Investors who are nervous about recent market volatility should consider the overall composition of their equity portfolio. Although U.S. stocks are near a record high, other areas of the financial markets are far below peak levels.
U.S. stocks have fared exceptionally well in recent years, and valuations remain somewhat elevated, even after the recent 9% decline. However, foreign stock markets remain well below their peak levels of 2007, and in many cases exhibit valuations that are attractive by historic standards.
Low valuations may serve to cushion downside risk in certain foreign markets, and could set the stage for attractive long-term returns.
Investors who focus solely on the performance of the U.S. stock market may overlook this important dynamic within their portfolios.