Time for Foreign Stocks to Shine? with Mark Biller

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Learn more at soundmindinvesting.org Since 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 on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial decisions. Well, our guest Mark Biller is executive editor at Soundmind Investing and underwriter of this program. Mark and his team are always watching the markets, so you don't have to. Mark, great to have you back. Thanks, Rob.

Good to be back with you. Mark, why should U.S. investors pay more attention to foreign stocks? Yeah, well, the main reason, Rob, is diversification. You know, foreign stocks are another way to have equities in your portfolio, but yet they move a little differently than U.S. stocks. And this year's been a great example of that. During the first quarter of this year, U.S. stocks were down about 4%, while a common foreign fund that we use at SMI was up over 8%. So they really marched to their own drummer, at least at certain times. Now, 20 years ago, nobody would have thought twice about having 20% or more of their stock portfolio invested in international stocks.

That was pretty normal practice, really. But a lot of investors have quit doing that in recent years, and a big reason for that is because the U.S. stock market has been so strong lately. So the article discusses how over the last 14 years, U.S. stocks have gained four times as much as foreign stocks. So not surprisingly, a lot of investors have seen that and they've just given up on investing in foreign stocks altogether. There are some examples in this article of how we've been at this point before only to have the pendulum swing back the other way and see foreign stocks outperform for several years in a row. Yeah, really interesting. Give us an example of that.

Yeah, sure. So the late 1990s were actually a pretty similar market period in a lot of different ways. That was, of course, the tech bubble when the whole world went crazy for U.S. internet stocks much the same way that everyone has fallen in love recently with the magnificent seven tech and AI stocks over the last few years. And from 1995 to 1999, the S&P 500 gained more than 20% each year for five consecutive years. Well, that helped U.S. stocks gain two and a half times as much as foreign stocks during that five year period.

But of course, then the dot com peak came in March of 2000. And after that performance for U.S. stocks versus foreign stocks flipped back the other way. So over the next seven and a half years, U.S. stocks really didn't go anywhere. They were up just 13% total in seven and a half years. Meanwhile, foreign stocks did a lot better.

They gained almost 70% over those seven years. So it really helped to have that international diversification. Exactly. And like we said at the top of the program, when everyone crowds to one side of the boat, markets have a way of readjusting the seating, don't they?

Yeah, that's exactly right. And a big part of why foreign stocks look so intriguing today is that U.S. stocks have become really richly valued over this 15 years of outperformance. Meanwhile, foreign stocks look pretty cheap as a result of being largely ignored. You know, the average price earnings ratio for the U.S. market is around 26 today.

For the rest of the world, it's about 16. So that just means that U.S. stocks are really expensive by historical standards, while foreign stocks look relatively cheap. Now, I should add to that, Rob, we often tell our SMI members valuation is important, but by itself, it's not a helpful timing indicator. And we can see that foreign stocks have been cheap for several years now. But what that valuation gap does tell us is that if the pendulum does start to swing back in favor of foreign stocks, that's a move that could last for a while.

And that makes sense because it took us 14 years to get to this one sided condition in the first place. But it's important to know that the valuation alone doesn't really tell us when that's likely to happen. That's great information. Well, folks, if you want to check out their article we're talking about today, just head to soundmindinvesting.org and click Time for Foreign Stocks to Shine.

Much more with Mark Biller when we come back right after this break. Faith and Finance is grateful for support from Soundmind Investing. If you have money in an investment account, you know sometimes the stock market can seem like a roller coaster.

But it's possible to enjoy both profit and peace of mind as a do-it-yourself investor, no matter what's happening in the market. A short video webinar about that is available at soundmindinvesting.org. Financial wisdom for living well, soundmindinvesting.org. Could this be the time to think about adding foreign stocks to your portfolio?

I'm Rob West with me today, Mark Biller on faith and finance. We're talking about an article in the recent SMI newsletter. The article is titled Time for Foreign Stocks to Shine.

