[anotherman554]

In the context of investing there's also the problem of recency bias. You see investors arguing whether "the facts have changed" as to whether investors should invest outside the U.S., for example, when U.S. stocks have done well for a decade, and other investors accusing the U.S. only group of having recency bias.

[jdmichal]

Is that entirely recency bias, or also changing facts? Economies are very interconnected now. It's hard to imagine a scenario today where a global economic power enters a large recession, but there's some other economy out there that gets by relatively unscathed. And by that I specifically mean: providing a return differential large enough to justify the upside risk of investing there in the first place.

[anotherman554]

Since 2018 U.S. stocks have returned 9.59% per year (I checked with Portfolio Visualizer) and international stocks have returns 1.83%. I don't see how that supports the idea that economies are very interconnected and investing outside the country can't produce a large return differential.

We also haven't had a official recession in the U.S. over that time period, I believe, so the topic of recession seems like a red herring.

[jdmichal]

> Since 2018 U.S. stocks have returned 9.59% per year (I checked with Portfolio Visualizer) and international stocks have returns 1.83%.

Right, so there's your 8% per year upside risk. So during US recessions, do international stocks provide a differential return against US stocks that is high enough to support that 8% yearly upside risk?

(And, even if they do, now it's a matter of timing the market...)

> I don't see how that supports the idea that economies are very interconnected and investing outside the country can't produce a large return differential.

I didn't say it wouldn't provide any differential. I implied that that differential will either always be negative or positive but small enough that it's not worth moving.

Or, in other words, US or European recessions would equally tank foreign investments dependent on US or European consumers. Of course these markets would be somewhat resistant based on the strength of their own local economies, but are those economies strong enough to provide solid returns through a US or European recession? And if they are, is the differential high enough to risk the 8% yearly upside during non-recessions?

[anotherman554]

I've never heard an investment expert use a term like "8% yearly upside risk" and suspect there's some errors in your thinking.

Look at it this way:

Imagine you have $200 dollars to invest. You can invest in country A or Country B. You know in a year one country will be up 10% and one will be up 1%. You don't know which country will be up the 10% and which will be up the 1%.

In a year, you need $205 dollars. Unless you like to live dangerously the rational thing to do is invest equally in both countries where you'll get a 6 dollar return. If you pick a single country you'll have a 50% chance of not having enough money.

Of course real world investing is more complicated, but my example demonstrates it's about probabilities of success at meeting your goals. Country A and country B have equal expected returns but investing in both decreases the probability of running out of money when you need it. Or it should, if we've modeled the expected returns of each country correctly.