Foreign Investing: Keeping It Simple

by Ron Muhlenkamp

In 1995, investors were told that they should be invested in foreign stocks because for the prior 20 years, if you had invested in the S&P 500 index you would have earned 14½% per year (Table 1). But if you had invested in the MSCI EAFE (Morgan Stanley Capital International Europe, Australia and Far East) index, you would have gained roughly 16% per year.

So people said that you’ve got to invest in foreign stocks.

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Table 1. Comparative Returns for U.S. and International Stocks: 1975-1994
Standard & Poor’s 500 vs. Morgan Stanley Europe-Australia-Far East Index
Year S&P 500 EAFE
1975 37.31 37.10
1976 23.99 3.74
1977 –7.19 19.42
1978 6.39 34.30
1979 18.65 6.18
1980 32.39 24.43
1981 –5.26 –1.03
1982 21.53 –0.86
1983 22.59 24.61
1984 6.30 7.87
1985 31.80 56.72
1986 18.67 69.94
1987 5.25 24.63
1988 16.60 28.27
1989 31.68 10.54
1990 –3.10 –23.45
1991 30.47 12.13
1992 7.62 –12.17
1993 10.07 32.56
1994 1.31 2.68
Comparative Performance Over 20 Years: 1975-1994
Index Cumulative Annualized
S&P 500 1,519% 14.57%
MSCI EAFE 1,920% 15.92%
Shading denotes the years when the EAFE outperformed the S&P 500.

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