Here are five reasons why you should have a significant foreign stock investment:
Over 43 percent of the world’s stock market value is not based in the United States, up from 35 percent in 1980. Why exclude 43 percent of your investment choices?
For the last 15 years, the United States has not been the nation with the top performing stock market a single year. If you look at the 10-year average returns, the United States ranks 12th out of 24 countries in percentage gain in local currencies and only sixth after taking into account the currency exchange of a strengthening dollar.
As the dollar continues to fall against foreign currencies, positions in foreign stocks and bonds will benefit from that change. Investing in foreign stocks and bonds is also investing in a foreign currency. If the foreign currency rises against the dollar, it adds to your return.
Over long periods of time, foreign stock markets tend to do better than the U.S. stock market, by as much as one or two percent annually. That was not true for the 1995 through 1999 period but now may be the time for foreign stocks to outperform the U.S. again.
Even though foreign markets are more volatile than U.S. markets, they don’t move in sync with U.S. markets. At a 60 percent/40 percent allocation, U.S. to foreign stocks, a portfolio will be just as volatile as one with 100 percent U.S. stocks, but likely to have a higher average rate of return.
