The European Central Bank (ECB)'s quantitative easing program is not enough of an incentive for Jack Bogle, founder of The Vanguard Group, to recommend that Americans dive into European stocks.
In his view, American investors don't really need to look abroad for foreign stock investments because they already get enough global exposure from U.S. stocks.
"You don't need to do international investing because the U.S. is an international economy,"
Bogle told CNBC. "We get half of our earnings, half of our revenues from companies outside of the U.S., from operations outside of the U.S. So you are an international [investor], if you will, right here in the U.S., and I don't see any reason to add more."
The ECB last week launched a massive QE program that could stimulate equities there. But Bogle is not taking the bait, and warns that direct investment in foreign stocks adds currency risk.
"Don't go over 20 percent in non-U.S. securities because you earn your money in dollars, you spend your money in dollars, you save your money in dollars, you invest your money in dollars, you'll retire earning money in dollars with social security checks," he said. "So you're taking a currency risk when you go abroad in a different way."
Over the long haul, Bogle noted the S&P 500 has outperformed international stocks in any event because the U.S. economy has been the strongest. "We have a more diversified economy, better technology economy," he said.
Bogle's remarks on foreign stocks notwithstanding, some investors have speculated European equities could now follow the example of U.S. stocks, which rallied sharply to historic highs during the recent years of massive QE by the Federal Reserve.
For U.S. investors to take advantage of such a similar European uptrend, they would have to overcome the fact that the euro has been falling sharply, so the currency translation from euro-priced stocks to U.S. dollars may not be favorable.
In addition, there are also doubts in some quarters whether European stocks are bound to follow the QE lead of the U.S. and go higher at all.
"Most investors are generally aware of the reflationary effects of QE conducted by the U.S. Fed,"
GaveKal Capital investment advisers wrote on a blog.
"It is reasonable to imagine that, in announcing its intent to embark on Europe's own version of quantitative easing, the ECB anticipates a similar effect with respect to European equities."
However, GaveKal said that when a chart of ECB assets is overlaid against the performance of the MSCI Europe broad stock market index, it tells a surprising story.
Those results show European equities "have risen as the central banks' assets have contracted over the last several years, implying that asset purchases could actually be negative for stocks
," the advisers noted.
"We have no way of knowing for sure whether or not this pattern will hold, but this chart would seem to suggest that MSCI Europe equities could decline approximately 30 percent by the end of 2016."
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