Digital Wealth

Chapter 8 How International Investing Can Smooth Returns

“If you are diversified among different forms of wealth, nations and industries, you’ll be safe in the long-run.”

— Sir John Templeton

At 85 years old, Jack Bogle is an investing legend. He’s the founder and retired CEO of Vanguard. Over the past decades, Vanguard has been pivotal in driving the adoption of low-cost indexing via mutual funds and more recently exchange-traded funds (ETFs).

Indeed, FutureAdvisor uses Vanguard ETFs in constructing portfolios. Vanguard offers low-cost and well-constructed passive investment funds across most key global asset classes.

So it’s with concern that I read Bogle’s statement on international investing:

The U.S. accounts for about 48 percent (of global market capitalization) and other countries 52 percent. But the top three markets outside the U.S. are the U.K., Japan and France. What’s the excitement about there? Emerging markets have great potential, but have fragile sovereigns and fragile institutions.¹

A historical review shows this logic to be wrong. Imagine it’s 1914. Translating Bogle’s logic back a century, you would have argued that ignoring a little emerging market known as the United States made a lot of sense. The British empire held sway over about a fifth of the world’s population, and European countries dominated world trade. The United States appeared “fragile,” lacked international influence, maintained a small army, and ran a distant second to the European economies. ...