Personal Finance and Investing

Most investors have a tough time investing overseas, and with good reasons. There can be a lot of confusion and uncertainty about investing in foreign companies and knowing the best way to access the foreign markets can be difficult. Many investors piece out 10% or 15% of their portfolio for international investments and leave the rest in US companies. The average 401K investor has 12% of their retirement money in international funds. However, the growth potential associated with some emerging markets is impossible to ignore.

If you had invested in the 500 largest companies in the US ten years ago, you actually would have lost money during that period of time. There aren’t a lot of 10 year periods that have provided investors with negative returns but we’re living in on right now. If you had invested in a general emerging markets mutual fund, you’d like be up over 300% during that time frame. The average mutual fund focused on investing in China would be up nearly 500% over the past ten years.

There are several obstacles that keep people from investing internationally and you may have said these exact words to yourself as you have considered your investment options. Here are some ways to put those obstacles in perspective.

“The US Is Due For a Rebound”: This may be true, and hopefully it is for the sake of US investors, but the projected growth rate for the US economy is less than 3% a year for each of the next two years. China, on the other hand, is expected to grow by over 10% next year and Chinese companies stand to benefit from that growth. Forecasts for growth in India, Brazil, and other emerging markets are also significantly higher than for US companies.

“I Don’t Know Enough About Foreign Companies”: This is a valid point. Most foreign companies are not household names to American investors and it can be difficult to judge one company against another. However, many professional money management firms have offices and analysts on the ground in foreign countries that are in a great position to judge potential investment ideas. Mutual Fund companies have several compelling offers in the emerging market space. There are also a growing number of Exchange Traded Funds (ETF’s) that allow investors to buy exposure to a particular country’s growth in general without getting into picking specific stocks in each country. Diversification is important because emerging market investments can be volatile, but don’t let a lack of personal knowledge about foreign stocks keep you away!

“I’m too Late and I Missed the Boat”: Emerging market stocks have certainly been impressive and it’s easy to think that you’re “buying high” by getting in now. Remember that investing is a long term game and the technological advances that are finally having an impact on emerging economies are still in the earliest stages of where these countries are going. Consider that in the 1980’s almost all the traffic in China’s major cities was bicycles and pedestrians. There are billions of people out there who want access to the same technology that most Americans now take for granted and as that technology finds them, local economies will blossom and foreign companies will flourish.

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