Recent Market Lessons on Crypto, FAANG Stocks, and International Stocks

Well, good morning everybody, and thank you for joining us here today. I'm Mark Gochnour, head of global client services, joined in the studio by Jake DeKinder, head of client communications, and this webcast, Jake, we love this series here. We call it the Investor Experience Webcast. And we try to do a couple things with this webcast. One is, let's take a look at the high, the major headlines that are out there. We're hearing about constantly from an investment perspective, talk about that, but then connect it to our investment portfolio, the impact on our portfolio, not today, but how should we be thinking about these things into the future as well? Well you're right. We do try to hit on topical stuff, but one of the words that I loved you used there was future, right? Well we wanna look to historical data, we wanna understand that. But what matters for us as investors is we're standing here today and so how do we think about expectations moving forward for different types of investments, different parts of the market that we'll touch on today. So I love the fact you talked about forward looking future. Yep. And then if we go back, we did a webcast a little over a month ago. We looked at the first half of the year, but some of the themes we dove into there, inflation, interest rates, recession. So for all of you out there, you know, take a look at that one. It's on Dimensional Insights, dimensionalinsights.com. You can go look at that and see those particular themes. But today we're gonna get into three different themes. Today we're gonna touch on cryptocurrencies. We are going to look at FAANG stocks, and then we're going to talk about investing outside the US. Compare and contrast some of the returns we've seen here in the US versus some of the countries outside the US. Now the slides we'll be using today, they're not available today for download, but we are working on that. So for those of you that are investment professionals out there, we will be working to get those to you. Be sure to contact your Dimensional representative and then if you are an end investor, a client of an advisor, touch base with your advisor. Hopefully we'll get those slides available here very soon. And of course, this webcast we're doing today, we'll be looking to make it available here in a couple days. Again on Dimensional Insights. Okay, I do have some questions submitted already in advance. Thank you for that. I'll be looking at these if we go through here, if you do have some questions as we go through the content here today. So Jake, with that, let's dive into it here. Now I wanna start out with a question that was submitted in advance, the webcast and it opens up nicely into the concept of cryptocurrencies. And so it turns out there was more than one. Not surprising. Let me read some of these questions. It's a topic that's hot right now. It's a hot topic. And you know, again, we see about this, you know, every day multiple articles today around cryptocurrency. So let me just read you, I'm gonna read you four that came in advance of this webcast. So the first one is crypto backed by full faith and credit of an entity. How far along is the SEC in regulating cryptocurrency? Is stability of cryptocurrency changing? And then the last one, which I really appreciate this one, should we be investing in crypto in our 401K plan? I mean all very good questions and relevant questions. You know, you take the the backing of full faith and credit and we know it's not a currency that's necessarily backed by a government similar to something like the US dollar, Australian dollar, whatever that may be. You know, the other thing that I think has surprised people over time is, you know, you think about bank accounts and there's a little bit of protection there when you put your money, put your savings inside of a bank account, FDIC insured. And more recently, as we've seen some things pop up within the crypto market, people have been surprised that it isn't necessarily as protected as cash inside of a savings account inside of a bank may be. And you're right on the regulation front as well. You know, those regulations are changing. This is a topic that governments are looking at, different type of regulators are looking at and more and more is coming out about and people want to understand it because there is a lot of money that's going towards it. Yeah, and we'll dive into some of that in a moment. Some of these things out there as we think about crypto from a risk perspective. But let's go back and look at the performance in this case, let's use Bitcoin. Is is a cryptocurrency. And oftentimes as investors we have a natural tendency to say, hey, let's get back at what returns were historically. And particularly when you look at a chart like this, you see that huge spike about a year and a half ago there in early 2021 with Bitcoin. That brought a lot of attention there, should I be having Bitcoin in my portfolio when we see these big increases in price. Through the years, what we've seen is when there's big increases and as this chart shows big decreases as well, questions tend to pop up. This is not surprising. It just happens to be what people are focused on today. And as we said, there's a lot of interest, there's a lot of excitement around it. So we want to kind of unpack how should I think about that as an investment? And there's a wonderful framework to think about. I'll say crypto as an investment. But really for any investment there's four things we want to think through to say, Hey, does it have a place in my portfolio? You said for any investment, and I think that is important, you want to ask logical questions before you start to put money to work. And we've covered this framework, but it is an evergreen framework. And the first thing we want to ask, Mark, is what's the goal, right? Why am I owning any type of investment? And certainly we can think about different objectives, different goals for putting something inside of your portfolio. One may be growth, you know, you say, hey, I need long-term growth inside of the portfolio for a portion of my assets. But certainly there's other goals as well. It could be stability, I want some safety. It could be currency. We're talking about that, fiat currency for spending needs. Yeah, I mean cash is definitely gonna be that, right? It's okay, do I have it in there for long-term growth? Do I have it for more stability? Is it a part of a total return approach? Do I have it for short-term spending needs? You want define why I'm holding it. Second thing you want to ask all the time is what is the expected return? And I'm just gonna write er here for expected return. And that's important 'cause listen, from a planning standpoint you say okay, we're thinking out into the future, I have financial objectives, I'm working closely with my financial advisor to put together a plan to move towards those. I have to form some type of expected return around that investment. That's a challenging thing to do with cryptocurrencies as we've talked about before. It is you, you think about the