This financial guru explains why you should be bullish on the long-term prospects of the U.S. economy!
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This financial guru explains why you should be bullish on the long-term prospects of the U.S. economy!
Stocks…
Bonds…
Cash…
According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, throughout the history of modern U.S. investments, stocks have outperformed EVERYTHING ELSE.
For instance: Look at the bond market. Over the past 150 years, data has shown that U.S. stocks have outperformed bonds by an average of 4.6% per year.
Meanwhile, if you simply sit in cash, Professor Litman says you’ll lose your money to inflation.
Gold isn’t a better option either. Over the past hundred years, it has barely returned more than 1% per year.
This is the whole point of the stock market.
Sure, it’s riskier than bonds, gold, or cash in the short term. However, over the long term, Professor Litman says nothing could be riskier than not owning stocks.
… but take note: This trend isn’t mirrored globally.
For the rest of the world, stocks and bonds both return around 5% annually. In this case, the risk of investing in stocks doesn’t seem worth it when your money would do just as well in other safer assets.
… and so today, we’ll discuss why the U.S. has remained an outlier for so long. We’ll also explain why Professor Litman believes the U.S. won’t start acting like the rest of the world anytime soon.
What Makes the U.S. Different from Other Countries
One of the defining characteristics that sets the U.S. apart from the rest of the world is its willingness to let companies die.
Yes, you read that right. DIE.
The country is unlike Japan, which created an army of near-dead companies when it prevented bankruptcies back in the late 1980s.
A similar situation seems to be brewing in China’s real estate sector. Chinese housing developers are sitting on mountains of debt… and billions of square feet of unsold homes.
Then, instead of letting the bubble burst, the Chinese government is doing whatever it can to sell those homes.
For one, the country is easing its mortgage lending standards and cutting borrowing costs.
The U.S. is far from being like that…
According to Professor Litman, America doesn’t step in to save dying businesses—at least, not often.
… and while that can lead to lots of bankruptcies, it also refreshes the U.S. economy every cycle. It also opens up the field for new competitors!
For example: In 2023, ATM maker Diebold Nixdorf went bankrupt as it struggled with rising interest rates.
It was in that position in the first place because the banking sector is becoming more digital, with entirely digital banks that don’t own a single ATM such as Discover Financial Services (DFS) and SoFi Technologies (SOFI) emerging in the market.
As the U.S. moves toward a near-cashless society, there’s no need to keep stringing an ATM maker along. So, the government let it fail.
Likewise, when companies are innovating, growing, and succeeding, regulators don’t step in to slow them down without good reason.
E-commerce titan Amazon (AMZN) is a great example of this. Amazon has expanded from online retail into areas like health care, groceries, and entertainment.
On the contrary, its Chinese counterpart, Alibaba (BABA), was forced to give its Ant Group financial affiliate over to the Chinese government.
See the difference?
The U.S.’ antitrust regulators are supposed to make sure companies like Amazon don’t use their scale to overcharge consumers or limit competition.
That said, regulators aren’t going to stop companies from innovating simply out of fear that they’ll perform better than their peers.
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It’s no secret that Professor Litman is bullish about the long-term prospects of the U.S. economy.
… and data backs him up.
With a median Uniform ROA of 14%, the U.S. tops the rest of the world’s biggest economies. Next to it is China, with only a median Uniform ROA of 10%.
As explained above, one of the reasons U.S. returns buck the trend is because the country lets innovation dictate which companies win.
At the same time, it doesn’t get in the way of letting those companies win BIG.
That’s why it’s no surprise that U.S. stocks outperform bonds. After all, many of the most profitable businesses on the planet are in the U.S.
This is also the reason why Professor Litman is bullish on U.S. equities in the long-term. He believes as long as this cycle of innovation remains intact, the U.S. stock market will continue to outperform others.
Hope you’ve found this week’s insights interesting and helpful.
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Stay tuned for next Wednesday’s The Independent Investor!
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