Today, global household wealth, as noted by October’s Global Wealth Report from Credit Suisse, stands at $263 trillion. Capital markets form a major source of growth in this wealth, with over $50 trillion dollars invested in global stock markets. Earlier this year, a McKinsey Global Insights report stated that the global goods, finance and service flows reached $26 trillion in 2012 – 50% more than in 1990. It’s obvious, both by the numbers and our everyday experiences, that the world is becoming more connected through greater data accessibility, freer capital markets, and increasing trade.
The benefits have been seen by the markets – JP Morgan’s data shows the S&P 500 index has returned over 8% annually over the past 20 years. However, the risks continue to exist. In fact, diversification is yielding lesser benefits, considering correlations between world markets – emerging regions and Europe, Africa and the Far East with the S&P 500 index – have increased from approximately .5 to .7 or more in the same span, meaning markets behave more in sync with each other compared to before.
Meanwhile, while the S&P 500 returned over 8% annually, the individual investor only made 3.5% in the same span, according data from QAIB. Why the underperformance? We believe it could be due to human biases arising from selection, impatience, simply the lack of information about the ease, accessibility, or value of investing – or perhaps not knowing where to invest. Staying informed, therefore, is critical to making the right investment decisions. EconomicStreets aims to bring information, facts and opinions that could use a second glance as we go about our lives, by tying together macroeconomics, finance, and investment research to allow investors to make informed decisions, benefit with the market, or simply better understand the role these subjects play in our daily lives. Stay with us for insights, updates and information here at EconomicStreets.com.