You can read it at soundmindinvesting.org. Mark, you were sharing before the break why this might be the time where the market is kind of turning over away from the outperformance of domestic stocks to foreign holdings. That's of course what the rest of the article covers. In fact, you get into six factors, potential catalysts that seem to be lining up in favor of foreign stocks. But before we get into those, tell us how the broad market setup has shifted since COVID and how that may play into a reversal toward foreign stocks.

Yeah, sure, Rob. So the massive government spending that we had in response to COVID really marked the end of a 40-year trend where we had progressively lower inflation and interest rates. And in the few years since COVID, that's reversed, and we've seen higher inflation and higher interest rates. Now, the reason that that matters is because the type of high-growth tech businesses that dominate the U.S. markets, they really thrive on that cheap money, those ultra-low interest rates. On the other hand, foreign markets really are much less heavily weighted toward tech. They favor more tangible businesses that in some cases actually become more valuable with higher inflation. So some of the ground rules shifting a little bit seemingly make things a little more attractive for foreign markets.

Yeah, no doubt. And in the article, Mark, you run through several Trump administration policies that actually may be catalysts to tip investor preferences toward foreign stocks. So tell us about a few of those.

Yeah, sure. And before I dive into those, Rob, I should point out that this isn't just theoretical. There's actually some evidence already that global investors are starting to vote with their feet a little bit. So during February and March, we did see significant outflows of U.S. stocks and stock funds, while foreign stocks had some pretty significant inflows. Now, one of the important catalysts that you're referencing for this kind of sudden interest in foreign stocks is that government spending trends are reversing. So over the last five years or so since COVID, the U.S. has run these enormous deficits. And those deficits, all that government spending really helped keep the U.S. economy out of recession. It created much stronger economic growth here than most other countries experienced. And those were important factors in the dramatic outperformance of the U.S. stock market.

Now, that dynamic is suddenly reversing. We've seen in the last couple of months, the Trump administration is very focused on cutting U.S. government spending. And at the same time, the tariff threats and the U.S. kind of pulling back from some of the world's military arrangements. These things have caused other countries to significantly boost their own government spending plans. So to kind of summarize that the U.S. is reducing its fiscal spending while the rest of the world is increasing theirs. And one of the big investing lessons from the last few years is that the level of government spending has a powerful short term impact on both economies and stock markets.

Yeah, that makes sense, Mark. Now you highlighted something called sequencing risk in your January article, previewing the new Trump administration. So I'd love for you to take a moment and explain that to our listeners, and how that idea may impact foreign versus U.S. stock performance.

Yeah, sure. So sequencing risk was just a term that I used to explain that a lot of the economic risks from these new Trump plans seemed likely to hit in the short term, whereas a lot of the benefits from those Trump plans might not really kick in until further down the road. And tariffs are probably a good example of this since they're they're all over the news right now. You know, initially, tariffs tend to be disruptive, they reduce economic activity overall, that's painful in the short term. Now, why are we doing them if they're painful?

Well, we're doing them anyway. Because the hope is that in the long term, they'll make the U.S. more prosperous with better jobs, more security around our ability to make key goods here at home. So what we're really talking about, Rob is a classic short term pain long term gain kind of a situation. Now that plays into this foreign versus U.S. stock dynamic, because the short term pain part is actually lowering U.S. economic growth estimates in the short run. Meanwhile, the response to our policies is causing a number of these other countries to take actions that are likely to boost their economic growth in the short run. And so when you just compare and this is what investors do, they look at declining growth here versus improving growth prospects in some of these other countries. And then they look at the relatively high priced U.S. stocks and the relative bargains available overseas. And it just starts to shift preferences a little bit at the margins from U.S. stocks towards foreign stocks.

Yeah, that all makes a lot of sense. Let's look at one more of the six you highlight in the article, Mark. Tell us about the flow of global capital and how that matters to this discussion.

