Phil Mahoney’s The Cornerstone – August 2012
August 10th, 2012 by Legacy Wealth Planning
The Cornerstone August 2012 “Think International.” Not to say that all Americans are myopic all the time– but at times, many of us can be. We see the world through a different set of lenses that get fogged up and keep us from broadening our views. I’m suggesting then, that perhaps we just consider this letter my “International Concepts Plea”, and the 5 compelling reasons I have to invest abroad. #1. An expanded opportunity set. A number of factors make global markets appealing — global trade is increasing, a growing portion of market capitalization now exists overseas, and well-known, successful companies are located throughout the globe. According to Bloomberg, as a total world percentage of capitalization, the US is now at 38% – its lowest level ever, down from 48% in 2000, while the Asia-Pacific region has doubled in the same time period. Reasons for this include new trade agreements, the World Trade Organization (WTO), and good earnings growth of companies in these countries. #2. Powerful economic and demographic trends. Economies of various countries grow at different rates, and many have growth rates that outpace that of the U.S. In addition, population and discretionary income growth are expected mainly overseas in developing countries. Did you know: China has the most Internet users in the world; There are more cell phone subscribers in India than in the US and Russia combined; The BRIC countries (Brazil, Russia, India and China) account for more than 40% of the world’s population (comparatively, the U.S. makes up 5%)? Certainly population growth is a key driver in the world, and according the UN, the number of people living below the poverty line in developing nations has decreased from 42% 20 years ago to about 25% in 2005. #3. Greater diversification and performance potential. I think a diversified portfolio employing multiple asset classes can help generate performance from different parts of the market. Furthermore, we’ve seen that historical performance for some asset classes has outpaced that of the U.S. Of course, International investing may increase risks. #4. Increasing asset class options. In addition to global equities, overseas investing also offers global bonds, real estate and commodity options. #5. Income opportunities. There is a wide range of income-oriented choices — in stocks and bonds — available to the overseas investor. In 1990, fixed-income options were heavily weighted to the U.S., with 65% of all fixed-income capitalization located domestically. Today, the majority has shifted overseas, with 60% of the fixed-income market residing in foreign countries. In summary, there are many reasons for investing globally, and they are attractive: Enhanced diversification. Greater access to investment opportunity. Performance potential. So the question is not why you should invest globally, I think it’s how? Thank you for your business. Phil The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. * Stock investing involves risk including loss of principal. International & emerging market investing involves special risks not associated with investing solely in the U.S. including currency fluctuation, political risk, differences in accounting, limited availability of information and a small unknown financial market in a developing country with a short operating history and may not be suitable for all investors.