We have been advocating Freedom Investing since 2004. Every year, the Heritage Foundation evaluates all the world’s countries using their Index of Economic Freedom, where a high score correlates to nearly every positive measure of a country. We then use this ranking and efficient frontier analysis to craft our Foreign Stock investment strategy that we call “Freedom Investing.”
A year ago markets were near the bottom of the 2020 COVID Bear Market and many investors were worried about staying in the markets. Since then, the stock markets have had some of the best returns. Those who flat-lined to cash or who waited to invest their cash until the markets looked better missed out on the recovery. In the long-run, these dramatic dips are but V’s in the mountain chart. The recovery from down markets is part of the success of your retirement plan.
While many have been following the domestic returns and recovery, fewer investors know how well foreign investments did this past year. Below, you can see a table of how developed, emerging market, and overall Freedom Investing performed both compared to their components and to the benchmarks.
In this analysis, I have used the actual products we are investing in rebalanced monthly to our static asset allocation targets with returns ending March 31, 2021. This analysis does not reflect our dynamic tilt or our individual stock foreign health care strategy, both of which we implement in client portfolios.
For benchmarks, I have used actual products as comparison. The EAFE (EFA) should be compared to Developed Freedom Investing, Emerging Market (VWO) should be compared to Emerging Market Freedom Investing, and the All World ex-US (ACWX) should be compared to the Overall Freedom Investing.
In this way, you can see that in 1-year returns, Developed Freedom Investing had a +2.85% advantage, Emerging Market Freedom Investing had a +1.14% advantage, and Overall Freedom Investing had a +2.21% advantage.
|iShares MSCI EAFE ETF (Market Return)||EFA||3.99%||20.36%||25.85%||45.32%|
|Developed Freedom Investing||3.05%||20.44%||25.44%||48.17%|
|Emerging Market Freedom Investing||5.06%||23.49%||34.28%||59.64%|
|Overall Freedom Investing||3.63%||21.38%||28.31%||51.91%|
|iShares MSCI ACWI ex US ETF (Market Return)||ACWX||4.03%||21.12%||28.82%||49.69%|
Photo by Matthew Henry on Unsplash. Return data gathered from Morningstar Advisor Workstation.
Originally, we incorrectly calculated the 1-year return calculations in the table and overstated that “Developed Freedom Investing had a +6.97% advantage, Emerging Market Freedom Investing had a +6.66% advantage, and Overall Freedom Investing had a +6.79% advantage.” We have since corrected the table and updated the return summary to “Developed Freedom Investing had a +2.85% advantage, Emerging Market Freedom Investing had a +1.14% advantage, and Overall Freedom Investing had a +2.21% advantage.”