The Ignorant Investor

Quick note here on a real world example of the way assets classes tend to converge in their returns as long as you look at a long enough time frame. Comparing the Vanguard S&P 500 Index Fund and the company's Global Equity Fund, we see about the same average return over the past ten years. But if you look at the chart, you see that the S&P 500 Fund skyrocketed in the initial period of that ten year period, but since the bubble burst has mostly been flat. Compare that with the foreign equities fund, which muddled along unhappily for most of the past ten years until it had a skyrocketing period of its own beginning in 2002. Notice the way the two lines come together:


Source: Vanguard

An investor who invested $10,000 solely in either fund 10 years ago would have had long periods of frustrating returns, but would still have ended up with the same amount of money. Some sharpie someplace may have switched out of the S&P 500 into the Global Equity Fund around 1999, and if so, that person is now very happy. But from my own perspective, I think that when you go looking to play the index equivalent of Frogger you're timing has to be impeccable. Whether someone can do that consistently, I don't know.

I suppose there's a lesson here that when you think an index/asset class has gotten too expensive, look to the ones that have lagged for better returns.