role of a dollar, a US dollar. Okay, I have a dollar in my pocket, what's it worth six months from now? It's a dollar. What it can buy is a different story. What it is, it is a dollar, one Bitcoin six months from now is worth one Bitcoin. It doesn't produce anything. It is not like a company that takes money and natural resources and hard work and good ideas and turns money into more money. And so from an expected return standpoint you'd probably say, I don't know, it's probably like another currency maybe roughly close to zero. Yeah, you hope the price changes and goes up. That's right. You're buying, but it's hard to say, hey, exactly. Here's how I think about it from an expected return standpoint. And then connected with that. With any investment obviously you want to ask, Mark, what's the risk for that investment? And we'll come back to some of those risks there. But again, you want to understand what are the associated risks and the risks a lot of times are broader than what people may think about on the surface. And then the fourth thing we wanna talk about obviously is you gotta be conscious of what's the cost? What's the cost to get things into my portfolio, what's the cost to get things outta my portfolio, transaction costs in general. And then one of the ones we talk about all the time is what's the opportunity cost? You only have so much money to invest. So if you are going to pull money from one portion of your portfolio, right? It's gotta come from something if you want to put it in something else. Yeah, you have to be very clear about that. And then another one we like to highlight too is a tax cost because you say, well I can go buy things with a cryptocurrency. Well when you do that you have to pay taxes on that appreciation of that particular coin. And we're gonna show some volatility here, but with a volatile asset class, right? You know that there's a lot of people that are doing more short term trading around that and that's right now I'm incurring short term gains and that can be a big tax drag on your return. So let's dive into the one there around the risk, that particular component there, because I think it addresses nicely some of the questions that came in here. So we've highlighted a few of them and somebody did mention that with our question too. You think about regulation certainly is one. What's the government gonna do in terms of regulating cryptocurrency? What's their role in establishing their own digital currency perhaps, which leads into a little bit around competition, right? The government can be competition. We've talked about hey there's 6,000 cryptocurrencies out there globally. Which one's gonna make it? Which ones aren't, everyone shooting at new technologies around there. So competition plays a big role in currencies as well. It plays a big role, right? I mean you think about that risk around, we talked a lot of times that it's broader than what people may think. You've got regulation piece of it. People are trying to understand this marketplace. You've got the competition, central banks are starting to look at this. You've got a major security concern as well. You know, you look through June of this year and you had about two billion that have been hacked from different crypto platforms and we've known that security can be a risk. You know, historically people said oh you're gonna lose your password and do all that. And there were the stories around that. But now as you have these different platforms for executing transactions for the bridges going between different types of cryptocurrency platforms, some of those can be exposed to security flaws. And I'm sure our viewers have read a lot of articles about that hacking that has taken place. You know, you start to look too at just the risk associated with these different type of entities that are out there. We look at the lending market, right? And I think in the last couple of months people have been surprised that oh some of these 15 20% that I was getting on crypto deposits didn't necessarily hold up and you started to pull the string on that and we saw a little bit of unraveling and now people's money is tied up in the courts in bankruptcy proceedings. Yeah, the last six to 12 months has been a really good example there of some of these inherent risks in there. And I think it raises a question too. You look at the price volatility and what does that look like in terms of, we see there particularly in the last 18 months there, how much that price has gone up and down. But is it really unique to the last two years? Because for any investment you gotta understand those price swings. And let's just take a look historically what we've observed with bitcoin over time. Yeah this is going back here, you know we showed this chart earlier, but you can look more recently we see this decent drop here of over 70% from peak to trough. So big draw down there, you know, you go back a little bit further and we see another one over 50%. I can go back into sort of that '17, '.18 time period. I'm down over 80% from peak to trough there and then I go back and I've got a little bit of a 30% drop here. And so you look over all of these and they've been decent volatility, decent drops, we'll come back to this but from a planning standpoint that becomes tough. The other interesting thing about this chart, Mark, is that you know, you look and say oh on the right hand side I see a lot of volatility, it's been volatile. See this little blip right back here, this 2013, let's actually zoom in on 2013 and what have we seen back then? This is now looking at 2011 through the end of 2013 and what do you see? Pretty high volatility as well. In fact the scale on the left hand side has changed. But look at this, I was trading over a thousand bucks here around 1100 and I'm down around 500. I go back to April of 2013, I'm trading over 200 and then I'm down over or down below a hundred bucks there. So this idea that volatility with this investment is somehow a new thing. It's not, it's been there. And again I just come back to, I'm trying to put together a plan for the future. It becomes very challenging to do that. And in fact we've got some interesting numbers here in terms of how often we've seen these drops. So we'll go back and we'll look at the entire time period we can here, this is '10 through 2022. And you take a look at the frequency of declines for Bitcoin down 10% 23 times, 20%, 17, 30%, 50%, 70%, you look at 70%, five drops of 70% over this decade or so. And you compare that to something like a broad stock index, this is the Russell 3000, just you know, all the stocks in the US I think our viewers are probably familiar with that. And look, you've had some declines over the last decade. We're all very familiar with the last couple of years, but I don't see too much stuff below that, 30, 50, 70%. So a different experience. And again from a planning standpoint that volatility is tough 'cause if you say I've got spending needs out in the future or I'm trying to put together a long-term plan, what's the best option for long-term growth? That's tough to deal with. Yeah it is. I like how you have that