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CNBC
3 days ago
- Business
- CNBC
International stocks are ahead of the U.S. so far this year—how to add them to your portfolio
For investors, the U.S. has been the place to be in recent years. Over the past decade and a half, the S&P 500 — a measure of the broad U.S. stock market — has returned an annualized 14.2%. The MSCI ACWI ex-USA index, which measures the performance of stocks from pretty much everywhere else, logged a return of 6.5% over the same period. Since the start of 2025, however, investors are eschewing U.S. stocks in favor of international names. So far this year, the ACWI ex-USA index has returned 15.7%, trouncing the 1.5% return in the S&P. "In 2025 thus far, there are some clear indications that investors are adopting the 'ABUSA' ('Anywhere But the USA') mindset," says David Rosenstrock, a certified financial planner and director of financial planning and investments at Wharton Wealth Planning. "This shift is partly driven by concerns over market volatility in the U.S., uncertainty regarding policies and relatively weaker performance compared to global counterparts," he says. So is it time to invest in foreign stocks? Yes and no, say financial pros. You shouldn't make any wholesale changes to your portfolio mix based on short-term market results, they say. But if you have little or no foreign exposure, diversifying is likely a savvy move over the long term. Here's why. If you were born in the 90s, you may have never been invested during a sustained period during which foreign stocks outperformed domestic names, as they did in the back half of the 80s and much of the early 2000s. If that's the case, you may be tempted to continue ignoring foreign stocks, even after the recent uptick. "The problem is those trends tend to tend to reverse over time," says Amy Arnott, a portfolio strategist at Morningstar. "So even if the U.S. is outperforming over a very long period, like it did [in the 15 years] through 2024, eventually that trend reverses." While it may feel like the U.S. has dominated stock markets forever, it wasn't that long ago that foreign firms were delivering better returns. From 2001 to 2010, for instance, the ACWI ex-US index submitted a cumulative total return of 71.5% compared with a 15% gain in the S&P 500. Adding some foreign stocks to your portfolio can help guarantee at least some exposure to whichever side is performing better over the many years you're likely to invest. "True diversification means tapping into different economic cycles, monetary policies and growth drivers. It offers exposure to unique industries," says Marcos Segrera, a CFP and principal at Evensky & Katz/Foldes Wealth Management. "Furthermore, owning foreign stocks is a crucial way to diversify away from U.S.-specific risks." If you're looking to invest in foreign stocks, the most effective way to do it is by adding a low-cost index mutual fund or exchange-traded fund, says Arnott. "That way, you can get international diversification in one package and get exposure to a large number of companies and countries outside of the U.S.," she says. Market watchers generally divide foreign stocks into two camps: those that come from "developed" economies, such as those in Japan, Australia and several European countries, and emerging markets, such as China, India and much of Latin America. You can buy funds which invest in either, but "to keep things simple," owning a "total international stock" fund — such as one that tracks the MSCI ACWI ex-USA or something similar — will get you exposure to both, says Arnott. And while you may have powerful convictions about the future of a particular country and its economy, you'd be wise to avoid tilting your foreign exposure too much in that direction, Arnott says. Putting all your eggs in one country or region's basket, she says, can result in big swings in your portfolio. "It can be tempting to do that when there's a lot of excitement about Asia Pacific stocks or Latin America, or things like that," she says. "But it's difficult to use those types of funds in a portfolio just because they are more volatile, more narrowly defined, and people unfortunately have a tendency to sometimes see performance over the past few years and buy in at the wrong time."
Yahoo
14-05-2025
- Business
- Yahoo
Is the 60/40 rule making a comeback? How to mix and match your stocks and bonds.
