Tax & Financial Consulting Services
You’re Insane If You Only Invest in the U.S.
Karibu (Welcome) G&G Readers,
Too many Americans still believe the U.S. sits at the economic and political center of the world and that the rest of the countries quietly revolve around us.
As such, U.S. investors put the biggest share of their investable cash into domestic markets - what’s known as “home-country bias.”
But that’s a dangerously out-of-date view.
Overdependence on U.S. stocks is a weakness in any portfolio. By investing singularly in U.S. stocks, you are tossing aside the much larger profits you could earn elsewhere.
Worse, you’re missing out on the innovation that is taking place today outside America, in markets like China, Singapore and even parts of Africa.
Moreover, the notion that when America sneezes the rest of the world catches a cold is fading. That was true when our businesses and consumers ruled the globe. But that is now changing. With the rise of middle-class wealth in developing markets around the world, domestic economies are taking root and are supporting local businesses that have nothing to do with what happens in America.
As the U.S. now moves into a much-slower phase of life and (reluctantly) relinquishes the title of growth engine of the world, don’t be surprised to see emerging economies increasingly decouple from the U.S.
For investors, the message is plainly clear.
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You must put some wealth to work in markets beyond America’s borders.
The numbers underscore the opportunities you’re missing. Since 2001, American stocks have had seven winning years. The best showing was in 2003 when the S&P 500 gained almost 30%. That’s huge by any yardstick.
Yet, even with that huge win, the S&P was an also-ran to other markets around the world that did far better. In fact, the U.S. stocks never cracked the Top 10 list of the world’s best-performing stock markets - and given our financial situation these days, I don’t expect it will jump to the top of the list any time soon.
If, as Einstein postulated, the definition of insanity is doing the same thing over and over and expecting different results, then America’s laggardly performance should have U.S. investors looking for more-profitable pastures in which to graze. Alas, few are. And that’s a problem.
Your wallet will be far-better off the sooner you get some of your money invested in the growth that’s occurring just about everywhere outside the U.S. (Japan and Western Europe excluded).
You will fare far better over time owning foreign stocks in markets like Australia, Norway and Hong Kong than you will by owning U.S. stocks.
And today, the tools exist that allow you to pursue your own global expansion without leaving America.
The Brokerage Firms You Need to Know
A small clot of U.S.-based brokerage firms nowadays offer American investors the opportunity to trade shares directly on a limited number of foreign stock exchanges - in places like Hong Kong, Germany, Japan, Australia, and the U.K. Some firms even make available smaller, emerging markets like Russia, South Africa and Turkey.
For the most part, you can forget about the big-name Wall Street brokerage firms. Merrill Lynch, Morgan Stanley and the like will not trade in overseas markets for individual investors unless those clients are, generally speaking, putting $50,000 to $100,000 to work.
Instead, consider the firms listed below. These are brokerage houses that not only cater to individual investors, they offer trading directly on foreign stock exchanges:
• EverTrade, the St. Louis brokerage unit of Jacksonville, Fla.-based EverBank. (www.evertrade.com)
• E*Trade, the discount online brokerage firm. (www.etrade.com)
• Fidelity, the online brokerage, mutual funds and retirement-services giant. (www.fidelity.com)
• Interactive Brokers, an online brokerage firm. (www.interactivebrokers.com)
• Charles Schwab, the original discount trading firm. (www.schwab.com)
Each of those firms offers varying degrees of access to overseas markets, and each has its pros and cons.
For investors, though, the fact that a variety of foreign markets are directly available through a State-side brokerage account dramatically changes the game of investing by opening up the world.
Until next time, keep a global view...
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Asar Maat Ra Gray
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LEGAL NOTICE: This work is based on what I’ve learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice.