Sunday, December 14, 2014

Is Bogle's Advice Good Or Evidence Of Something Else?

Vanguard's Bogle: 'I Wouldn't Invest Outside the US'

Wednesday, 10 Dec 2014 08:00 AM
By Dan Weil
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John Bogle, the legendary founder of Vanguard Group, thinks highly of the United States as an investment destination now, and not so highly of most countries overseas.

"The U.S. is the most productive country in the world. It is the most rapidly growing of the industrialized nations, other than Switzerland," he told Bloomberg. 

"We still have plenty of problems, but we’re much better than France, Britain and Germany. And we don’t even want to talk about Italy and Greece. And . . . we have the most established government and legal institutions."

While it's true that about 52 percent of world stock market capitalization rests outside of the United States, the top three foreign countries are the United Kingdom, Japan and France, Bogle says. "What’s the excitement about there?" he asks.

"Emerging markets have great potential, but have fragile sovereigns [governments] and fragile institutions."

Bogle says he has rarely invested overseas in the past. "It’s hard to believe that the differences in returns over the long term will be huge. That’s just not what we have seen for the most part. Why take the currency risk?"

Speaking of currency risk, the dollar has soared in recent months, rising to a seven-year high against the yen and a two-year high against the euro last week.

Many experts think the rise will continue. That's a big deal if you invest in foreign stock and bond funds.

Some funds hedge their currency exposure, so you're at no disadvantage if the dollar rises.

But some don't. With those funds, you're essentially betting the dollar will stay stable or fall.

"One question mutual-fund investors should ask for international funds is, ‘How much is the portfolio manager hedging the FX exposure?’" Russ Koesterich, BlackRock’s global chief investment strategist, told The Wall Street Journal.

David Rubenstein, co-CEO of private equity titan Carlyle Group, agrees with Bogle.

"The U.S. economy is in pretty good shape," he told CNBC. "It will probably grow about 3 percent this year. Unemployment is under control. It's not quite as low as we'd like, but it's coming down."

So is the United States the best place to invest? "By far, there's no place comparable," Rubenstein remarked.

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