context there too of what the market does relative to what Bitcoin has being in terms of those big drops there. And I think that point about the financial planning aspect of is incredibly important and we've gotten questions from professionals over time to around, as I put in my modeling, thinking about, you know what I'm gonna do for planning for clients over 10, 20, 30 years, what do I put in for expected returns? What do I put in for volatility for some of these various cryptocurrencies? And just lastly you made this point, but I wanna emphasize it is what do I pull from, so I have to pull from something. So if I'm pulling from, let's say stocks for example, let's say I wanna put 10% into cryptocurrency, it's gotta come from say stocks. Well I'm giving up whatever that expected return is, let's call it around 10% or if it's from bonds. So it's just a hard one to match up there. Now I wanna be very clear too, we're not saying you shouldn't go own a cryptocurrency. We're not saying you should go own it, yes or no. It's just saying be very, very clear about those four components of what's the goal of the expected returns. Make sure you have a proper understanding of what this thing may or may not be doing. I love what you said there. It is not our job to say invest in this or don't invest in this it. What we're trying to do is to say, hey listen, here's a logical framework, logical questions you should ask before you start to put money to work. That can be applied to any type of investment that's gonna be in your portfolio. Yep. And if somebody wants to grab some fun and say Hey I just want to completely speculate, yo, get with your advisor, make sure you got enough money. Again, being clear this, sometimes these things may work, sometimes they may not. But have a little fun, never hurts either if you're an appropriate place to be doing that. That's right. Okay, so couple questions there We addressed there on cryptocurrency. Now the theme though ties into our next topic, which is FAANG, when you think about something that's done well recently, you get a lot of questions around it. Now I want to read a question here that came in on FAANG and I love this question, as we've move into FAANG, It says, do you believe the acronym FAANG will be a thing in 10 years? I love that for two reasons. One is it kind of brings up that we love acronyms in the investment world. So we'll talk about that. And then two, this idea of hey, in the next 10 years, how should I be thinking about these FAANG stocks? What are they gonna look like 10 years from now? It ties to, we talked about as an investor, we want to think about expectations into the future. And man, you were right about the acronyms. I mean this industry absolutely loves, by the way, FAANG then became FANMAG. I'm pretty sure it's something else now, you go back to the two thousands, we had BRIC, remember that, I had to own Brazil, Russia, India and China. You fast forward a couple of years, they had the pigs, which was what you didn't want to own. I heard a good one recently which is there's a new one which is WATCH. And WATCH stands for Walmart, Amazon, Target, Costco and Home Depot. And so I guess we're now shifting into the retail side of it, but hey there's always a good acronym in this industry. There's gotta be one. And of course I think WATCH rhymes with scotch, which you and I enjoy, so. I would invest in that. I would invest that. We'll come up with some more acronyms When we have a little scotch there around that. But let's go ahead and take a look at then this FAANG because in this context we aren't gonna use the word FAANG. So Facebook, Amazon, Apple, Netflix, Google, that was kind of the original ones Let's just roll with that one. Yeah, we'll roll with that one. And what are we looking at here? Because you know, anytime that we sort of get these questions, it's a comparison of oh I could have invested in X but Y did better. Why didn't I own more of that? And so what you're looking at in this chart right here is this is actually the return of FAANG in excess of the Russell 3000 and you can see the time period here. So we're looking from '10 through '20 and you see this annualized return pretty strong in excess of the Russell 3000 by the way, Russell 3000 and and for our viewers we should say that's just a broad US stock market index we're using for comparison. But these FAANG stocks did incredibly well over that time period. So it's not surprising that we start to get questions about it when things do well. I mean Mark, you've seen this for decades now. You've been in this industry a long time. There's always something that does well and then the questions start to roll in and it's, why didn't I own more of that? But again, what we want to think about are expectations going forward. Yeah, absolutely. And I just wanna highlight this chart again. This is in excess of the market. So let's just say the Russell 3000 was up 10%, this group would've been up 23.6%. So huge out performance. Annualized, strong, very strong. Yep, annualized over that time period. Now we talked about the fundamental framework for evaluating any investment with crypto, those four things. And I think it's appropriate to use those four things for FAANG stocks as well. So I'm gonna give you my views on those and then you add to them or perhaps however you think about those. So let me go through the four. Now we talked about what's objective. Now if I'm thinking about stocks in general, I'm gonna probably say it's long term growth. So what's the expected return, which is our second point. Well I always default to kind of the long run average of stocks over time, around 10%. So maybe it's nine, 10, 11% depending on your group of stocks you're looking at there. So long term growth expected return, 9, 10%. Now what are the risks? Yeah, well there's always competition, always. I mean markets are always going after somebody there where there's opportunities. You're seeing some regulation coming into play with the FAANGs as well, particularly in some of the EU and different regions there. So that's there. And then you think about the costs. Now the cost of transacting in stocks nowadays they're pretty minimal. You got a commission, you got a bit aspirated, you gotta manage that a little bit around there. But pretty minimal costs go out there and buy publicly traded securities. Yeah, spot on with that. You're right about the cost piece of it. You're right about the growth piece of it. As we think about the goal, you know if we focus on those middle two buckets there and let's do think about the expected return. 