Unless you live in a cave, globalization hasn’t escaped your notice. While international trade has flourished, so has international investing. In the old days, international investing was a realm for wealthy and professional investors. It was risky and expensive. Besides, the U.S. was by far the world’s biggest economy, and investing here was better.
In 2017, investors who said that had to eat their hats. Using the S&P 500 as the domestic benchmark, U.S. equities rose by 21.83 percent. That’s not bad, but consider this: The MSCI ACWI EX US, a measure of the world’s stock market performance excluding the U.S., saw a gain of 27.9 percent. Europe, Asia, and the Far East recorded gains of 25.03 percent. Emerging markets enjoyed a stunning 37.28 percent rise.
For international stocks, the party is far from over, according to Nicole Coombes and Paul Fortin, due diligence analysts with Boston Private. “We are particularly bullish on international equities right now. They had a strong year in 2017, and we think that’s going to continue,” explains Coombes. If that prediction holds true, investors have a lot to look forward to in the international sector. Coombes recommends always having a piece of the international market. Here’s why:
A well-diversified portfolio in today’s era needs to include more than U.S. investments. Investors need to hedge all sorts of risks, including to the U.S. economy and the U.S. dollar.
International markets, especially emerging markets, are full of fresh investment opportunities. Gains from fast growing economies, privatization, and loosening trade barriers are projected to continue far into the future.
No matter how good a company or its products, its stock has to be valued right to be a good investment. The international markets provide much larger opportunities for value investing.
Avoid country bias
American investors have 75 percent of their equities in American companies, even though they own 53 percent of the world’s stocks. This shows a definite bias towards U.S. stocks. Why?
Americans are familiar with American companies. They know Amazon, Microsoft, and the other S&P 500 components. Overseas companies are unknown, but they are where opportunity lies.
Equity prices in the U.S. stock market are looking expensive. Even with some recent pullbacks, the P/E ratio of big U.S. companies, and the valuation of the market itself, are far above the international average. With these high valuations comes the specter of a bubble not seen in international stocks.
Another reason U.S. investors shy away from international equities is a false sense that international investing is too complicated. The real problem may be more in line with international markets being unfamiliar. Though investing in unfamiliar territory causes some justifiable reticence, a ready solution is close at hand.
International stock funds take all the guesswork out of investing overseas. Professional money managers pick the best values, after countless hours of research, so you don’t have to. This takes away the problem of having to worry about investing in something you don’t understand.
The fund managers understand these markets. With the incredible performance of many international markets and their values still remaining low, international funds stand to outpace their U.S. counterparts for years to come.
Increase your profits with options
Options are a great tool to increase returns in flat markets. With the U.S. market seeming to slow down, it’s a good idea to branch out into other investment vehicles. One way to use options to capitalize on placid market waters is through a bull call spread strategy.
This spread involves purchasing a call option and put option on the same stock with the same expiration date, as Investopedia explains. Because volatility is expected to remain low until the expiration date, there is a high chance that the stock price will fall between the strike prices of the call and put. In that case, the investor profits from both positions.Comments »