International stocks are a great way to diversify away from the U.S. But when a home country bias is alive and well, it’s easy to ignore everything else. U.S. stocks have performed admirably in the past, but international stocks have too.
Since 1970, the S&P 500 performed at a 10.40% annual clip (with dividends). Did you know that during that same time, international stocks practically matched it?
You can try to hand-pick countries based on expected returns or go with a basket of countries that captures all that missed opportunity. The tables below show how international stock returns breakdown. Hopefully, it makes the argument to stop ignoring the big opportunity outside the U.S.
All the tables below represent international stocks via the MSCI EAFE index performance (including dividends) over the 44 year period from 1970 to 2013.
Annual Returns Breakdown
How much luck would you have by randomly picking an international stock fund in any given year? What’s the likelihood you ended with a loss for the year? Or a gain? What return could you expect? The table below breaks down just how often international stock annual returns landed in each range.
| Annual Return Breakdown | # of Times | % of the Time |
| Over 30% | 9 | 20% |
| Over 20% | 18 | 41% |
| Over 10% | 25 | 57% |
| Over 5% | 30 | 68% |
| 5% to 0% | 2 | 5% |
| 0% to -5% | 2 | 5% |
| Under -5% | 10 | 23% |
| Under -10% | 10 | 23% |
| Under -20% | 4 | 9% |
| Under -30% | 1 | 2% |
Your chance of success in any given year is fairly high. Blind luck gives you a 73% chance of making money. Even then, that chance offers a range of possible gains. Timing the great years is tough.
5 Year Breakdown
What if you stayed invested for five years? What could you gain? Or lose? There were 40 five-year periods from 1970 to 2013. The table below breaks down the annual return for each of those five-year periods. As you’ll see, your luck improves.
| Annual Return Breakdown | # of Times | % of the Time |
| Over 30% | 3 | 8% |
| Over 20% | 5 | 13% |
| Over 10% | 19 | 48% |
| Over 5% | 25 | 63% |
| 5% to 0% | 11 | 28% |
| 0% to -5% | 4 | 10% |
| Under -5% | 0 | 0% |
The range of possible returns drops significantly with five-year periods. Gone are the -10% and -20% losses yet the opportunity for big gains persists. Funny, how your chance of success increases the longer you stay invested.
10 Year Breakdown
How successful would a long-term strategy be with international stocks? There were 35 ten-year periods from 1970 to 2013. The table below breaks down the annual return of those ten-year periods.
| Annual Return Breakdown | # of Times | % of the Time |
| Over 30% | 0 | 0% |
| Over 20% | 4 | 11% |
| Over 10% | 16 | 46% |
| Over 5% | 29 | 83% |
| 5% to 0% | 6 | 17% |
| 0% to -5% | 0 | 0% |
| Under -5% | 0 | 0% |
Overall Observations:
- In the 44 year time span, international stocks produced a 10.03% annual return (including dividends).
- The one year high was a 70% return in ’86, the low was a -43% return in ’08.
- Despite what many believe, big losses like ’08 don’t happen too often. It was the only year with a return less than -30%.
- The 5 year high was a 37% annual return from ’85 to ’89, the low was a -4% annual return from ’07 to ’11.
- The 10 year high was a 23% annual return from ’78 to ’87, the low was a 1% annual return from ’99 to ’08.
- Only 12 of the 44 years ended in a loss, or 27% of the time.
- It pays to chase losing years. The table below shows that 9 out of 11 losing years were followed by 5 years of outperformance. The two exceptions: 1990 fell short by 0.33% and in 2000, had you stuck around for a 6th and 7th year, you would have beat it handily.
| Year | Return | Next 5 Years (annual) |
| 1970 | -10.51% | 10.59% |
| 1973 | -14.17% | 12.17% |
| 1974 | -22.15% | 19.36% |
| 1981 | -1.03% | 28.83% |
| 1982 | -0.86% | 34.93% |
| 1990 | -23.20% | 9.71% |
| 1992 | -11.85% | 11.71% |
| 2000 | -13.96% | 4.94% |
| 2001 | -21.21% | 15.43% |
| 2002 | -15.66% | 22.08% |
| 2008 | -43.06% | 12.96% |
| 2011 | -11.73% | ? |
Despite all the evidence to the contrary people still compare the stock market to casinos and gambling. The few years that bring losses perpetuate this view. The above results show it’s not the case. No casino would take those odds. The only reason the “casino” stereotype persists is because we treat the market like one. Over the long-term, the odds are already in our favor. Why mess with a sure thing?
