Is Your Portfolio Ready To Go Global?

nestleMost Americans like to invest in their own back yard, which isn’t always a bad thing, since U.S. companies have been among the best performers as of late.

But that’s not always the case, and sometimes the best opportunities can be found beyond our borders.

Non-U.S. investments now dominate global stock markets

The U.S. stock market now makes up only 45% of the global stock market, by value. That means more than half of all investment opportunities are found overseas, and that percentage keeps growing.

So how much does the typical U.S. stock investor allocate outside the U.S.?

As it turns out, American investors allocate only 27% of their stock portfolio to global investments, and only 6% to emerging markets.

That figure should be much higher, especially for younger investors, says Avi Nachmany, Strategic Insight’s director of research, in a Fortune magazine interview. “Young investors have to ask themselves what the world will look like in terms of emerging wealth and intellectual capital in 30 to 40 years.”

Should U.S. bond investors shop more overseas?

For bonds, Americans really like to keep it close to home.

U.S. bonds make up only 40% of the world bond markets, meaning 60% of all bonds issued are outside the U.S.

But American bond investors have an overwhelming 87% of their fixed income portfolio invested within the U.S. and only 13% invested outside the U.S.

Are they missing out on some good deals?

Says author Janice Revell in Fortune magazine, “most experts agree that a much higher allocation to high-quality foreign bonds — at least one-quarter of your total bond holdings — is more appropriate. That’s what the pros are doing: The average go-anywhere, world-allocation mutual fund allocates 40% of its fixed-income holdings to non-U.S. bonds, according to Morningstar.”

Foreign bond issuers don’t always have the name recognition of U.S. issuers, but many boast higher credit ratings and more generous income payouts as well.

 The Takeaway: It’s normal to be more comfortable investing in the names and products you grew up with. But keep an open mind. As the world becomes more interconnected, some of tomorrow’s best opportunities might not be the homegrown variety.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!


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