Foreign Stocks & Emerging Markets

The Argument for International Equities

Why now may be the best time to diversify your stock portfolio by investing globally.

If you’re not utilizing the power of international equities in your portfolio, you could be missing out on a good thing over the next few years.

Past performance is not always indicative of future performance, but there are subtle indicators that now point to the benefits of diversifying your portfolio with international stocks.

While there are many arguments to keep money in U.S. stocks, there are ample reasons why investing abroad is a great option to maximize future returns. Even many of the arguments against international equities may not hold as much weight as you think.

Myth #1: International Stocks Do Not Perform as Well as U.S. Stocks

According to the last few years, the argument wins. But, so far in 2017, international stocks are outperforming those in the United States by a healthy margin.

Historically, underperformance is followed by outperformance. Since 2008, the U.S. markets have outperformed international markets – a good eight-year run. Many investors and financial experts now believe that could reverse itself soon. A combination of rising interest rates, overvaluation and slow growth may reduce the return on investments for United States-based stocks – by historical standards, valuation is currently at a high level in the U.S. Overseas, especially in Europe, the rates and valuations are historically low. The current average P/E ratio for U.S. stock is approximately 17-18 times earnings, which is at the high end. Foreign markets, on the other hand, are on average 12-13 times earnings.

Myth #2: Too Much Volatility

Terrorism in Europe. Venezuela taking over GM facilities. Concern over North Korea. Uncertainty with Russia.

There is way too much risk in investing overseas!

But the international market doesn’t consist of investing in the world as a whole. When it comes to investing outside the U.S., the world is divided into two categories – developed markets and emerging markets.

Developed markets are the larger, more stable markets, such as France, Germany, Japan, England and Switzerland.

Emerging markets are those that are still developing and subject to greater volatility such as Brazil, India, Russia and China.

While investing in emerging markets can be riskier, it is similar to making the decision to invest more aggressively in the United States. There is more volatility and risk, but the reward can be higher as well. Investors can get in while valuations are lower and enjoy the growth as emerging markets stabilize and their economies grow.

If you’re worried about currency fluctuations, those concerns can be eliminated through funds that hedge currency risk.

Myth #3: My Portfolio Is Doing Just Fine So I Don’t Need to Change It

Why fix what’s not broken? Remember the disclaimer that follows every piece of advice regarding the stock market: Past performance is not a guarantee of future results. Well, just because the strategy is working now doesn’t mean it will stay like this forever.

For the conservative investor, there is ample opportunity to keep accumulating wealth by going where the money is cheaper. Investment dollars can go further and the return can be greater outside of your current portfolio strategy without taking on more risk.

The United States encompasses nearly 50% of the world’s stock markets. That leaves nearly half of the world’s stock off the table if you stick solely with investing in the United States – you risk losing out on half the possibilities.

Finally, there are global funds that you can invest in that put money in a combination of U.S. stocks and international equities. These global funds offer the best of both worlds – exposure to the U.S. and international markets, both developed and emerging.

When considering changing your portfolio strategy, consult your financial adviser. At Telemus, we take a holistic approach to wealth accumulation and look at the big picture, an investor’s short-term and long-term goals, as well as the actions of the markets. Your trusted financial adviser will be able to guide you to the right international equity portfolio for you in order to maximize growth and gains while meeting your overall investment goals.

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third-party sources, which we believe to be reliable, but not guaranteed.

About the Author

Gary Ran, Investment Adviser

Chairman, Telemus

A founding Partner of Telemus, Gary Ran serves as the firm's chairman. In this role, he is responsible for the overall strategic direction of Telemus in addition to managing key member relationships and serving on the firm's investment committee. Prior to forming Telemus in 2005, Ran served as a first vice president of investments at Merrill Lynch and as senior vice president of investments at UBS Financial Services. During his career of more than 20 years as a retail stockbroker, he built one of the largest brokerage practices in the industry. He has been repeatedly selected as one of "America's Top 100 Advisors" and "America's Top Independent Advisors" by Barron's magazine and is frequently quoted in numerous industry publications.

Most Popular

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA
IRAs

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA

Traditional IRAs are set up in a way that basically incentivizes you (and your heirs) into paying the highest tax bill possible. Don’t fall for it. Co…
July 4, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Retirees, Make These Midyear Moves to Cut Next Year's Tax Bill
Tax Breaks

Retirees, Make These Midyear Moves to Cut Next Year's Tax Bill

Save money next April by making these six hot-as-July tax moves.
July 1, 2022

Recommended

5 Exciting Emerging Markets Funds
Foreign Stocks & Emerging Markets

5 Exciting Emerging Markets Funds

Emerging markets funds haven't been immune to global inflationary pressures. But now might be the time to strike on these high-risk, high-reward produ…
July 5, 2022
How to Go to Cash
investing

How to Go to Cash

What exactly does it mean to 'go to cash,' and what should you do once you have?
July 5, 2022
Is the Stock Market Closed for the Fourth of July in 2022?
Markets

Is the Stock Market Closed for the Fourth of July in 2022?

Independence Day falls on a Monday in 2022, so the bond and stock markets will enjoy a long holiday weekend. Here's a look at the markets' holiday hou…
July 1, 2022
Top Bear Market Tips from 10 Financial Advisers
investing

Top Bear Market Tips from 10 Financial Advisers

When a bull market turns into a bear market, it can be hard to know what to do. Take comfort in the guidance of 10 financial professionals.
June 30, 2022