Investments: Episode 15
The US accounts for about 25% of the World?s GDP. That leaves 75% of the investment opportunities for international markets.
We are living in a global marketplace like no other time in history. Whether you like it or not you are investing internationally. Apple iPhones are made in China and sold all over the world for example.
International equity markets used to be a source for diversification but that is no longer the case. Markets are strongly correlated. When the U.S. stock markets are up, so are the international markets and when we are down so are they.
But in many emerging markets these moves are much more substantial. If we are up a little they are way up. So instead of investing internationally for diversification we invest internationally for outsized gains.
Many economies are growing much faster than the U.S. But, foreign markets come with increased risks:
- Currency Risk - Eventually you've got to bring your dollars home. If the foreign currency has decreased in value compared to the U.S. dollar your investment return may be materially impacted.
- Political Risk - Think Venezuela. Crazy stuff happens all the time and the locals aren't always friendly to your interests.
- Transparency - It's hard enough sometimes, think Enron, to get the straight scoop from American companies. It can be much harder to know what is really going on in a foreign company.
- Market Timing - Markets are open when you are sleeping. You may not always like the news you hear when you wake up in the morning.