On Moody Radio's Faith & Finance Live program, SMI’s executive editor Mark Biller joined host Rob West to explain why non-U.S. stocks may be headed for a new day in the sun.
Mark and Rob also answered callers' questions.
To listen, click the play button below. Scroll down for the transcript.
Faith & Finance Live with host Rob West airs weekday afternoons on Moody Radio. A different version airs weekday mornings on American Family Radio.
(More radio appearances by members of the SMI team are posted on our Resources page.)
Transcript
Rob West:
Are your investments all rowing in the same direction? It might be time to rebalance the boat.
Hi, I'm Rob West. For years, U.S. stocks have led the way, but when everyone crowds to one side of the market, a shift is often just around the corner. Mark Biller joins us today to explain why foreign stocks might be the next wave of opportunity, and then it's onto your calls at 800-525-7000.
This is Faith & Finance Live — biblical wisdom for your financial decisions. (opening music ends)
Well, it's great to have my friend Mark Biller on the program. Mark is executive editor at Sound Mind Investing, an underwriter of this program. Mark, great to have you back.
Mark Biller:
Thanks, Rob. Good to be back.
Rob West:
Let's begin with why U.S. investors should pay more attention in your view to foreign stocks right now.
Mark Biller:
Yeah, Rob. Well, the main reason is diversification. That's the main reason to consider putting foreign stocks in your portfolio. They're just another way to have equity exposure within your portfolio, but foreign stocks tend to move a little differently, their own drummer, if you will, as opposed to U.S. stocks.
And this year's been a good example of that. During the first quarter of the year, before all of the tariff stuff really kicked in April, U.S. stocks were down a little over 4%, whereas a common foreign fund that we use in one of our SMI strategies was up over 8%. So while your U.S. stocks were down, foreign stocks were up. That's really what you're looking for when you're trying to diversify a portfolio.
It's important to point out Rob, that while a lot of people today don't have any foreign stock exposure, if we were to go back, say 20 years ago, nobody would've blinked an eye at the thought of having 20% or even more of their stock portfolio invested in international stocks that used to be pretty widely considered to be a normal practice.
The main reason that a lot of investors have quit doing that in recent years is because the U.S. stock market has been so strong for the last 10 to 15 years. In fact, if we look back over the last 14 years, U.S. stocks have gained four times as much as foreign stocks. So, no surprise when investors keep seeing U.S. stocks outperform, they've gradually just given up on foreign stocks.
But in this article that we're discussing today, I put some examples in there of how we've been in this situation before and we've seen the pendulum swing back the other way, which has in the past often caused foreign stocks to outperform for the next several years after we get to such an extreme as we've had lately.
Rob West:
Yeah, that's really helpful. Give us an example of that, Mark.
Mark Biller:
Yeah, sure. So the late 1990s were a pretty similar environment to the recent market in a lot of ways. That was, of course, the tech bubble when the whole world went crazy for U.S. internet stocks. That was kind of similar to how the whole world has gone crazy the last few years for our Magnificent Seven tech and artificial-intelligence stocks recently.
So if we go back to 1995 to 1999, the S&P 500 gained over 20% five consecutive years in a row, and that helped U.S. stocks outperform foreign stocks by about a two and a half to one ratio over those five years. But sure enough, after the dot-com bubble peaked in March of 2000, it flipped back the other way for the next seven-and-a-half years, and foreign stocks outperformed.
Rob West:
Interesting. Back on Faith & Finance Live after this. Stick around.
Rob West:
Mark, we're talking today about a great article you all have in the most recent SMI newsletter. It's titled Time for Foreign Stocks to Shine? And folks, if you want to check it out, you can read it at soundmindinvesting.org. That's soundmindinvesting.org.
And Mark, you were sharing a bit about just some examples on where foreign stocks can shine when everyone crowds to one side of the boat. As I said in the opening of the program today, markets have a way of "readjusting the seating," and I'd love for you to unpack how that works.
