While a chorus of market experts is telling investors to look outside of the U.S. for big returns, at least one loud voice is singing a very different tune — Vanguard founder Jack Bogle.
The 88-year-old investor, who started the first index fund in 1976, said that he’s fully invested in U.S. securities, with stocks and bonds having an equal share of his portfolio. And of course, it’s all indexed.
“I believe the U.S. is the best place to invest,” Bogle said. “We probably have the most technology-oriented economy in the world. I would bet that the U.S. will do better than the rest of the world. It is a simple bet on which economy is going to be the strongest in the long run.”
This advice flies in the face of the market’s recent conventional wisdom. Numerous equities analysts and strategists at firms like BlackRock, Morgan Stanley and Deutsche Bank have encouraged investors to overweight European stocks because of robust growth expectations and relatively high valuations in U.S. equities.
“Every single person I think I have ever talked to tells me I am wrong in this,” Bogle said. “If you believe in the majority, you can just throw my opinion in the wastebasket. But on the other hand, I was brought up in this business and I am saying, ‘The crowd is always wrong.’”
‘I WAS RIGHT’
Bogle’s been promoting the value of investing in U.S. assets since 1993, and returns back him up. The S&P 500 has climbed more than 421% since then, more than four times the performance of MSCI’s index of world equities excluding the U.S. Meanwhile, European shares have gained about 180%, while Asia has added about 40%.
“So I was right, really right,” Bogle said.
If he were to adjust his portfolio, he’d add emerging-market securities rather than those from other developed markets because he believes they have greater potential. Still, he would limit his exposure to 5%. MSCI’s emerging-market index has risen 17% this year, double the S&P 500.
Emerging markets attracted the biggest share of flows into equities this year, taking in $29.4 billion. That compares with $6.6 billion for U.S. equities and $18.3 billion for European stocks, according to Bank of America Merrill Lynch, citing EPFR data.
“I don’t think in the long run [emerging markets] will do as well as the U.S.,” he said. “They are more risky and more sensitive to interest rates, more sensitive to Federal Reserve statements and actions. They don’t have the diversity we have in the U.S.”