Several recent reports point to the popularity of investing outside of the domestic markets. In fact, investment funds that focus solely on domestic equities have seen over $58 billion pulled from them and invested elsewhere, particularly in more "popular" investment niches. One of those popular niches is global equities. Whether investors are investing this way on purpose or not is a matter of dispute, but it is still very important for investors to diversify their holdings based on geography. This type of diversification (also known as foreign content holdings) allows for several benefits, three of which are discussed here:
1) Geographically speaking, even in a world economy, markets will typically recover and expand at different times. This has been particularly true this past year where domestic markets struggled to gain traction while other regions were able to return gains in the double digits. Some of those hot markets include Latin America and many developed, European markets. At the same time, the Standard and Poor's 500 frustrated enough investors that nearly $60 billion was taken out of domestic equity investment funds.
2) Dividends. Interestingly, the concept of dividends has gained tremendous popularity recently. The idea of getting paid (albeit marginally) while waiting for equities to appreciate in value is nothing new. However, when market returns are fairly stale and bond yields are at historic lows, even stock dividends below 3% can be appealing. With so much more attention being focused on dividend yields, it makes sense that investors might want to look globally where more than half a dozen developed markets pay, on average, much more than our domestic equities pay, on average.
3) Opportunity. In a period that has been wallpapered with fears of a "new normal" involving low rates of return, it makes more sense than ever to diversify one's investment portfolio globally. While domestic markets may indeed struggle for growth or, worse, contract due to saturation or whatever other flavor of the day one might read about, developing countries throughout the globe will exhibit greater growth characteristics, period. Countries like China, India and Brazil in particular are experiencing tremendous growth while their population and growth middle class struggle to "keep up" with the standards set by the rest of the world that virtually every sector in these countries stands to benefit financially. Even profit-chasing investors know this because they have seen big returns in these international markets.
These are just three reasons why investing globally makes a great deal of sense for investors. The trick is finding the right investment that will satisfy one's appetite for risk while sticking to an overall investment portfolio's investment policy.
Chris has more than 17 years of financial services experience. He enjoys writing about investment related topics. He also manages a website about Novaform Mattresses at NovaformMattressSale.com and another about Class B CDL Jobs at Class-B-CDL-Jobs.com
1) Geographically speaking, even in a world economy, markets will typically recover and expand at different times. This has been particularly true this past year where domestic markets struggled to gain traction while other regions were able to return gains in the double digits. Some of those hot markets include Latin America and many developed, European markets. At the same time, the Standard and Poor's 500 frustrated enough investors that nearly $60 billion was taken out of domestic equity investment funds.
2) Dividends. Interestingly, the concept of dividends has gained tremendous popularity recently. The idea of getting paid (albeit marginally) while waiting for equities to appreciate in value is nothing new. However, when market returns are fairly stale and bond yields are at historic lows, even stock dividends below 3% can be appealing. With so much more attention being focused on dividend yields, it makes sense that investors might want to look globally where more than half a dozen developed markets pay, on average, much more than our domestic equities pay, on average.
3) Opportunity. In a period that has been wallpapered with fears of a "new normal" involving low rates of return, it makes more sense than ever to diversify one's investment portfolio globally. While domestic markets may indeed struggle for growth or, worse, contract due to saturation or whatever other flavor of the day one might read about, developing countries throughout the globe will exhibit greater growth characteristics, period. Countries like China, India and Brazil in particular are experiencing tremendous growth while their population and growth middle class struggle to "keep up" with the standards set by the rest of the world that virtually every sector in these countries stands to benefit financially. Even profit-chasing investors know this because they have seen big returns in these international markets.
These are just three reasons why investing globally makes a great deal of sense for investors. The trick is finding the right investment that will satisfy one's appetite for risk while sticking to an overall investment portfolio's investment policy.