Mark Biller:
Yeah, that's exactly right, Rob. And a big part of why foreign stocks look so intriguing today is that U.S. stocks have become so richly valued over the last 15 years while foreign stocks have gotten pretty cheap, largely because investors have been ignoring them. So the average price-to-earnings ratio for the U.S. market was recently around 26. While for the rest of the world, it was about 16.
And listeners may not know exactly what that means, but the big picture is that U.S. stocks are very expensive by historical standards while foreign stocks have become fairly cheap.
Now, one thing I should add to that, Rob, is we constantly drill into SMI members that valuation by itself really isn't a helpful timing indicator. Foreign stocks have been cheap for a while now, but what that does tell us is [that] with such a big valuation gap, if we do see the pendulum start to swing back in favor of foreign stocks, then that just tells us that this could be a move that could last for a while.
So it's the kind of thing where if someone saw that one of our SMI strategies had us moving into foreign stocks as far back as January, they might think, "Well, that move is probably over. I missed it." And I don't think that that's what we're talking about here, Rob. I think this could be the kind of thing where it took us 14 years to get to this position of U.S. stock dominance, and it may not be 14 years going back the other way, but this is probably a move that's going to have some legs if it continues to develop.
Rob West:
Yeah. Now, Mark, clearly the market has been incredibly volatile as of late, driven largely by — at least most recently — the tariffs and the uncertainty surrounding the tariffs. A lot of economists and CEOs saying while a recession was unlikely, though very possible with the slowing of the economy, most are now counting on it, I guess, because of the tariffs. But still so much remains to be seen. Is this just a negotiating tactic? Are they here to stay?
How does just the uncertainty right now in the markets, and especially given the disruption geopolitically? How does that affect investing internationally?
Mark Biller:
Yeah, that's a great question. And unfortunately, so many questions right now, there's an awful lot of this is kind of unprecedented, so we're going to have to wait and see. But generally speaking, in the past there has been a lot of truth to the idea that "When the U.S." — I don't know what the expression is exactly — "the U.S. sneezes, the rest of the world catches a cold." In other words, when the U.S. has serious economic or market problems, the rest of the world's markets tend to follow along.
Now, one thing that I think is kind of unique in this setup potentially, Rob, is the U.S. is kind of unilaterally going into these trade spats and tariff arguments with all these other countries, but if you turn it around from the other side, all these other countries are not having similar types of trade disputes with each other.
And so there is the potential that to an increasing degree, the other countries kind of look at each other and go, "Well, the U.S. has given us grief right now and they don't want to trade with us on terms that we like, but we can still trade with each other on terms that we like."
And so I think that there is some potential for a little bit of a pivoting away from everyone's focus being, "How do I access that U.S. market that's so attractive?" And maybe there is a little bit more thought that goes into, "Okay, we're going to lose a little bit trading with the U.S. in terms of what we've been able to do in the past, but maybe we can make that up by trading more with each other." So that could offset a little bit of that.
I think the bigger dynamic there, Rob, is that the U.S. financial markets have benefited for so long from inflows of capital from investors around the world. And as we put in place policies — the tariffs are an obvious example, but also things like rearranging the defense agreements around the world so that other countries now are saying, "We have to spend a lot more money on our own defense, on our own economies" — what you're seeing is then probably a tendency for foreign investors to say, "Well, if we're going to be spending all this money at home, maybe I'm going to take some of my U.S. money and bring it back home where all this action is."
And so even just a little readjustment in those capital flows from the rest of the world into the U.S. now all of a sudden maybe being outflows from the U.S. back into home markets, that can be a powerful tailwind to foreign markets and potentially a little bit of a headwind for U.S. markets.
Rob West:
Let's dive into some questions today. Mark Biller here. We're talking investing, and specifically for the moment foreign investing. Don is holding there in Illinois. Go ahead, sir.
Caller:
Yeah, thanks Rob. I want to ask Mark a question. I was thinking about allocating some money differently. And I've been watching the international mutual fund that I kept an eye on, but it's [an] "international value" fund and it's been doing really well, and I like what you said that it might not be too late to get in on the party. So what's your opinion on international value funds?