'Cause again, if you said, hey, what's the expect return for stocks? You know, you quote it nine, 10, 11%, whatever you want to come up with, look at the historical average, come up with a number somewhere around there. But there's an expected component and there's an unexpected component. And when you start talking about individual stocks or a very small number of stocks, just by definition you have lower diversification. And so the outcomes may have the potential over different periods of time to vary greatly what you're showing right here. That was kind of the unexpected on the upside. But anytime you're investing in individual stocks or a small number, you can have unexpected on the upside or you can have unexpected on the downside. And if we come back to that point there, Mark, about expectations going forward, the future, how should we think about that? Let's show our viewers some numbers 'cause I think that this is helpful in the context of FAANG. So what you're looking at on this slide right here, this is to say, hey listen, there's always gonna be top performers in the market. There's always gonna be kind of a handful of stocks that may do better than other stocks. Now when stocks do well, what happens? Their price goes up. When their price goes up, they become a larger part of the market, they become those big stocks that are out there. And what this chart is showing is saying prior to them becoming the big stocks, what types of returns do they have? And almost by definition you would have to have good returns. That's how you become the big stocks that are out there. Your price goes up and relative to the rest of the market you do well. That's not the question for investors. What matters is what does it look like going forward? And so on the left or on the right hand side of the chart, what we're gonna show here is after they become the top 10 stocks, how does the performance compare to the market? Now remember this is in excess of the market just like we showed before. So left-hand side obviously it's gonna be higher. That's how you become a big stock, looking forward they tend to have returns over three, five years in line with the market. And that's important for us again because as we think about as investors, what we want to think about is our expected return going forward from today. If you go back Mark, and you look, you know we showed this in excess of the market here for the FAANG stocks, this was up through 2020. If you look at 2021, what happened? Well you started to have returns come a little bit more back in line with the market, kind of what we've seen historically through time with these big stocks. And then you look at year to date, and we know a lot of these names have been down pretty substantial year to date. This is looking at 2022 through June. And so Mark, again, you get to that expected versus unexpected component. We form the expectations, but I can have expectations on the upside, but I also can have expectations on or unexpected on the downside. And anytime you're investing in individual stocks or a small number of stocks, an outcome like this is a potential. Yeah, I know what always think about is, is there anything unique to the FAANG stocks that we haven't seen before in our investment experience? And to me there really there isn't based on what you just drew there that hey, you're always gonna have a groups of set of stocks that do really well. Now in hindsight, it'd be great to have them and load up on them, but you just don't have that knowledge at the time. But in a well diversified portfolio you are getting all of these stocks and that kind of a performance. So that's a good thing about being a global investor, which will come back to in just a minute. So again, on an expectation, particularly larger companies do incredibly well. They're probably gonna look more market-like going forward. Now we don't know exactly what FAANG's gonna be that group of stocks into the future, but again, long term maybe it does follow the market. We'll see. We'll see. We just don't know. But I love what you said there of you use the word load up on but then you pivoted into, but you did own them. And that's what sometimes I think investors forget, oh hey these FAANG stocks have done really well. Guess what? In a diversified portfolio you probably own them. So it's not like you missed out on those returns. And it's always easy to say, oh X, Y and Z did really well, I wish I had more of it. That's rear view mirror investing. And of course if we knew it ahead of time, I would've want put more money in it. It just doesn't work that way. Yep. Alright. Now in terms of contributions though to our overall returns, they did have a a pretty good impact there. Walk us through here, because I think it's just a good reminder, I think way to show it what you said there that we did own them and it's part of our return experience that we've gotten. Yeah, so here's the return, the composite annualized return. As we look over that 2010 to '21 period, we can see what the FAANGs did in excess of the Russell 3000, that's looking over that whole period. But again, we did show that in the last 12 to 18 months you've seen kind of a reversal in terms of relative to the market. But listen, these stocks did do well and they were a contribution to why US stocks relative to some other regions in the world over the last 10, 11, 12 years have done really well. But again, I just want to emphasize that point that in that diversified portfolio you did have them, you just had them in a more diversified, maybe a more intelligent manner in terms of how you might wanna hold stocks. Okay, I wanna highlight that 15%. And again, go back. Let's just be very clear here. We're looking at the dates, what is that about a 12 year time period and the Russell 3000, the US market returned 15% annualized over that time period and we just talked about, hey, UN expectation, maybe it's nine to 10. So we had an incredibly unexpectedly good- Good point. Experience over those 12 years. So a fantastic annualized return of 15%. Now that does raise a question kind of into our next topic, which is, yeah, well maybe I don't need to diversify outside the US any more because why don't I just put my money in the US I'm getting such strong returns there. Do I need to make a change perhaps in what I've done historically? So you got the US 15% there. Let's go into investing internationally here. So let me give you some numbers because that's driven some of the questions here. Going back to, hey, you look at recency of performance. So let's compare that to developed countries now that'll be countries that have a similar market like the US in terms of maybe Germany, Japan, France, countries like that. So that were to return 6.6% over that same time period we're looking at. And then emerging markets, which would be Brazil, Mexico, Taiwan, was 4.7% over that exact 12 year time period. So those are the questions then that we've been getting of, hey again, why should I go outside the US just put my money in the US much better returns. Again, when something performs well, you start to get the questions that come in about it. We just talked about the FAANGs. It's a good lead into that question of sort of why should I invest internationally? And again, I love this chart. Our viewers have probably seen this one before, but it's just a great chart, great job by our marketing team years ago to put this thing together. So creative, you've probably seen it, but let's just orient everybody to what you're looking at. You're obviously looking at a map of the world, not by geographical boundaries, but more by the size of their stock markets relative to other markets