One of the key strategies for success in investing is diversification. It involves not just investing in various asset classes in  a single country but a good diversified portfolio should include a variety of assets spread over many regions or countries. Global diversification in the equity portion of a portfolio is important since equity markets’ performance vary wildly from one country to another every year. For example, U.S. equities were star performers compared to European stocks. But this year, European stocks are handily beating their U.S. peers at so far.

The long-term performance of equity markets is related to the economic performance of a country or region. Over the years, the economic power of countries have changed. The chart below shows how the share of world’s GDP has changed over the past 200 years:

Source: Mastering Global Diversification: What the Masters Tells Us About the Markets by Jeffrey Klientop, April 15, 2015 Charles Schwab

Today emerging markets of China and India were developed markets 200 years ago when they accounted for 50% of the world’s economic output. Even Brazil was also a rich in the 19th century when the boom in rubber demand helped its economy. The beautiful Amazon Theater in Manaus in the hear of the Amazon rainforest was built during that time. However Malaysia took over the leading producer of rubber when some rubber plants were taken to that country to establish a plantation by a man. This led to the decline in the wealth of Brazil.

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The Amazon Theater, Manaus, Brazil

The chart above also shows that the U.S. was a tiny emerging country back in the 1800s. At that time, the country was neither a military nor an economic superpower. The share of Europe’s economic output as a percentage of the world’s GDP has also declined since the late 1900s.

The key takeaway is that economic growth shifts over the years and hence today’s emerging countries could one be tomorrow’s developed countries.

Related ETFs:

• iShares MSCI Brazil Index (EWZ)
• iShares S&P India Nifty 50 (INDY)
• iShares FTSE/Xinhua China 25 Index Fund (FXI)
• SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

The unemployment rate remains high especially in select European markets. For example, Germany has the lowest rate and the rates continues to decline. While the unemployment rate in Germany and Spain are declining, France and Italy it remains stubbornly high and is not declining. According to a report by Natixis, a jobless recovery is currently occurring in France. The following charts show the contrast in unemployment rates in the four largest Eurozone economies:

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Source: Jobless recovery? by Patrick Artus, Natixis

The chart below shows the latest unemployment rates in the EU:

Source: Eurostat

The unemployment rate was just 4.8% in Germany in February. The highest rates were in Greece and Spain respectively at 26% (in December, 2014) and 23.2% respectively.

The following chart shows the comparison of unemployment rates in the US, Japan and Europe over the years:

The Germany unemployment rate is closer to the U.S. rate. The US rate in February was 5.5%.

The cost of college education continues to increase year-after-year. In fact, the inflation in college tuition is higher rate than other products and services including heatlhcare as shown in the chart below from one my earlier posts on this subject.

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The chart below shows the growth of college tuition from the 1980s:

From a weekend article in the Journal on college tuition and aid:

Financial-aid policies vary widely among schools. Last month, Stanford University in Palo Alto, Calif., said undergraduate students’ parents who have annual income below $125,000 generally won’t have to pay tuition, though the students must contribute at least $5,000 a year toward room and board and other costs. But total costs, including tuition, at some private universities can exceed $60,000 a year, and financial assistance is much less generous.

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The average annual cost of tuition, fees and room and board at private nonprofit four-year colleges and universities totaled $42,419 in 2014-15, up 3.6% over a year prior, according to data from the College Board. At public four-year colleges, that figure was $18,943 for in-state students, up 3%. Financial aid can include a mix of need-based and merit-based assistance.

Source: How to Play the College Financial-Aid Game, April 17, 2015, The Wall Street Journal

Why is the cost of college education is so high and shows no sign of decreasing any time soon?

There are a multitude of reasons for why college tuition is rising. I have listed below four of them below:

1. The annual salary and other compensation of university presidents is very high.Some colleges pay them millions as if they are running a public corporation. So just like their CEO peers in the private industry these noble men and women try to milk as much as possible before their retirement.
2. Just like so many other industries, plenty of paper-pushers now work in universities. These “Administrators” are also paid lavish salary and benefits and most of them do not contribute anything to education. Many schools employ more of these people than actual professors or instructors.
3. Sports is a big business for colleges and its not uncommon to see even a third-rate university spend millions on a stadiums or other things related to sports. The money for this has to come from somewhere and one source is tuition paid by students.
4. The Federal government hands out unlimited amounts in student loans to anyone who has a pulse and enrolls in college.Despite recent changes to the student loan program, it is still easy to get student loans. Some unemployed people even enroll in college and take student loans to use on other things like paying bills and other expenses. Colleges know that since students have access to this easy Federal money they can raise tuition and just add it to the student’s account.