in Context - Spring 2012
- Considering International Diversification - Last year was challenging for globally diversified stock portfolios. While the S&P 500 Index was up 2.1 percent in 2011, the MSCI EAFE Index, which is basically the international equivalent of the S&P 500, was down 12.1 percent. The MSCI Emerging Markets Index was down 18.4 percent.
- Global Equity Markets - One reason for global diversification in a stock portfolio is the amount of the world’s stock market value that is now located outside of the United States. In past decades, the United States represented more than 50 percent of the value of the world’s stock markets. That is no longer the case.
- The Good Ol' Days - Alongside the wars, depressions and natural disasters of the past century, there were some notable achievements for humanity — like women’s suffrage, the development of antibiotics, civil rights, economic liberalization, the spread of prosperity and democracy, space travel, advances in our understanding of the natural world, and enormous advances in telecommunication. (Oh, and the Beatles.)
- Recency Bias - Every day we rely on habit to get a lot of things done. We commute the same way to work every day, we eat at the same restaurants and we shop at the same stores. We rely on habit to help us make things easier because few people want to reinvent their lives every day. But this habit of forming habits also does something else. In academic circles, it’s called the recency bias, and it can trick us into making decisions we might not make otherwise.