in the world. And so you do see the US there in that big teal box. You see it at 60%. Mark talked earlier about Developed ex US. And again, look, those are gonna be some of the countries in Europe that's gonna be Australia, Canada, Japan, you know, a little bit more developed markets, you see that in yellow. And then of course you've got the emerging markets there in green, you've got Korea and Taiwan and China and you've got India and Mexico. So a little bit less developed markets, but a great way to sort of look and say, hey, here's what my opportunity set is as I consider investing globally. All right, so I love that big, I guess turquoise box, 60% in the US. Now let me look at some other numbers over time to see what percentage of the world's market cap was made up by the US because it does ebb and flow over different time periods. So let me give you, at the end of 2010, 2010, at that time the US represented 40% of the world's market cap. So a pretty substantial difference. Pretty substantial in 12 years, that's a pretty big deal. In 12 years, yeah. And then if you go back 10 years early to the end of 2000, the US was 53% of the world's market cap. So man, in those 21 years, 22 years, you saw a pretty big drop and then a big increase in terms of its percentage of world's market cap. Now that big increase in percentage means it had very, very good returns that we just looked at. Yeah, of course. And relative to other countries. And that's actually what you can look at on this chart right here. So what we've done is to say, Hey listen, let's look at some of these regions, these broad regions and how have they performed year by year. And we're looking at this most recent period here. We're looking from January, 2010 through 2021. You can see that you've got that teal for the US down there. You've got the MSCI, world ex US market, that's gonna be your developed markets that we just talked about. So again, we said kind of what those countries were. And then you've got obviously the emerging markets and what do you see here? Well, what I see is a lot of years where I see really strong US performance. And you told me that back in 2010, it was 40% of world market cap and it's jumped all the way up to 60. It's not surprising, it's had strong returns, it's gonna become a larger part of the market relative to others. It's similar to what we talked about with FAANG stocks, right? I mean they become the big stocks by having very strong performance, US has become a higher percentage by having very strong performance. You look there, I think the last 12 years of the US, if you count them up there, nine years US was the best performer of these major regions of developed and emerging markets. So again, let's just kinda keep that theme in mind. Well then why invest outside the US, now to answer that question, let's give a little context to how we think about the way we think about putting together a globally diversified portfolio. Why might we consider companies outside the US? So to do that, we've got a poll. So we're gonna have a little fun here just to set up the context. Now take a look at this. Here's the question for you, and we won't have you actually vote just for a consideration of time, but if you wanna shoot some thoughts in here on your questions, I'll be monitoring along and I'll report depending on what people put in here, Jake. But here's the question for all of you. Of all of these I'll say companies or brands that are listed here. Trader Joe's, Citizen Watches, 7-Eleven, Marriott Hotel Chain, and then Purina, Ralston Purina, pet food, which one of these is owned by a US company? You love this, you love your, whether we're doing internal sessions or external or conferences, you love your trivia. I love trivia because you look at these, you just feel like such standard brands, at least that we grew up with over time. So it's kind of an odd question to say which ones, only one is owned by a US based company. That's right, did we get any responses. I'd be interested to know what was kind of on the viewer's minds as well. Anything that was typed in there? We got C. We got C. Okay. 7-Eleven. Good. D, D, Marriott. That's D, right? That's D. None of them. None of them. We thought it was a trick question. Oh so people are on it, Marriott. Marriott was was that. Now people may have access to Google as well, so that's not fair when you can look it up. They're pretty quick searchers if they do. They're pretty quick searchers. But you're right about that. I mean you look at some of these brands and some of them you think about as really iconic brands, but they happen to be owned by foreign companies, right? Not just dominated necessarily here in the US. Yeah. And it goes the other way too. There's a whole bunch of foreign brands that are owned by US companies. So we highlight that, wanted to have a little fun, but then two, it gets harder and harder as the world's become integrated to say, well is it really a US company or a non-US company? There's a whole bunch that goes into the company and then what they make, right? That's right. Well, and also also we talked about 7-Eleven, I think you know the Big Gulp's, that's that's pretty American there. Hellman's Mayonnaise, not a US company. Probably people know Budweiser beer, John Hancock, life insurance, which I mean that's your John, that's pretty American to me, owned by a Canadian insurance company as well. So you don't necessarily know, you just think about the brands that you interact with on a regular basis. And I think if people dove into it, they'd be surprised that there's a lot that are not necessarily US companies. Yep. And it goes into the type of products as well here, right? So we think about automobiles for example. Well that's a good one. This is the brands that you interact with. I'll take it of you would say, hey listen, I'm gonna think about being a global investor. And I think that the automotive industry is part of that. Okay, cool. Well let's go back to our world market cap chart here and let's take a look at this. Yeah, you know what, we've got some cars that are manufactured here in the US but that's not the only place that cars are manufactured. You start to look at the developed countries, you look over in Germany, you look at Italy and Japan, we know that there's tons of cars, tons of automobiles that are coming out of there. How about your emerging market companies or countries? You betcha that cars are manufactured there. And we see this, we experience this when we drive out of our driveway every single day. If we went out to the parking lot here at Dimensional, we would see a variety of cars manufactured all over the world from different companies. But then you ask yourself, Mark, the question of, you know, are all of the parts for these different car companies located or manufactured in those home countries? And the answer is likely no, it's not. No, they're all over the world. And even are they manufactured in the country? So you think about the US right now, I think there's a large BMW manufacturing facility, Toyota, and vice versa. These things are built all over the world. And I just gotta