Sure. So for the last 50 years or so, the world has largely run on the following economic agreement. That is, the U.S. buys everybody else's stuff, in other words, other countries exports, and then the rest of the world recycles a lot of those dollars that they get from us. And they plow those dollars back into U.S. financial assets. So in other words, foreigners buy a lot of U.S. stocks and bonds, and a lot of that is financed by our purchases of their goods. Now, that's arguably been a bad deal for U.S. workers. And that's why President Trump is wanting to change this global arrangement. But what really there isn't any controversy about is that it's been a great deal, a great thing for U.S. asset prices, because all these dollars coming into our markets have really caused U.S. asset prices to boom.

So the potential issue is that if we reverse this, or at least just kind of crimp it a little bit, and we stop buying as much stuff from the rest of the world, then it stands to reason there would be less U.S. dollars being reinvested into U.S. stocks and bonds by foreigners. Well, that's a lot of great information, Mark. All right, we're about out of time.

Tie a bow on this for us. What do our listeners need to take away? Yeah, well, first of all, Rob, we're not saying investors should dump all their U.S. stocks and buy foreign instead.

It's not an either or kind of thing. We're just saying that it may be a good time to consider adding back a little bit of international diversification, especially for people that have completely stopped investing in foreign stocks. Foreign stocks are attractively valued relative to the U.S., and there are a bunch of factors converging right now that could be starting a performance move back in that direction.

Yeah, that's really fascinating. Well, I suspect a lot of our listeners will want to learn more about this, and the article we've been discussing today would be a great place to go. Just head to soundmindinvesting.org and click on the article, Time for Foreign Stocks to Shine. Mark, thanks for being with us, my friend. Always my pleasure. Folks, again, if you want to learn more, go to soundmindinvesting.org.

The article is titled, Time for Foreign Stocks to Shine. All right, a quick break and then back with your questions, 800-525-7000. That's 800-525-7000.

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More information is available at praxisinvest.com. Great to have you with us today on Faith and Finance. Looking forward to taking your calls and questions today. 800-525-7000. Again, that number 800-525-7000. The calls are coming in and we'll look forward to diving into those questions.

I have a few open, though, at the moment. So if you have a question, this would be a great time to get through. Again, that number 800-525-7000.

We're going to begin in New York. Hi, Mike. Go ahead, sir.

I recently found your show and I really love it. Thanks for what you do. Thank you.

I appreciate that. So I was actually looking for your opinion. I was looking to make an expensive purchase for something that's a want rather than a need. In my case, it's a watch. Just wondering if that would be a bad steward of God's money.

Where do you draw the line between treating yourself and overspending or maybe that money should be used for something else? Well, it's a great question, Mike, and I appreciate you asking it because really that's the heart of what we're trying to do here on this program. It's not just a list of how-tos and best practices to enrich ourselves, but it really is starting with this idea of finding the heart of God as it relates to managing His resources.

And I think that is the starting point to say, okay, wait a minute. First recognition is an understanding that I am a household manager. That's the best translation of the word steward in the New Testament. I'm a household manager of everything God has entrusted to me and I'm to use it to give generously.

I'm to use it to provide. But there is also this idea of enjoyment that we see in Scripture. We see it in 1 Timothy. We see it in Ecclesiastes 5. Everyone also to whom God has given wealth and possessions and power to enjoy them and to accept His lot and rejoice in His toil. This is the gift of God. And so I think enjoyment is a part of that. You know, money is a good gift from God for us to steward wisely.

We don't want to worship the creation over the Creator. It's a tool to accomplish God's purposes. But I think within the context of wise financial decision making, surrendered to the Lord, not finding our hope or our treasure in the things of this world, but in God Himself, once we have that right heart posture, Mike, then I think it's very appropriate to enjoy what God has given us. Now, does that mean it's, you know, inappropriate to take a nice vacation?

No, I don't think so. Because, again, money is a tool to accomplish God's purposes. So that's going to help deepen relationships and create some enjoyment. Again, as long as it's done within the context of wise decision making, we're not violating other principles by taking on a bunch of debt or being unable to give or save for the future. And I think the same would be true with a nice watch. I think at the end of the day, that's between you and the Lord. Nobody can tell you what kind of car to drive or how much house is too much or whether this watch is more than you should have.

