This month, the KnowRisk series turns its attention to the subject of international investing. As the economies of countries around the world have become increasingly interdependent, taking an international perspective has become vital to the health of any investor’s portfolio. In this article, we will take a look at international investing from a number of perspectives, examining the sheer size of the opportunities available in non-U.S. markets, how countries’ GDP figures can indicate the health of potential investments in that region, how annual U.S. market returns stack up to those of other nations, and how including international investments in your portfolio may help to lessen overall portfolio risk.
Why Bother Investing Internationally
By now, everyone has heard so much about the phenomenon of globalization that for many, it has simply become background chatter. It’s no surprise these days to hear that foreign companies are building a manufacturing presence in the United States (think of the foreign-owned auto plants that have sprung up around the southern states since the early ’90s, or the refrigerator plant that the Chinese company Haier is expanding in South Carolina). Still, many investors have yet to apply these well-known trends of the modern marketplace to their own investment portfolios.
There are many reasons why any investor should consider investing in international equity markets. In fact, as the chart above demonstrates, an investor who limits him or herself to only U.S. stocks misses out on more than half of the available investment opportunities in the developed world. And because these are companies that are based in advanced countries with well-established markets (some of which are actually older than the U.S. stock market), investing in companies based in the countries listed in the chart above does not add high levels of country-based risk to a portfolio. With non-U.S. developed markets representing $22 trillion of the total $39 trillion in stock market capitalization in the developed world as of 2007, it’s obvious how many more opportunities are available to an investor whose view of developed-market opportunities extends beyond the borders of the United States.
In 2002, Equitas Capital Advisors, LLC was established as a unique company that blends the resources of a large global corporation with the flexibility of a small boutique firm. The registered service mark of Equitas Capital Advisors is Engineering Financial Solutions® and the purpose of Equitas is to design, build, and deliver investment solutions to meet the goals and objectives of our investors. Equitas Capital Advisors, LLC, located in New Orleans, has over 200 years of combined investment management consulting experience providing professional investment management services to investors such as foundations, endowments, insurance companies, oil companies, universities, corporate retirement plans, and high-net-worth family offices.