say, I'm looking at the India country there behind you owning Jaguar. You know, you get that sweet sounding British accent in a Jaguar car owned by an Indian company, right? And I think that proves the point there of just, it's hard to know. It's hard to know. I've owned multiple Jeeps over the years and I would think about that as a very American brand and that's not an American company anymore. And let's take another one. You know, let's take a big US focused company located here in the US and let's think about their manufacturing. Let's take Boeing and one of their airplanes. And what you're looking at on this chart, I think this is fascinating by the way. And by the way, you can pull this up off of the internet, just Google Boeing global supply chain. You can get all types of images for this. I thought this one was great. You know, you start to look at the different parts, major parts that go into a Boeing airplane. And you look at some of those countries around the world, upper right hand corner, we got Wichita, Kansas, I'm from Kansas, so I like to see that. But then you see Canada and Sweden and the UK, Tulsa, Oklahoma, Mark, that's a good one for you. You went to school in Tulsa. I used to live there, yep. You used to live in Tulsa, Oklahoma. But you just start to scan this and listen for a Boeing plane. This stuff is manufactured by different companies all around the world. Yeah, if you just scan this page, there's 10 countries represented here. And that's just the fuselage that we're looking at here, right? The tube, I think we read on the 787 Dreamliner, there's almost four million parts that go into that plane, which again is being produced globally. So I think people get the point. That's what we're going at here. We're an integrated global economy. You may be surprised what different brands are owned by different companies, integrated manufacturing, parts distribution, shipped by companies all around the world through different shipping companies, whether that be through sea or rail or whatever it may be, right? And so you probably say, look, if I want to own global capitalism, I wanna make sure that I own these countries from all around the world. And listen, we can go back to that performance piece of it. We'd showed you this recently in terms of the performance over the last decade plus of US companies or sorry, of US markets. What if we actually then take a look and say, all right, what about that previous time period? So rather than looking at 2010 on, let's go back and let's look at that 2000 through 2009, same split in terms of region, same color coding. And what I see here is I see a lot of US down at the bottom over this time period and I see a lot of EM up at the top over this time period. So let me give you some numbers for this just to bring it to life here. So the Russell 3000, which is going to be your teal color over that 10 year time period actually lost money. It was down minus 0.2% over that 10 years, developed countries were 2.0% positive. And then boy, you talked about emerging markets. So they were up 10.1% as a group. They had a nice little run there and and I love that 'cause that's why we diversify globally, right? That's why for those 10 years we're looking at you are incredibly happy, if you're a global investor during that time period if you're a US citizen. That's right. And then you can look over the whole time period and there's not necessarily any pattern that you may see here, but it is interesting when you look at sort of that middle row and that's your developed ex US. And so people would say, well is it you know, I wanna own the US or I want to own emerging markets. What's going on with that developed piece of it? And this was interesting when we started to break down the countries that go into that developed piece of it. Yeah, I was just gonna say you sort of look at that and think well it's just sort of this average mid-tier, but you're you, you're right. You think there's about 22 countries that are in that developed category and what we're looking at here, if you just scan that, that's just showing for each particular calendar year which country was the worst performer and which country was the best performer. So there's a huge spread between those 22 countries. It's just in aggregate. They've all kind of been in the middle of the road between the US and emerging markets. But huge, huge variance between the various countries. And if you look at it on average then you can see the numbers there between on average over that time period. Here's what the average negative returns were the worst performer, here's what the average best performer was. And that spread can be about what is that difference, 48% or so. So you do have some big time different experiences even in that developed marketplace, even though we're kind of looked on average, you know in that middle bucket or that time period. A lot of different returns. Now to me that raises the question of, yeah, well I want to avoid the worst country we just looked at and I want to be in the best country before it happens. And we would if we could. You know if you go out and you ask people and just say, hey, what was the best performing country last year or in 2020 or in 2019, rarely can people name what the best performing country is and that's when you actually had the data. So you had access to the data and you can't tell me what was the best performing country and somehow looking forward, you're gonna be able to tell me, good luck with that. I mean so it again, when things do well, countries do well, companies do well, regions do whatever it may be. People want that after the fact. But that's not really the important question. Interesting side note too, on that chart that we showed a second ago, you start to scan that of best performers as a broad market, not tilted towards size or value or anything like that. US showed up one time over that entire period. Yep, that's right. Now you just mentioned tilting to small and value and so let's move it into more of probably what a realistic or maybe an experience that many of the listeners would've had over this time period. Because right now we're setting up sort of the context of why you'd wanna diversify globally looking at some of the major regions. But what we're looking at here then is probably more reflective of an experience at least for the stock part of the portfolio that the audience might have experienced in the last 20 years or so. Yeah. So let's orient ourselves. So we talked a little bit about hey performance of the region level and let's look at the investor experience I'll say, or potential investor experience. So what you're looking at here, this is gonna be a core plus wealth model. So here's the way you want to think about this thing. This is gonna have some US stocks in it. It's gonna have some developed ex US and it's gonna have some emerging markets. I gotta believe a lot of our viewers may hold maybe some small cap, maybe some value stocks in there. So it's gonna have those in there as well. It's gonna have US and outside the US it's gonna have some value and growth. It's gonna have some big companies and it's gonna have some small companies in there. And what we wanna do is kind of take that same analysis and look year by year on how these different components of someone's allocation or portfolio may have performed through time. And so that's what you're looking at on this chart right here. Classic randomness of returns charts, looking at all of those different allocations. One thing I should note, I'll go back a little bit. We do want to take and compare this overall model as well as the components to that Russell 3000 that we were talking about. 