Rob West:
Excellent, Mark?
Mark Biller:
Yeah, Don, I like it a lot. We actually recommended a particular international value fund at the end of March in our upgrading strategy, which is one of our actively managed approaches. So I'm definitely on board with the idea of international value. And I think that right now in particular, as I was mentioning earlier in the program, a lot of foreign companies have just been ignored to the point where there are some tremendous values out there internationally.
And I've heard other fund managers talking about how the types of opportunities that really have just not been available in U.S. markets from a valuation standpoint for many years, we're starting to see those types of valuation opportunities in foreign markets. So I think there's a lot to like there, Don.
Now I hope that I'm not coming across wrong in that I'm definitely not suggesting that people get rid of all their U.S. exposure and go a hundred percent into international stocks or anything like that. But from the starting point where most U.S. investors are today, which is that they have either no international exposure or very low, I think that adding maybe 10% to 20% of their stock portfolio into international stocks makes an awful lot of sense today because of the valuation disparities as well as some of the other immediate catalysts.
So I like the sound of it, Don. Rob, anything to add?
Rob West:
No, I think that's great. Don, hopefully, that gives you what you're looking for. It sounds like you're on the right track there. Thanks for calling.
Mark, you mentioned the "Upgrading" strategy, and this is really a unique offering for folks that want to keep control over the buys themselves without delegating to an advisor, but want somebody making those mutual fund recommendations as they move in line with the momentum and technicals of the market. Will you just give a 30-second overview of that?
Mark Biller:
Yeah, absolutely. So we are trend followers. We use rules-based strategies so we're not sticking our finger in the wind saying, "Well, I like this idea. I like that idea." Now we're actually monitoring the market's own trends and prices, and that does lead us sometimes to move money from one part of the market, like a small company U.S. stocks into another part, like foreign value stocks.
And so that is a process that we watch the market month by month, and in our newsletter we will say very specifically for our members, "It's time to sell fund ABC and buy fund XYZ." And so our members don't have their money managed by us necessarily — the newsletter folks — but they get those instructions each month in the issue of SMI, and then they log into their own accounts at Schwab, Fidelity, or wherever they have their account and they make their own transactions.
So they are fully in control of all of their own trading and their own accounts, but they're getting that "do it yourself with help" from us in that we're the ones that are telling them when it's time to make a move and exactly what that move should be.
So it's kind of a good middle-of-the-road for somebody who maybe doesn't want to turn everything over to an advisor and have them do it all, but they don't feel confident that they know exactly what to do themselves. It's kind of a middle ground for those do-it-yourselfers.
Rob West:
Yeah, that's helpful. Thanks for that. 800-525-7000 is the number to call. Mark Biller here today, taking your investing-related questions.
Mark, let's dig into just a couple of those additional factors that you're seeing that would give rise to why we shouldn't overlook foreign investments in our portfolio.
Mark Biller:
Yeah, Rob. Well, one of the most important ones is that government spending trends are really reversing. So we're all aware that here in the U.S. we've had a focus on DOGE on trying to get our budget deficit down. Well, as part of the negotiations, again going back to that defense situation where we're wanting our allies to spend a lot more money on their own defense, a lot of those countries that did not spend as much — their governments did not, I should say, following COVID — all of a sudden ramping up their government spending. And if there's one thing we've learned in the few years since that government spending, when we think of government spending, we don't always think it through, but that money, where does it go? Well, it usually goes to companies in those countries.
And so as we're cutting back on our government spending, our government spending over the last three or four years has been a huge boost to the U.S. market. Now we're reversing that, we're seeing those spending flows happen in other foreign countries, and it's reasonable to assume that those fiscal impulses will be a big boost to those foreign stock markets. So that's one of the immediate catalysts to look at to say why we think foreign markets are ready to roll.
