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People walk the floor of the New York Stock Exchange on Sept. 23.Spencer Platt/Getty Images

One of the best investments you could have made at the start of this year would have been a stack of U.S. dollar bills. The greenback has gone from strength to strength in recent months and now sits at a 20-year high versus a basket of other major currencies.

U.S. stocks have had a much rougher ride, especially after this week’s rout, but still reign supreme when viewed over a longer perspective. They have far outpaced their international rivals since the financial crisis in 2008 and have done so with astonishing regularity. Over the past 13 calendar years, Wall Street has outperformed the rest of the world 11 times, according to Capital Economics.

All of this raises what may be a key question for investors over the next few years: How much should you bet on U.S. assets?

If you think the United States is destined to be the king of the global economy, you really shouldn’t own much more than U.S. stocks and U.S. bonds (and, hey, maybe that stack of U.S. dollars, too). On the other hand, if you think the pendulum is due to swing back, now is a great time to go shopping in non-U.S. markets because of their relative cheapness.

Maybe the best way to approach this investing dilemma is to acknowledge that the correct response depends on what period of time you’re talking about and which asset you’re eyeing.

Over the year ahead, it is hard to dispute the notion that the U.S. dollar remains the haven of choice. Say what you will about the U.S.’s current struggle with inflation, but at least the country is not suffering from war and energy crises like Europe. Neither is it afflicted with COVID lockdowns and a collapsing property bubble as is China.

Looking further out, though, the case for the rest of the world appears a lot more impressive. There are at least three reasons to think that non-U.S. assets – especially non-U.S. stocks – may be the superior bet for the long run.

The first has to do with history. The record shows that periods of stock-market outperformance can last a long time but never endure. U.S. stocks lagged behind British and Japanese stocks in the 1970s and 1980s, then surged ahead in the 1990s, only to disappoint again in the early 2000s, before embarking on their great bull run of the past decade. If history repeats itself, U.S. stocks are due for a period of underperformance.

Another reason to think U.S. stocks are vulnerable is valuation. Whether you look at share prices in relation to corporate profits over the past decade or in comparison with projected earnings over the coming year, U.S. stocks are more expensive than their counterparts in the rest of the world.

The gap in valuation is not small. U.S. stocks are selling for about 16 times their projected 2023 earnings, according to Citigroup analysts. In comparison, Canadian and European stocks are valued at only 11 times next year’s earnings and Japanese stocks at 12 times.

Granted, valuation is a poor guide to how markets will perform over the short term. Expensive markets have an annoying habit of growing even more expensive. Over the longer term, though, expensive markets tend to fall back to earth unless they can consistently generate higher earnings growth and bigger profit margins than their rivals.

It’s not clear U.S. stocks can continue to do that. Much of their eye-popping growth over the past decade reflected the relentless rise of technology giants such as Meta Platforms Inc. META-Q (the former Facebook) and Alphabet Inc GOOGL-Q. Given the now enormous size of those businesses, and the mounting regulatory backlash against them, the tech giants face big challenges in continuing to crank out profit increases at the same pace they have in recent years.

A final and more speculative reason to wonder about what lies ahead for U.S. stocks is evidence that the American model of capitalism is nearing its political limits. The clearest demonstration of this is life expectancy. Rather amazingly, the average life expectancy of Americans is falling. It is now four to five years less than in other developed countries such as Canada and France.

The recent decline in American lifespans no doubt owes something to the effect of COVID and opioids. However, the country’s lagging performance began in the mid-1980s. It is not a new phenomenon and indicates U.S. economic pre-eminence has failed to deliver benefits for many of its citizens.

So long as this trend continues, U.S. politics are likely to grow even more vicious. This is not usually a harbinger of good times ahead.

Investors should acknowledge the extreme uncertainty. Over the next year, if the Federal Reserve continues to raise rates as expected, investors are likely to continue to flock to the U.S. dollar. The greenback could surge even higher than it is now, especially if troubles in Europe and China continue to mount.

But history, valuations and politics suggest that U.S. stocks are no longer guaranteed to outperform. Canadian investors, in particular, may want to focus on opportunities closer to home. Stocks are less expensive here and politics at least marginally less explosive. In a world facing radical uncertainty, those advantages are worth more than you may think.