In March 2020, we entered the first bear market in more than a decade.
Meaning, that the longest U.S. economic expansion in history has finally come to a halt.
And as this bear market unravels, the question on everyone investor’s mind is…
“After a stellar 2009-2020 period, will the United States remain the most attractive market…”
“Or is this the time to focus on the ones that performed poorly during the last bull run, such as, for example, Europe?”
The most common argument for investing in Europe is that those stocks are cheap compared to their U.S. counterparts.
I can’t disagree with that statement, but that alone is not a sensible reason to invest.
While it’s common for underperforming sectors from one period to turn into overperformers during the next, this is not a rule.
For that to happen, the underlying fundamentals that were hindering those stocks must change, and with Europe, the problems are only going to get worse.
The Aging Population Problem
Like the other developed economies, the EU is also facing low economic growth caused by the aging population and the increasing political divide.
Except that the problem here is even worse.
First, the population is one of the oldest in the world. So, the available workforce needed for normal economic growth is even smaller.
Moreover, since EU countries are social democracies, this means they have huge pension liabilities, which are getting harder to maintain as the population ages.
The solution to this is obvious—Europe needs young people.
However, since birth rates average at 1.6 children per woman, the only way to achieve that goal is to import workers.
With millions of immigrants at EU’s gates, that’s “easy” to do.
This is not necessarily a bad tactic. Many countries on the old continent, such as Germany, France, the UK, and so on, were doing this successfully throughout the 20th century.
The issue is that conditions then were vastly different from today.
The 20th-century immigrants mostly came from former European colonies, so there was some familiarity between the local and immigrant cultures. Even the languages were usually the same.
Now, immigrants are coming from countries with no such background, such as Afghanistan, Iraq, and Syria. Moreover, these areas have been torn by years of war, and are infested with terrorists. Not exactly where you want your future generations to originate from.
And while the latest mass migration to Europe might have ensured that the aging population problem got solved, it has created a far larger one—the rise of nationalists.
Nationalists Will Tore Europe Apart
Immigration has been a hot topic of discussion for the last couple of years in Europe.
Particularly, since this policy is favored only by left-wing politicians, and there’s a growing number of Europeans who don’t agree with letting foreigners into their communities.
And it’s those voters that the nationalists have been using to gain power. Nearly every European country is experiencing a far-right resurgence. In some, they’ve even come into leading positions, while in many others, they’re representing a large minority.
The point is, nationalistic ideals are spreading fast… and from an investing standpoint, this is extremely risky.
Not only because it’s increasing the political divide and hampering economic growth, but because the one thing all these nationalists have in common is that they are anti-EU.
Which means that it’s just a matter of time before we see another Brexit happen… and before you know it, the bloc could be facing a real danger of falling apart.
It is for that reason that I advise against investing in Europe. There is simply too much political risk, and there is no indication that this will change in the future.
For now, the only economy that looks promising is the United States.
That is also why I focus solely on U.S. stocks in my True Retirement Wealth portfolio.
I suggest you do the same.