The case for international investing
John M. Sammut & RBC Wealth Management
Major changes to the global economy and political landscape present new challenges for the U.S. investor. Such changes mandate unconventional thinking, new investment strategies, and a willingness to change course when appropriate. One solution is to commit a significant percentage of your financial assets to investments outside the United States.
Here are three compelling reasons why:
- The American economy, once a manufacturing powerhouse, has become a consumption driven society, with consumption driving 70 percent of Gross Domestic Product (GDP). Conversely, 80 percent of global manufacturing output is derived internationally.
- History has demonstrated that it is wise to invest in creditor nations, and dangerous to be invested in countries that are heavily indebted. The United States is now the single largest debtor nation in the history of the world.
- A well-executed international diversification strategy can potentially lower overall portfolio risk and may improve long-term performance.
Taking action
The first (and most important) step is to determine the appropriate percentage of Non-U.S. stocks, international bonds, and global cash in relation to domestic holdings. Secondly, international investment results are driven primarily through wise country, currency, and sector selection. Here are some suggestions worth considering when positioning the components of an international strategy.
- Invest in foreign countries and regions where wealth is growing and capital is flowing.
- Focus on foreign countries that are politically stable with strong currencies that are backed by sound monetary policy.
- In an era of historically low (zero) interest rates and extraordinary monetary stimulus, it is prudent to position in favor of countries that are abundant in natural resources.
Challenges and risks
Foreign investing presents a variety of unique challenges and should be considered in the context of your investment objectives, cash flow needs, and risk tolerance levels. Beware that certain geographical regions are facing similar obstacles of high debt, low savings, and negative real interest rates – so it is critically important to be selective in your strategy. Wise investors choose to partner with an experienced investment advisor with a proven track record when navigating these waters.
To understand what is likely to happen in the future, we must first recognize the global transformation that is well under way today. Refusing to accept and ultimately embrace this change is like swimming against the current of a thundering river. Pay attention to the major changes taking place around the world right now, and then give serious consideration to embracing an international investment approach.
International investing involves risks not typically associated with U.S. investing, including currency fluctuation, foreign taxation, political instability and different accounting standards.
John Sammut helps individual investors, families and corporations protect their purchasing power and improve investment results. You can reach Sammut by telephone at (800) 343-3036, by e-mail at john.sammut@rbc.com or visit him on the Web at johnmsammut.com.
The opinions expressed in this report are those of the author and are not necessarily the same as those of RBC Wealth Management or its research department. RBC Wealth Management did not assist in the preparation of this report and makes no guarantees as to the accuracy or the reliability of the sources. This information should not be construed as a research report, as it is not sufficient enough to be used as the primary basis of investment decisions. Clients should work with their financial consultant to develop investment strategies tailored to their own financial circumstances.
RBC Wealth Management, a division of RBC Capital Markets Corporation, Member NYSE/FINRA/SIPC