The US markets have been having a torrid time in the past one year – DJIA down by 7% and Nasdaq has dived by 29%; China has also corrected by 31%.
It is painful to see negative in our portfolios and hence, it is natural to ask this question.
I believe in constructing a portfolio of assets that has a good mix of different types that have 3 key characteristics:
Given good returns in the long run
Have great prospects.
Asset classes in the portfolio are not closely correlated
How have the international markets performed in the last 10 years?
6 out of 10 times S&P 500 has been in the top half with negative returns in just 2 of 10 years!!
What about prospects?
Over the next 15 years, according to the World Bank report, the 3 largest economies will be:
1. China from US$ 17T to US$ 55T : 3x growth in 15 years
2. USA from US$ 23T to US$ 43T : 2x growth in 15 years
3. India from US$ 3T to 11T: 4x growth in 15 years
How are you going to benefit from this GDP growth?
US markets and Indian markets have a low correlation and also they provide a good currency hedge!
We can’t predict what will happen in the short term; if we could, we would all be Gazillionaires!! What we can do is to look at the past trends and future prospects and construct a portfolio that will help us meet our goals.
Ask yourself – if you use Apple phone, Amazon products and Google search and one day own a Tesla car, don’t you also want to benefit from their growth?
Equity Returns are NEVER a straight line, and it will be bumpy in short term…
but in the long term a good mixture of quality assets will be a winner.