I think it really starts with your checking your heart. And I'm talking to myself just as much as I'm talking to you. I think you need to have an honest conversation before the Lord to say, is this something just for my enjoyment? Or is this something that, you know, is occupying a place in my heart that's unhealthy? And, you know, it's really me wanting to, you know, go beyond what I feel like God would have me to do. But as long as your heart's in the right place, I would say it's certainly not inappropriate for you to enjoy some nice things as long as it's in the context of good, healthy decision making in terms of you're taking care of other priorities that we see in Scripture giving and saving and providing. And that it doesn't become the object of your affection where it can, you know, the things of this world, which we see in the parable of the sowers can choke out the word if we're not careful. You remember what it was that we see in that third soil that choked out the word from bearing fruit.

It was the deceitfulness of riches, the desires for other things and the cares of this world. And only you, I think, before the Lord can determine, is that becoming the object of your affection? And if not, I would say you're in pretty good territory there as long as you're being honest with yourself. Does that make sense, though? That's a great explanation, Rob.

Yeah, I think you're exactly right. That's perfect. Awesome. Well, listen, Mike, all the best to you, my friend.

I'm glad you found the program. Hey, stay on the line. I want to send you a gift. I want to send you our most recent edition of the Faithful Steward magazine. I think it'll be an encouragement to you as you begin to think about kind of what does it look like to live as a faithful steward? There's a great article in issue one about setting a financial finish line.

And I think, you know, as we think about how much is enough with regard to not only accumulation, but lifestyle, that will help you answer some of these questions around what is the appropriate lifestyle for a Christian? So you stay on the line. We'll get your name and address and get that out to you. And thanks for being a new listener. Let's finish in Orlando.

Hi, Barbara, go ahead. I had a question regarding a homeowner association. I own a unit in a condominium Association. And we've been assessed last year to the tune of $1,000 extra for a couple of months, maybe like six or seven months for the replacement of a roof for $2 million. We haven't heard anything and all of a sudden this year we get a letter that there's an additional assessment for $870,000 for my portion is like $781 per month. They claim that the original contractor for the roof was paid in the tune of $438,000 and they ran away with the money. My question is, is there any government agencies that can look into this to hold these people accountable for what is going on?

Because they're very powerful and I just feel like I'm in a vacuum. I want to know what rights do we have? Well, it really comes down to first of all, the laws of your state and the bylaws. So some states require homeowners associations to do an annual audit. Now if your state does not, in some cases bylaws will actually require it. Now if neither of those are in place, you have a state that doesn't require it and it's not in the bylaws, the members of the association can demand an audit.

And it's a good idea because that takes it off of anybody trying to defend themselves and it brings an independent third party in to uncover any potential financial wrongdoings and making sure that the HOA is performing in the best interest of the community. And so it's just a good practice. So if it were me and I had, you know, even if these weren't questions, I would be as a member of that community with us, especially in the situation you're in that has, you know, some major assessments going on.

An audit, although it's going to cost some money, four to $6,000 probably is very appropriate. And so I think that's your remedy here is to say, listen, we've got a lot going on and we need to have an audit here just to protect you all as the board, but also to make sure that the community feels like everything's being operated in the way that it should. And it's just a good best practice.

And yes, it's going to cost some money, but in the end, it's going to make this a much better place for everybody to live. And I would, you know, if it's not currently, you know, in the bylaws, I would find some others in your community that maybe share your perspective and together come to the next board meeting and demand that this be put in place. And I think that's perfectly appropriate. I hope that helps. Barbara, thank you for calling today. Well, if you want to support our work here at Faith and Finance, becoming a FaithFi partner would be the way to do that. There's already eight that have become partners just today. And as a thank you, we send you four copies of our magazine, Faithful Steward, all of our studies and devotionals.

You can check it out, faithfi.com slash give. Big thanks to my team today, Devin, Patrick, Jim, Henry, Taylor, Stan, Rich and Sandy Dickinson handling our phones today. Go out and live for Jesus today. Make God your ultimate treasure. Come back and join us tomorrow. We'll see you then. Bye bye. Faith and Finance is provided by FaithFi and listeners like you.