According to mutual fund research firm Morningstar, foreign investments have paid off recently:
- International stock funds (annualized returns over 11 percent) have soundly outpaced domestic stock funds (4 percent) for the past three years, through the first quarter of 2005, even though domestic funds lead for trailing five- and 10-year periods.
- For each of the past three years, Morgan Stanley’s EAFE [Europe-Australasia-Far East] Index of companies based in developed foreign markets has performed better than the S&P 500. Early in 2005, this outperformance has continued.
- Morgan Stanley’s emerging markets index has performed even better, further boosting returns to adventurous investors.
The strong comparative returns of foreign stocks have been helped, to some extent, by the declining value of the U.S. dollar. This slide is widely forecast to continue. Going forward, U.S. investors might want to have 10-20 percent of their equity allocations in foreign stocks or funds.
