a fairly consistent return over time.
Does this trend play out internationally? The latest data shows that, generally, long-term investing in foreign markets can lead to good returns. Overall, those returns are a bit lower, and some countries have had some big wipeouts along the way.
However, it’s clear that investors who look for bargains in the global market outside the U.S. should fare well if they stick with a long-term strategy. Given that many international markets have lower valuations on average, there could even be a relative outperformance in the next few years.