If you invest according to the classic 60/40 rule, with three fifths of your nest egg in stocks and two fifths in bonds, then take a moment to pat yourself on the back: It's a pretty good strategy. That's the conclusion of a new report from Morningstar, the financial services firm. A 'plain-vanilla' 60/40 portfolio, comprising stocks and investment-grade bonds, earned about 15% interest in 2024, Morningstar found. The 60/40 portfolio isn't so popular these days. It laid an egg in 2022, when both stocks and bonds tanked. Some observers concluded the 60/40 rule was dead. In 2022, Morningstar reports, investors could have done better by diversifying their portfolio beyond stocks and bonds, adding in such assets as real estate and gold. Over the longer term, however, the 60/40 portfolio has performed consistently well. To measure the merits of a 60/40 portfolio, Morningstar compared it against two other portfolios, one made up entirely of stocks, the other broadly diversified across 11 kinds of assets. Here's how they stacked up: Over 10 years, the stock portfolio gained 12.7% a year, compared with 8.3% for the 60/40 mix and 6% for the diversified portfolio. Over 20 years, stocks yielded 10.4% a year, versus 7.8% for the 60/40 mix and 6.7% for the diversified portfolio. Morningstar also looked at 'risk-adjusted' returns, a calculus that considers the risk-to-reward ratio of each investment strategy. Looking at rolling, 10-year averages, after adjusting for risk, the analysis found that a 60/40 portfolio outperformed an all-stock portfolio roughly four-fifths of the time over the past five decades. The point of the paper, according to one author, is to illustrate that a simple 60/40 portfolio performs pretty well. An everyday investor does not necessarily have to branch out into commodities, gold and real estate in order to diversify. 'The takeaway point is that diversification doesn't have to be overly complicated,' said Amy Arnott, portfolio strategist at Morningstar and co-author of the April 22 report. 'You are getting a pretty significant diversification benefit just from adding bonds to an all-stock portfolio.' The 60/40 rule is a fundamental principle of investing. Stocks can yield robust annual returns, but they are volatile. Bonds provide modest but stable income. Bonds are supposed to provide a hedge against stocks. When stocks go down, bonds go up – or, at least, they don't go down very much. In 2022, however, the financial market seemed to turn upside down. Stocks lost 18.6% of their value that year, as measured by the S&P 500. Bonds lost 13.7% of their value, according to the Vanguard Total Bond Market Index. Inflation pushed that figure to 20%, the worst bond return in 97 years, according to a NASDAQ analysis. Those numbers prompted many investors to hunt for alternatives to bonds. But the new Morningstar report suggests that a simple portfolio of stocks and bonds can still offer enough diversification for the average investor. Morningstar is not saying that a 60/40 portfolio will outperform the stock market. Instead, its analysis found that a 60/40 mix generally offers a relatively high return relative to the risk. When you balance reward against risk, the 60/40 portfolio often does better than either the stock market – which is inherently risky – or a more varied investment portfolio. 'We're saying that if you take risk into account,' a 60/40 portfolio 'did historically outperform a stocks-only benchmark,' Arnott said. 'You're getting a smoother ride, basically.' Arnott cautions that the 60/40 portfolio isn't for everyone. 'If you are a younger investor, in your 20s or 30s, you don't necessarily have to have a 40% position in bonds,' she said. 'I think the 60/40 portfolio is most appropriate for somebody who is approaching retirement, or in retirement.' The longer your money remains invested, the greater advantage you will gain by keeping most of it in stocks, financial experts say. If you won't need the money for another 20 or 30 years, you will have plenty of time to ride out the bear markets. 'It makes sense for long-term investors to be mostly in the stock market, as long as they can stand the ups and downs,' said Robert Brokamp, a senior adviser at The Motley Fool. 'Now, for those who are close to or in retirement, then I think the 60/40 is actually a good starting point, because you need to balance risk and reward.' Catherine Valega, a certified financial planner in Winchester, Massachusetts, advises most of her working-age clients to keep at least 80% of their investments in stocks, 'and sometimes as high as 100% stocks,' she said. 'The 60/40 is way not aggressive enough if you are a younger investor.' Valega is wary of the bond market. Bonds are volatile in 2025, largely because of President Trump's ongoing trade war and uncertainty about interest rates and inflation. Instead, Valega has been looking for high returns on cash-equivalent investments, including certificates of deposit and money market funds. Both have consistently offered interest rates of 4% or higher this year. They can provide stability to an investment portfolio, just like bonds. This article originally appeared on USA TODAY: Is the 60/40 rule making a comeback in retirement savings? 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Yahoo
02-03-2025
- Business
- Yahoo
The top wealth-creating stocks have put $21 trillion back into shareholders' pockets — and 3 are still cheap to buy