Rob West:
And as Mark said a moment ago, this is not about selling out of the U.S. to go only foreign, but why — if you've overlooked the foreign markets through stocks or mutual funds or ETFs — it's a part of a properly diversified portfolio. And now might be a really opportune time for that portion of your portfolio.
Check out this article Time for Foreign Stocks to Shine? — soundmindinvesting.org.
Back with Mark Biller, our final segment after this break. Stay with us.
Rob West:
Let's head back to the phones. We're going to go to Cleveland, Ohio. Lynn's been waiting patiently. Go ahead.
Caller:
Hi, thank you so much for your program, and I really have appreciated it.
Rob West:
Well, thank you.
Caller:
I'm a widow for two years and I'm a little jumpy with the economy. I have most of my portfolio, if you would, is with [a] work IRA [sic], and I had upped my amount that I've been putting into it to 18% of my income.
I will be able to get my widow's pension in another about three years. I'm 64, so I will have that. That won't be enough to retire on, so I'll plan to continue to work to supplement it.
But my question is if I should decrease the amount I'm putting in my IRA [sic] to from 18% to 10% — I have a 6% match at work — and put the extra money into a high-yield savings account? I would like to retire when I'm 69, and I don't want to take my own Social Security till I'm 70. So for that one year I would need some cash available.
I do have a financial advisor and they are — it's Fidelity — but they are using the international stocks to try and kind of cushion the things going on in the economy.
Rob West:
Yeah. Well, that was a really helpful overview, Lynn, and you're doing a great job. It sounds like you've got a lot of great pieces in place.
Let me just clarify a few things. So you're 67 now, planning to work for another two years. You'll have one year between 69 and 70 where you'll be funding 100% percent of your monthly need for your lifestyle out of your retirement 401(k) because you're going to delay — which I like —delay taking Social Security to age 70. Is that correct? Did I have that right?
Caller:
Yeah, correct. Except I'm 64, and so I have a couple of extra years of working.
Rob West:
Okay, great. So got, yeah, another five years before you're planning to retire. What is your balance in that 401(k) right now?
Caller:
About $450,000.
Rob West:
Okay, and you said you're putting in 18% and the company's matching 6, and you're looking at perhaps dropping it to 10% to boost your high-yield savings. What do you have in savings today?
Caller:
Right now in savings I have — well, between checking and savings — I have about $35,000, which is my emergency [fund].
Rob West:
All right, and what do you spend in a typical month?
Caller:
About $4,000.
Rob West:
Okay, got it. Yeah, so I mean, at this point with $35,000 in the bank, you've got almost nine months' worth of emergency reserves, so that's great. It sounds like you're properly diversified. I know you mentioned you even have foreign stocks. Mark, I'm thinking if she can continue to put away at this level — 18% plus the match for these next five years — she should be in pretty good shape. I mean, let's say that grows to $600,000 — pulling $24,000 a year is a no-brainer. Perhaps even as much as she needs with $4,000 a month, maybe that drops to $3,500 for that first year shouldn't be a big deal because then that would largely be offset by Social Security. But what are your thoughts?
Mark Biller:
Yeah, I agree with all of that, Rob. The one piece that I think may make a little sense for you, Lynn, is if you're looking to split the difference — I'm reading into your question that maybe you're a little nervous about markets and whatnot, which might be one reason why you want to decrease the investment part and move some of that into savings, which is safer — one option that could kind of bridge that gap a little bit would be to add a small gold allocation to your holdings. That can give you a little bit more upside and a lot more protection against the potential of higher inflation — higher inflation is one of the big reasons why you wouldn't want to overdo the savings that could lose ground if we do see a little higher inflation rate in between now and when you need to use that savings.
So a small allocation there, which you could do if you have an IRA, you could add some there — maybe even within the 401(k), depending on your options. But that might be a nice little supplement, and I'm not talking about a huge amount, but somewhere in the 5% range or something like that. That might a nice option that you could kind of think of as savings. It's going to move around more than a savings account would for sure, but it would give you a little bit of inflation protection while you continue to build both of these other pieces that we've been talking about.