'Cause when you get the questions about hey global versus US, you want to have some type of comparison over time. So included in here is that Russell 3000. Now Mark, you start to scan this and very colorful chart put together by our marketing group. I do like it, it's got a beach feel to me. Yeah it does. I was just gonna make one quick comment there. You mentioned the Russell 3000's included in this. It's included as a comparison of what we're looking at. That's right, it's one of the boxes. It's not in the portfolio but it's one of the boxes here, right? And so yeah, so I just wanted to clarify that one here. But yeah, show me the pattern on this one. For sure, and good clarification there. You're right on that. But again, you start to look here and you say, can I identify some pattern of what's gonna do well to well or some type of consistency of the various components that go into it? And Mark, I'll ask you, do you see a pattern in this? And we ask that all the time. Yeah, I mean we make the joke if you see a pattern we'd love to have you come work in our research group. No necessarily identifiable pattern. But good point there about the Russell 3000 'cause you do wanna say, okay, so I had all of these choices of different things that I can invest in and I know that US has done well recently, okay compared to these other options. How has US done over this time period? So what this is looking at in terms of the rank of that Russell 3000 as a proxy for the US market, how has it compared? And you scan this and you've got three years down here where it actually was the lowest performer and you scan that top row and you don't necessarily see a time when it was the best performer. Now let's take 2013 as an example here, you see that it did pretty well and we know that in 2013 US markets did do very well, but a couple boxes were above it. What we also know is that beyond just the broad market, there's some higher expected returns. So maybe you had a little more small in there, maybe you had a little bit of value. Those performed well during some of these periods. And so even looking at US markets, you can do a little bit better if you may tilt towards these higher expected returns. Yeah and that again is the questions we get. We were getting them in the early part of that when the US was say underperforming some of these other areas of the market and global parts of the the market as well. You're happy to be a global different side investor here. You get more of it when the US has done better there like you said. But there's still, when you are owning all parts of the market globally, you're always gonna have something doing better than the US market. That's exactly right. Now I'll ask you this question. So if you think about the complete allocation that we talked about. So I put the components together, I've got some US, I got some non-US, I've got some small, some large, some value of growth. Mark, how often is that the best performer? Which one? The US? The overall allocation portfolio. Overall portfolio. Oh, never. It's never, how often is it the worst performer? Never. It's almost by definition, right? I mean that's what that diversified portfolio, you're gonna have components of your allocation that are gonna do well relative to others and sometimes that don't do well. This what you're looking at right here is this is that overall allocation that holds all of those stocks from all around the world. Little bit of overweight to some of the higher expected returns. And you see it tend to be right in the middle, diversification, that's what you're looking at right there. Well, and then it raises the question of do I wanna be in the middle? Like how does that impact me as an investor over my investment experience? Because we talked about opening this up, what gives you the best chance for success over time? How do I make the best decisions possible over time? So if I have a global portfolio that's sort of just right in the middle depending on what the world's doing, what does that look like over an entire investment experience? Well let's show that investment experience, so we can can actually take this data all the way back to 1985 for our viewers. We're gonna take that same stuff that we're looking at there again, you can see down at the bottom you're taking your allocation and you're comparing it to the Russell 3000, comparing it to broad US stock market. And look, back in the 1980s you actually had where that global allocation performed pretty darn well, by the way, you look at those annualized returns, 25% or 19%, pretty strong back during that period. So that's kind of your eighties. What about when we go forward to the nineties? Well it kind of flip flops. You had strong returns for US markets back in that '90 to '99 period. Also towards the end of it you had some strong performance for some growth stocks. So the US starts to pull ahead. How about when we go forward and go through that two thousands period? That's where Mark told us earlier that we had kind of a weaker performance for us relative to others. And your global allocation jumps back ahead. Now we've highlighted recently that US has been strong. So you flip flop as we hit the end of last year, but pretty close. And interestingly enough, if you run this through June of 2022, so January of '85 through June of 2022, it comes out in terms of an identical annualized return over this period. Now I'm an accountant, a former accountant, but you're always an accountant. In my mind you see identical numbers and it's an instant red flag because it's an input error to have something like this. But we've double and triple and quadruple checked, it is 11.0% over this entire time period from the Russell 3000 compared to this globally diversified portfolio. Now, couple things I wanna highlight there. You talked about this, is this is going to look different over different periods of time and you have time periods when small and value did well, non-US did well, or periods when it did not as well relative to say, the US market. So as an investor you have to know that's gonna be there and set proper expectations with that. I think we looked at the numbers here. If you looked at any calendar year, the average difference between this global core plus and the Russell 3000 was about 7% higher or lower, right? 