Chances are you weren't happy with your investment returns this decade. That's because -- as The Wall Street Journal reported this week -- this has been the worst-performing decade in the history of the stock market.
Stocks in the aughts averaged an inflation-adjusted 3.3% annual decline, with widely owned stocks such as Cisco Systems
That's bad, but there is a bright side. If you know your stock market history, then you know that just as periods of outperformance are often followed by periods of underperformance (the 1990s was one of the market's best decades), periods of underperformance are often followed by periods of outperformance.
In other words, the next 10 years will likely be far better than the last.
Don't blow this opportunity
That tailwind will benefit our returns for the next 10 years. And if we play our cards right by taking a long-term view, regularly adding new money to the market, minimizing taxes and transaction costs, reinvesting dividends, and focusing on superior companies, we should be able to look back at the end of 2019 and say that we had a pretty good decade, investing-wise.
But -- and this is important -- if you want to make the next 10 years one of the best investing decades of your life, you might heed the advice of one of the world's top investors and consider a minor strategic shift.
Did you know ...
Before I can talk about that shift, I need to ask: Do you remember Oct. 29?
It was a joyous day! The stock market rallied on the news that U.S. GDP had grown 3.5% in the third quarter -- news that ostensibly marked the end of our 18-month-long recession.
Yet it turns out that the news is not as good as originally broadcast. The Commerce Department recently revised its third-quarter GDP growth estimate down to 2.2%. Net out the 1.66% bump the number got from the government's ill-conceived and unsustainable Cash for Clunkers program, and it now looks like our economy in the third quarter really didn't grow that much at all.
Are you too U.S.-centric?
Let's tie these two stories together. Why did U.S. investors like us suffer such disappointing returns this past decade? It's because we didn't adjust our investment philosophies to account for a dramatically different world.
The plain fact is that U.S. economic growth has slowed and as the revisions to the third-quarter GDP growth number reveal, shows limited signs of life. At the same time, however, India and China put up third-quarter GDP growth of 7.9% and 8.9%, respectively. Yes, those economies also benefited from public sector stimulus, but the difference between their numbers and our own is so stark that one can't help but acknowledge their rosier forward economic outlooks.
Fast-forward a few years and this is going to lead to what PIMCO co-chief investment officer Mohammed El-Erian calls a "multipolar world" -- one that is no longer reliant on the U.S. economy to drive growth. This, he told Fortune, is no doubt good for the globe. "Most of us would rather be on a plane with multiple engines," he pointed out.
Yet if you, as an American investor, continue to focus on American stocks -- and American investors are far too exposed to American stocks -- your investment returns over the next decade may end up being as disappointing as those of the past decade. This, El-Erian points out, is the consequence of being "too U.S.-centric in a globalizing world where the center of gravity is shifting."
Do something about it
This is a real and significant risk that all American investors are facing today, but this is where the aforementioned minor strategic shift comes in. El-Erian says that all you have to do is "recognize that the asset allocation of tomorrow is much more global than the asset allocation of yesterday."
Or in plain English: Set aside some time and money this year to buy more foreign stocks.
I know, I know ...
Despite the surging popularity of emerging-market investments, many Americans remain hesitant to own foreign stocks. That's because they don't know these companies and may not feel comfortable evaluating their financial statements or market opportunities.
That's an understandable objection -- but it still shouldn't lead you to blow this opportunity. So let me give you a head start by telling you about one of the stocks we recently named a Best Buy Now at our Motley Fool Global Gains international research service.
Get your pad and paper ready
The company is Embotelladora Andina, one of the world's largest Coca-Cola bottlers, with exclusive territory in Chile, Brazil, and Argentina. The stock is cheap at 7 times EBITDA, pays a healthy 5% dividend, is one of the most profitable Coke bottlers on the planet, and stands to benefit from consumer spending growth in Chile and Brazil.
Given Andina's long operating history, steady cash flows, and stable relationship with Coca-Cola, this is a relatively low-risk way to gain much-needed exposure to some of the world's fastest-growing economies -- a savvy way to play both offense and defense. It may also get bought up by FEMSA
But once you buy Andina, you won't want to stop there. Your portfolio needs exposure to Europe, China, Japan, India, and more. So if you'd like further insights into our other Best Buys Now around the world, simply sign up to get all of our Global Gains research free for 30 days. Click here to get started -- there's no obligation to subscribe.
This article was first published on Jan. 29, 2010. It has been updated.
