What should you know?
Every year there are ‘winners’ and ‘losers’ in the world of investing. This applies to individual companies, regions, industry sectors, and the stock markets of different countries.
The chart below shows 20 years of annual returns in 22 developed markets, sorted from the highest performing to the lowest:
The randomness of the scattered colours shows just how difficult it is to consistently predict which countries will outperform from one year to the next. The chart also shows that a country that excels one year is frequently a low performer in the next, and vice versa.
Why should you care?
Many factors can influence how a specific country’s stock market will perform in a given year. The geo-political landscape, central bank interest rates, inflation, FX fluctuations, the types of companies listed on the exchange, etc, all combine to create a more or less favourable outcome for each specific country’s stock market.
Investing only in a handful of countries, or chopping and changing where you invest, in search of excess returns, increases investment risks and the probability of a below par outcome.
A more reliable strategy is to “buy the world”, ideally through a low-cost passive index tracker fund, or ETF.
This will diversify your investments across a broad range of economic environments, industries, and currencies, reducing the impact of localised economic slumps or geopolitical events and delivering a more reliable long-term outcome, at a low cost.
