Ch5. Stock Investing — US Market Strategy & Global Diversification

The Case for US Stocks

Why US equities dominate global portfolios:

• World’s largest and most liquid capital market
• Home to global leaders in every major growth sector
• 100+ years of well-documented market data
• Dollar liquidity as global reserve currency

S&P 500 historical performance:

• Long-run annualized return: ~10% (nominal), ~7% (real after inflation)
• No 20-year period in history has produced a negative total return

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Core US Market ETFs

ETF	Index Tracked	Expense Ratio
VOO	S&P 500	0.03%
VTI	US Total Market	0.03%
QQQ	NASDAQ-100	0.20%
VIG	Dividend Growth	0.06%
VYM	High Dividend Yield	0.06%

Recommendation for most investors: VOO or VTI provides broad US exposure at minimal cost.

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International Diversification

The US represents ~60% of global market capitalization. Adding international exposure:

ETF	Coverage	Expense Ratio
VEA	Developed Markets (ex-US)	0.05%
VWO	Emerging Markets	0.08%
VT	Total World (US + International)	0.07%

Simple global portfolio:

• 60% VTI (US total market)
• 20% VEA (developed international)
• 10% VWO (emerging markets)
• 10% BND (bonds)

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Tax Efficiency for US Investors

Tax-advantaged accounts first:

• Hold REITs and high-dividend stocks in tax-advantaged accounts (IRA, 401k) to defer/avoid taxes
• Hold tax-efficient index funds in taxable accounts

Capital gains timing:

• Long-term capital gains (held >1 year): 0%, 15%, or 20% depending on income
• Short-term (held <1 year): Taxed as ordinary income (up to 37%)
• Strategy: Hold at least 1 year before selling winners

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