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The returns on international mutual funds have far out-paced those
earned by U.S. funds for the last several years. As a result, there
has been a deluge of money flooding into these funds. Is this the
1999 Tech Bubble all over again? Read on to find out.
Investing in technology stocks was the big thing in the late 90’s.
Internet startups that didn’t have a dollar in sales were raising
billions of dollars in an IPO. The value placed on companies was
outrageous. Anyone remember Priceline.com? In 1999 the stock hit a
high of over $300. A few years later it was trading at $5 a share.
Will the same thing happen with International stocks?
The short answer is no. Investments in foreign companies haven’t
reached the frenzied pace seen in the Tech Bubble. Moreover, there
is a reason overseas markets are performing so well. It’s essential
you understand the underlying trend so you can properly allocate the
place international investments have in your portfolio.
My wife and I recently returned from a short trip to Cambodia. My
experience there has given me a greater appreciation for and an
understanding of the development under way in Asia.
Cambodia is a very poor country. The average annual income per
person is $2,000. And they’re still recovering from atrocities of
the Khmer Rouge in the late 1970’s, when 2 million people died. Now,
40% of the population is under the age of 15.
The human spirit, though, is the same everywhere. Ambition and
desire are not American attributes; they are basic to human nature.
And that’s what I saw in Cambodia. Many are working to improve their
own lives and those of their families. That means commerce.
Cambodian wages are very low so foreign money is flooding into the
country. Garment factories are being built and employ thousands.
That’s causing land prices to double and triple in value. Family
rice patties are now sold for tens of thousands of dollars. Their
sale completely changes the lives of that family.
Invariably, they buy a car and home. They buy furnishings. That
money trickles through the economy, raising the standard of living
each step of the way. Multiply that by thousands and thousands and
you can see the impact it has.
The capital of Cambodia is Phnom Penh. Just 5 years ago many of the
streets there weren’t even paved. Now they are. New roads are being
built and hydro-electric dams are being planned.
Cambodia is just one example of what is happening in countries all
across Asia. In China and India alone there are over 2 billion
people. Most of them have lived in poverty all of their lives. But
that is changing. Standards of living are increasing.
Will this rate of growth continue forever? No. But I believe it will
last a decade or more. The rate of growth isn’t going to be
constant. There will be cycles just like there are in any economy.
There’s no denying the overall trend, though.
What does this mean for your portfolio? I believe that many
investors should have a substantial part of their portfolio invested
outside the United States. Our economy has been growing around 3% a
year. China and India’s economies are growing around 10% a year.
Traditionally, experts have suggested that 10-15% of your portfolio
be invested internationally. Now some suggest 25%. I believe it
should be higher than that.
The problem, though, is that you can’t just throw money into an
overseas mutual fund and forget about it. These markets can be very
volatile. China’s market dropped almost 10% in a single day earlier
this year. It’s vital that this money be invested wisely, that it be
closely monitored and that strategies are in place to reduce the
overall risk.
That’s what I’ve been doing in my clients’ accounts the last year or
so. Some of the stocks that have performed very well are Bayer
(BAY), Siemens (SI) and Bunge (BG). There are investments in Canada,
Europe, Russia, Israel, Brazil, Australia and all across Asia.
Using targeted companies to profit from such trends is better than
just buying an index. When balanced with other income-oriented
investments and loss-limiting proprietary strategies, the result is
a portfolio that is designed to have greater growth potential than
one focused only in the United States.
It’s important that you have money invested outside the United
States. The growth in emerging markets like China and India isn’t a
fad, but a trend that could last for decades.
Nationally-syndicated financial columnist and Certified Financial
Planner® Jeffrey Voudrie provides personal, in-depth money
management services and advice to select private clients throughout
the USA. He’ll answer your financial question – FREE at
www.guardingyourwealth.com. |
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