That's really the only other thing that stands out to me though, Rob.
Rob West:
Yeah, I like that a lot. Lynn, I don't know that you mentioned you had some foreign stocks — and if you said this, I apologize, but what is that breakdown on your 401(k) between stocks and bonds? Do you know percentage-wise?
Caller:
Yes, I am at 60-40 — 60 stocks and 40 bonds.
Rob West:
Okay. So yeah, I guess that would be the only question. I mean that is a little rich just from a typical allocation, Mark, for somebody five years out from retirement. But what are your thoughts on 60/40, with 60 being in stocks?
Mark Biller:
Yeah, it is, and under normal circumstances, I would probably be a little more inclined to maybe add to the bonds. I don't love bonds here right now, Rob, honestly, because as we've seen over in the last couple of weeks, bonds are acting weird right now.
We've had stocks falling, we've had economic growth falling. Normally, that would be good for bonds, and yet we're seeing longer-term bond yields rising at the same time.
So I'm not sure, I would love to bump up that bond exposure a lot here. But there again, not to beat the same horse, but in some respects that gold piece might be a nice little additional holding — where maybe it goes to like a 55% stocks, you hold onto the 40% bonds, and you add that 5% in gold or some investment similar to that. That might be a good diversifier for you.
Rob West:
I think big picture, Lynn, you're doing great. You're on the right track here and just based on the limited information we have, it sounds like we're saying stay the course and perhaps to Mark's point, if you're going to do anything, maybe add some gold exposure either through the 401(k) if you've got it, or if you also have an IRA. You certainly could do it there, and you could even look at one of the tracker ETFs without having to buy the physical gold — like GLD or there's maybe a dozen of them or more. So hopefully that helps you.
We appreciate your call.
Quickly to Spokane. Arlene, we have just a minute and a half. Go ahead.
Caller:
I'll be really quick. Thank you so very much. You guys have got an awesome program that we all get to benefit from. I have two quick questions that you can ask [sic]. Doing some recent investing, and I see people, professionals that have all different kinds of initials behind their name, like CLU, ELP, Certified Financial Planners, different types of financial advisors.
Could you give me definitions maybe for those types of professional people and who would be a good one to look for general investing? And the second question that I had was about that list of percentages. How much of my portfolio should go for precious metals? How much should go into savings, how much should go elsewhere? And that's it.
Rob West:
Let me start with the first one. I'll get Mark quickly to weigh in on the second. You're typically going to hear a few terms when it comes to investment professionals. You're going to hear RIA, which stands for Registered Investment Advisor. You'll also hear financial advisor or broker-dealer, and then you'll hear Wealth Manager. Any of those can be great. I think the key is typically what folks are looking for is something called a "fiduciary," where they're required to put your interest ahead of their own. And so we would say that on top of that experience and that status as a fiduciary.
CKA [Certified Kingdom Advisor] is the designation we like. It's our designation. It's the only one in financial services for investing professionals that can bring a biblical worldview. And they've met all kinds of other requirements — experience and character and competence and pastor reference client references. They've been through a training program, a regulatory review. So it's a pretty robust designation that's going to give you a lot of confidence that this is somebody that not only matches your values, but also can bring a wealth of experience. You can find a CKA in your area when you head to faithfi.com and just click "Find a Professional."
Unfortunately, we're not going to be able to get to that second part. But Arlene, I'd love for you to call back on a future broadcast.
Mark, just about out of time. But so appreciate you and all that you and the team do at Sound Mind Investing. Thanks for being here today.
Mark Biller:
Thank you, Rob.
Rob West:
All right. Folks, if you want to check out this article, I'd encourage you to do so. It's a great read. Just head to soundmindinvesting.org and look for Time for Foreign Stocks to Shine?
Big thanks to Tahira, Jim, Dan, and Deb. Faith & Finance Live is a partnership between Moody Radio and FaithFi. We'll see you next time. Bye-bye! (theme music ends)
