In this video clip from Dimensional Fund Advisors, Vice President Joel Hefner illustrates the importance of global diversification and discipline by comparing the historical performance of US and emerging markets stocks over sample periods. These periods include a 28-year period from 1988 to 2015 and “The Lost Decade,” from 2000 to 2009.
In 2015, the MSCI All-Country World Market Index returned -2.36% and the MSCI Emerging Markets Index returned -14.6%. In fact, the MSCI Emerging Markets Index has posted negative returns for 4 of the last 5 years. In contrast, the S&P 500 Index has posted positive returns every year for the past 5 years.
So why would you consider owning emerging markets? Is global diversification important?
As Hefner explains, “Staying the course through periods of negative returns can provide the potential benefits that come with diversification.”
About Christopher Jones
Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.