It’s a Small World

International investing is worth thinking about.

Here at Bernhardt Wealth Management, 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 around the globe. Worth magazine once ran a feature on the highest-risk, highest-reward investments, including such things as Russian junk bonds that purportedly returned something like 30 percent a year. The primary purpose of that article seemed to be to scare people away from international investing.

But that’s not what real international investing is all about. Given today’s truly globalized economy, the distinction between American and foreign companies 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. Nissan is building a new headquarters 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, Nissan does 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. Though based in the Netherlands, it has a truly global presence and is as much a fixture in America as ExxonMobil. That’s the kind of company that big global funds buy and that 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 Electricité de France. It’s not some textile mill in Nigeria 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 I recommend them. 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 into a wide range of vehicles. This can mean not just giant multinational corporations, but international small-cap stocks and those from emerging markets as well. Including such stocks 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. The investors who choose to exclude these investment opportunities from their portfolios would be ignoring almost half of the world’s investable assets.

It’s like cutting out fruit from your diet because they used to spray Alar 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. Last year, 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 for 10 of the last 20 years.

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

Leave a Reply

Your email address will not be published. Required fields are marked *