And where was all that money going? Primarily to international funds -- even as the headlines about problems with the euro, Greece and the Swiss franc made it appear that the rest of the world was in deep trouble.
So far this year, investors have withdrawn $64 billion from U.S. funds and put $158 billion of new money into international stock funds. In fact, the most popular category -- foreign large-blend funds -- had inflows of $21.3 billion in July, greater than the next four top-asset-gathering categories combined in July, according to Morningstar.
The strategy worked. Morningstar reports the total return of the foreign large-blend category through July 31, 2015 was 6.7 percent -- compared to only 3.4 percent return for the S&P 500 during the same period.
Those who took the apparent risk of buying into foreign shares at the time of global financial woes were richly rewarded. But it was a strategy that involved making a tough decision. While many people bemoan the fact that they are always getting in -- or out -- at the "wrong time," this report shows that -- for now, at least -- billions of dollars in investors' money did make the correct move, and have the profits to show for it.
More importantly, what does that mean for you as an investor?
Should you suddenly start buying what's out of fashion and making negative headlines? In that case, you have plenty of choices. Energy-related stocks are certainly the subject of scary forecasts and negative realities. At some point there will be a bottom -- but can you afford to guess about when that bottom will be made? In the meantime, there could be more declines.
This column has noted on more than one occasion that professional money managers regularly fail to meet their benchmarks. In 2014, 86 percent of large-cap managers failed to beat their benchmark, and 89 percent failed in that task over the past five years. That's probably why the Morningstar report also highlights the fact that the money that did flow into U.S. equity funds overwhelmingly went into "passive" (index) funds as opposed to actively managed funds.
If the pros can't beat the market, does it make sense for you to try? Or are you better off diversifying across asset classes?
Basic diversification means you would include domestic and international stock funds, as well as large companies and small -- and also some risk free assets in money market funds, and some income-oriented assets such as shorter-term bond funds. That way, you can never be "all right" -- but at least you won't be "all wrong"!
And if that seems like a "cop-out" to you, listen to this story about the investing habits of Nobel prize-winning economist Harry Markowitz, who was lauded for his concept of the "efficient frontier" in investment management. It's a story told in a very insightful new article by Marshall Jaffe of Jaffe Asset Management.
He quotes Markowitz as saying: "You know, if the stock market goes way up and I'm not in it, I'll feel stupid. And if it goes way down and I'm in it, I'll feel stupid. So I went 50-50."
Says Jaffe: "Markowitz is a brilliant academic who knew he had a unique and valuable insight. But he had enough self-awareness and emotional honesty to acknowledge that in his own situation it was more important to have simplicity over sophistication and comfort over competitive returns."
That should make you feel that you're in good company if you choose to simply diversify and balance your investments -- instead of trying to beat the market. And that's The Savage Truth.
Source - chicagotribune.com
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