Big Tech firms like Nvidia, Apple, and Microsoft lead in shareholder value creation. Stocks with a wide economic moat can be a good long-term investment. But only Microsoft, Alphabet, and UnitedHealth Group are rated undervalued by Morningstar. Past performance does not guarantee future success; it's a line frequently used for investing advice. That's because stocks are a moving target amid shifting fundamentals, business cycles, interest rates, and inflation. But that doesn't mean their historical strength can't be considered. If a company's stock has continued to rise, especially for over a decade, that sustained performance suggests it's doing something right. And it could be a good starting point to filter for good long-term investments or see if any common characteristics helped them succeed. Amy Arnott, a portfolio strategist at Morningstar, recently did just that by pulling a list of the top stocks that have created the most value for investors over the past decade. One common denominator among the vast majority of them is that they have wide economic moats, which means they are less likely to face competition in the next 20 years. This is especially important for companies spending mega dollars — like AI players — in hopes of reaping long-term benefits and wider market share. And to do that, they need a long runway with little competion to reap the returns of their capital expenditure for many years. She also found that stocks able to create a lot of value over long periods of time tend to continue performing well for many years, which reinforces the approach of Warren Buffett, who once quipped that the ideal holding period is forever. In this instance, Arnott measured value creation by looking at the biggest increases in market cap from 2015 through 2024, plus the value of dividends each company paid. The list she pulled includes 15 sector-neutral names. Unsurprisingly, Big Tech, and more specifically Nvidia, tops the list as the stock that has returned the most value to shareholders, with more than $3 trillion in value created. It is followed by Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Broadcom, all of which created more than $1 trillion in shareholder value. However, even if these names are well recognized, it doesn't mean it's a good time to buy shares. While there's a mixed bag of reasons a stock can fall out of favor, one of the central ones is simply that the share price already reflects the strength of the company. Nonetheless, three names stand out for being rated four stars out of five, which means Morningstar considers them moderately undervalued or trading at slight discounts to their analysts' fair-value estimates. Microsoft is one of the Big Tech players being pulled forward by its AI innovation, particularly its cloud computing platform Azure. While revenue growth is expected to slow for the giant, going from 15.7% in 2024 to 13.2% by 2026, the company's operating margin is expanding, from 44.6% in 2024 to 45.1% by 2026; it's a sign of continued profitability and efficient capital expenditure, a key gauge of successful expansion amid steep AI spending. Its fair value estimate, according to Morningstar, is $490 a share. As of Friday, it was trading near $391 a share, meaning it's still at a discount. Morningstar's senior analyst Dan Romanoff's conviction on the price target rides on expectations of growing profitability from its cloud computing platform Azure, its next-level offerings in Office 365 E5, and its Power Platform, which allows companies to develop websites and apps simply. Alphabet is another major player in the cloud computing space that's also spending big bucks on AI development. One hiccup the giant tech firm faces is capacity limits on its cloud platform, which has slowed revenue growth. However, Malik Ahmed Khan, an equity analyst at Morningstar, expects capacity to widen which will pick growth back up. Meanwhile, he points to other areas of Google's strength, including revenue growth from its AI-driven search engine and its YouTube business. Even as the search engine giant's revenue is expected to slow, its operating margin is expected to expand slightly from 32.1% in 2024 to 32.3% by 2025. The analyst increased the stock's fair value estimate from $220 to $237 after it beat fourth-quarter earnings expectations. UnitedHealth Group has had a bad few months. First, the shooting of its former CEO, Brian Thompson, in Midtown Manhattan sparked widespread backlash over the company's approach to insurance coverage. Last week, The Wall Street Journal reported the company was under investigation for potential Medicare billing fraud. Its stock price has been volatile as investors try to gauge what to make of all the news. Still, Morningstar's senior analyst Julie Utterback believes the stock is undervalued at a fair value of $590 a share. On Friday, it was trading near $467. Utterback's note highlights that in 2024, the firm made 47% of its operating profits from medical insurance, but only 15% came from Medicare. Therefore, the probe over Medicare shouldn't be cause for a steep sell off, suggesting investors are overreacting. Additionally, the investigation could have a wide range of outcomes. However, investors who decide to take on exposure in healthcare stocks should be prepared for volatility and keep their ears at the door as Republicans release changes to healthcare coverage. Still, Utterback writes that the stock's price is discounted enough to buffer policy uncertainty. Read the original article on Business Insider Sign in to access your portfolio
