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Is International Investing Right for You? PAUL EHRSAM, MARKET INVESTMENT DIRECTOR, U.S. TRUST HOUSTON
he year 2013 was exceptionally good for investors in the United States stock market. We cannot make the same broad statement about investment returns outside the United States. While domestic stocks as measured by the S&P 500 had a total return of 32.4 percent in 2013, foreign developed markets as measured by the MSCI–EAFE index rose only 22.8 percent and emerging foreign market returns were -2.7 percent as measured by the MSCI–Emerging Markets index. With returns from foreign markets trailing our domestic markets in 2013, should investors be looking abroad with some of their investments? Academics have touted foreign stocks as a way for United States investors to increase returns on their portfolios and reduce portfolio volatility. History has
proven this to be wise advice. In six of the last 10 years, developed foreign equities have performed better than the S&P 500.1 However, as the world has become “smaller,” foreign markets are moving up and down a little more like our domestic markets. That does not mean you should forget about adding some foreign investments to your portfolio. The United States is still the preferred economy for companies to invest. This does not mean it is the fastest growing or most profitable market in the world. The greatest growth is typically found outside of the United States. The greatest attraction for investing abroad today is to capture the opportunity for faster growth. Once an investor decides how to invest abroad, there are a few things to remember. Changes in the value of the dollar versus
other currencies have a direct impact on the performance of your investment. When the dollar is strong, it hurts your foreign investments and when the dollar is weak, it gives an added boost to the value of your foreign investments. It is best to have an outlook for the dollar before deciding if and how much to invest abroad. You can add value in your foreign investments by selecting or omitting areas of the world based on their economic or political outlook. For example, some emerging market countries are experiencing internal problems politically and economically that are not found in many other emerging market countries. Just like good stock picking in a portfolio adds value versus a passive index fund, the same can be said for selecting countries when investing abroad.
1. MSCI Index performance based on Daily Net TR Indices. This article is designed to provide general information about ideas and strategies. It is for discussion purposes only since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A. and other subsidiaries of Bank of America Corporation. Bank of America, N.A., Member FDIC. Nonfinancial assets, such as closely-held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations, and lack of liquidity. Nonfinancial assets are not suitable for all investors. Investment products: Are Not FDIC Insured; Are Not Bank Guaranteed; May Lose Value.
JULY/AUGUST • 2014