The Easy Way to Own the World
Mar 1st 2012 9:47AM
Updated Mar 1st 2012 9:52AM
No matter what you think of the future, the U.S. is still the largest economy in the world. But no matter how strong American stocks are, putting all your eggs in one basket is an invitation to disaster -- and can lead you to miss out on some of the best investment opportunities you can find.
In the past, though, it was hard for U.S. investors to take advantage of investments in other countries. But now, it's easier than ever to send your money around the world and invest in companies that are uniquely situated to profit from the global economy.
Around the world in 80 milliseconds (more or less)
In this month's brand new issue of the Fool's Rule Your Retirement newsletter, which is available this afternoon at 4 p.m. EST, Foolish retirement expert and financial planner Robert Brokamp talks about the changing global economy and the impact it has on investors. Despite its size, the U.S. stock market accounts for only about half of the value of stocks around the world. Increasingly, if you neglect foreign stocks, you leave out a huge portion of the business world.
Even more importantly for investors, U.S. stocks aren't always the best performers. The most extreme example in recent memory comes from the so-called "Lost Decade" of the 2000s, in which the U.S. stock market actually lost ground. Emerging markets, however, posted some of their best returns during the decade. And more broadly, a diversified portfolio of stocks from around the world beat out more concentrated bets from narrower regions of the world over time.
Foreign stocks in a nice, neat package
Once you decide that international investing is a key component for your portfolio, what's the next step? Obviously, there's a world of individual stocks out there, many of which have huge potential to become tomorrow's world leaders. Baidu (NAS: BIDU) , for example, is already China's undisputed leader in Internet search, but the company isn't content with domestic success -- it's looking to build on its strength by expanding abroad. Similarly, overseas energy companies Total (NYS: TOT) and Statoil (NYS: STO) are staking their claims to U.S. oil and gas assets, buying into shale gas plays and gaining the expertise they need to make the most of similar areas for exploration around the world.
But if you don't want to put all your money on a handful of individual stock picks -- with the attendant risk that comes from any concentrated portfolio -- then you still have plenty of useful options. Exchange-traded funds are among the most prevalent, as they give you any number of ways to slice and dice the world markets. Among them are the following:
- If you like stocks in a particular country, you can usually find an ETF that focuses on it. For instance, iShares MSCI Singapore (NYS: EWS) invests in an index of stocks from the small Asian country. You can find dozens of similar ETFs for nations around the world, both for developed and emerging markets.
- Broader international funds are also available. Vanguard MSCI Emerging Markets (NYS: VWO) is the largest broad-based emerging-market ETF, with investments throughout Brazil, China, India, and other emerging countries. Similar funds give you exposure to the developed world, either by region (such as Europe or Asia/Pacific stocks) or by size (with large-cap and small-cap funds).
Beyond ETFs, you can also invest in a host of actively managed mutual funds whose fund managers have particular expertise in international investing. Although the approaches these fund managers take toward earning profits vary, all of them help you add some diversity to your overall portfolio.
Take the next step
Unfortunately, like all stocks, foreign stocks can be risky. As investors discovered last year with small Chinese companies that fell prey to accusations of fraud, it can be hard to gain a full understanding of foreign laws and business practices, and you can't take U.S. standards for granted. But with the proper care, overseas investing can be immensely profitable.
On that score, the new issue of Rule Your Retirement gives you the guidance you need to get started. With specific fund recommendations as well as stock picks and analysis from the Motley Fool Global Gains advisor team, you'll be able to implement changes to your investing strategy quickly and efficiently. Best of all, it's all available free with a 30-day trial subscription.
So open your eyes to the investment opportunities the world is offering. Otherwise, you could miss out on the stocks of a lifetime.
Owning the right international stocks is just one element of putting together a smart retirement plan. Our newest special free report highlights the shocking truth about your retirement. Don't miss this chance to grab your free copy of this can't-miss report today.
At the time this article was published Fool contributor Dan Caplinger wishes he could go everywhere in the world that his money does. You can follow him on Twitter here. He owns shares of the Vanguard MSCI Emerging Markets ETF. Motley Fool newsletter services have recommended buying shares of Baidu, Total, and Statoil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy works the whole world 'round.
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