Article Archive
 
It's a Small World
by   Mark Wade  

International investing is worth thinking about.

Here at Echelon Wealth Strategies, we are always looking to invest in careful, well-planned ways that don’t involve a lot of unnecessary risk. For a lot of people, that means avoiding stocks from outside the United States. There’s a misperception that investing globally means putting your money in such things as Russian junk bonds or a tin-roofed textile plant in Uganda.

But that’s not what real international investing is all about. Given today’s truly globalized economy, the distinction between American companies and foreign ones has been blurred, and in many cases is invisible. A global stock fund is less likely to be investing in a Chinese fireworks maker than it is in something like Nissan. In the big picture of investing for the long term, excluding international investments may be more risky than including them.

Nissan is building a new headquarters for itself in Yokohama, Japan, but it also has a massive production plant in Smyrna, Tennessee, a technical center in Farmington Hills, Michigan, and other major offices in California and Texas. And of course, they do a tremendous amount of business in the United States, selling a million cars a year here under the Nissan and Infiniti brands. Does that sound like a less desirable investment than GM or Ford, just because the CEO works in another country?

KEEP YOUR OPTIONS OPEN

There are many multibillion-dollar companies with a true global presence.

It’s the same situation with Royal Dutch/Shell, based in the Netherlands but with a truly global presence, as much a fixture in America as Exxon Mobil. That’s the kind of companies the big global funds buy, and the big international indexes track. And if the company isn’t a multinational doing huge business in America, it’s something like Petrobras, the Brazilian oil giant, or Electricite de France. It’s not some mom-and-pop shop that international investors are putting their money into; it’s multibillion-dollar companies like these that dominate the international indexes.

The relative familiarity of many international investments is only part of the reason to recommend it. One of the key elements of any investor’s portfolio is diversification. The surest way to safeguard your returns against catastrophic losses is to spread your investments around, putting your money in a wide range of vehicles. Including stocks from around the world in your portfolio doesn’t create risk; in fact, if you use them properly, international stocks can reduce risk by enhancing diversification.

Of course, there are risks associated with international investments, such as geopolitical risk and currency risk. But for the individual investor, ignoring investment opportunities outside the United States comes at a very high cost. Roughly half of the investable developed stock market opportunities do not exist in the United States. For the investor who chooses to exclude these investment opportunities from their portfolio, almost half of the world's investable assets would be ignored. 

It’s like cutting out fruit from your diet because they used to spray nasty pesticides on apples. But there’s nothing dangerous about eating apples now, and there’s nothing wrong with adding an appropriate mix of international investments to your portfolio.

PERFORMANCE COUNTS

Take advantage of good international performance.

And there’s another reason as well: Those international indexes have been doing quite well lately. In 2005, the MSCI EAFE (which covers Europe, Australasia and the Far East) outperformed both the Standard & Poor’s 500 and the Russell indexes of American large-cap and small-cap stocks, respectively. That MSCI EAFE Index has now outperformed the S&P 500 Index for four straight years and 10 out of the last 20 years. Those results are no guarantee for the future, of course, but they do point up the fact that the risks in global stocks are similar to those of domestic stocks. 

Despite that fact, many investors still tend to overlook international investing. Some think that if their portfolio contains stocks with global reach, like Coca-Cola or McDonald’s, that they’ve covered all their bases. There’s more to international investing than that, though. At Echelon Wealth Strategies, we can help you understand how best to structure your investments to take advantage of the entire world we live in.

 

 



HomeWho We AreHow We WorkResearch and ResourcesOur Blog
Contact UsRefer UsClient Log-inPrivacy StatementSearch