7% difference than any calendar year. I love that point by the way. That's an important for investors to set appropriate expectations. There's reasons that you would think about globally diversifying, there's reasons that you would think about tilting towards higher expected returns. But when you do that, you're gonna look different than your US benchmark. You know, sometimes people mentally benchmark to the Dow or the S&P or we're doing the Russell here. And you're right, if you look at calendar years on average, you're about 6.97% different, could be different on the positive side, could be different on the negative side? But you will look different than a US benchmark. And it's designed to look different. That's right. And I wanna just go, I'll ask you a question then and give the context for it as we wrap up here, which is, okay, we talk a lot about this global core plus wealth model, which is, hey, it's designed to have an expected return higher than the market. We're tilting to some of these areas that have higher expected returns like small and value and profitability. And if I'm an investor, I'll say, Jake, you just showed me 37 years and that portfolio had the same return as the US. Where is that higher expect return we've been talking about, where's that benefit from diversifying globally? Well listen, it's that same thing of rear view mirror investing, if you knew what was gonna do well, sure, you would've wanted to be in it. You did have, look, you had a decade where US was strong, decade where global was strong, decade where US was strong and then, you know, a period of time. And so I look at it like this, Mark, of certainly, if you knew where the higher returns are gonna be, you would've probably moved your portfolio into that. We all would've. We all want to get higher returns. But it's a very challenging thing to do. And if the viewers are honest with themselves and you go back and say, okay, so I saw the run during the eighties and this global portfolio outside the US did better. Great, you know what I'm gonna do? I'm gonna move over to outside the US. Okay? Now, I kind of got whipsaw during the nineties, so I didn't capture those higher returns. Now I'm standing there in '99, beginning of 2000s. I'm like, oh, you know what? US just did great. I'm gonna move back more into the US, okay, well the next decade I got whipsawed again. Then you look more recently, I'm standing there in 2010 and the same thing happened. You start to play that game. It's gonna be really hard to capture that 11% annualized return in a portfolio 'cause you're just trying to chase performance. Yeah, if an investor is saying, I only wanna be in the US right now 'cause the performance has been good, it's unlikely they would've captured 11%, 'cause they probably would've done something different when they would've gotten outta the US when the US was doing very, very poorly. You know, you talked about this webcast series here, Mark, around the Investor Experience Webcast series and we try to hit on topical questions. We try to give the advisors we work with good perspective, we try to give investors good perspective here. But again, I consistently roll it back up to what's the overall goal. You know, you think about roll it back to the plan, what am I trying to accomplish with my financial future? And you look at those returns over 36 years, you captured 11% annualized return if you stayed disciplined over that time period. I gotta believe for a lot of our viewers that would've kept them on track for their plans. And I think about myself, you know, if I fast forward 36 years from now and you and I capture 11% annualized returns, I gotta believe I'm gonna stay on track for my goals. And so that to me is that bigger picture question of can you stay disciplined? Can you work closely with your advisors? Can you put the plan in place and can you stay on track? That's the bigger question. Yeah. And I say that you can do that with a lot of emotions being, I'll say dampened, we talked about this idea of being liberated from the stress of investing when you just have a plan to stick to instead of trying to time the market to take advantage of it. That was a nice summary, Jake. I wanted to touch on a couple questions that came in here. One person made a comment, which you just made on kinda swapping between the regions. They made that comment similarly around the FAANG securities, meaning I'd be surprised to see somebody who really owned a FAANG through all of the different time periods really since they were even smaller companies. Just because you probably would've gotten in and out during periods of tough performance. Let me clarify one thing on that. And we talked about that, you actually did own the FAANG securities, but if you took the same route and said, I'm gonna shift from a little bit into that, into a lot into that, it would've been the same type of thing. You're probably chasing performance. Yep. And then somebody had a question here about why did we go back to 1985? Why'd it start there? And that's just, again, we always try to show the longest periods we have available in this case for that core plus model. That's right. We can go back to '85 for that, that's right. That's the longest we could go. So that's why we went to 1985 there. Okay, well listen, you had a great summary what you just said there. I always take back to then go back to those four principles we just talked about. You know, know the objective, don't expect a return, the risk and the cost associated with that. And that even goes into, again, do I wanna make changes to my portfolio? Should I change my weighting inside, outside the US? Think about those four things, and really for the individual investors out there, get with your advisor anything on your mind that they can work with you around. Again, the discipline it takes to capture these returns, and then if a change is appropriate or not appropriate depending on your particular situations. And of course there were a few comments here on bonds. That's an incredibly important part of the portfolio and we always say there too, that's such a customized solution for the individual. It's tough to bring in all the different ways that that could come into play here for our bonds out there. Good point. You referenced the webcast we did back in July that looked at the first half of the year. There is some interesting data in that webcast on the bond market that maybe our viewers may want to go back and check out. But listen, great, great question and great point. We just wanted to keep it focused on the stock piece of it around global diversification today. Okay, well Jake, nice job. Thanks for all that. Hey, and thanks to everybody for tuning in here today on this conversation. Hopefully it was helpful again just to give some perspectives around the headlines and as we say how to think about this, it might impact the portfolio going forward over the next several years. Be sure to check out Dimensional Insights. We'll be posting this webcast here if there's some things you want to go back and check out. And again, we will be working on getting those slides available for the financial professionals, if you're an individual investor ping your advisor. And hopefully those slides will be available for them shortly. So thanks again for joining us here today and have a fantastic next couple weeks as we round out the summer.