If you opened up and looked at your 401k statement, chances are that some of your investments are international. You are investing in companies outside of the United States. If you are invested in a target date fund, it is almost certain. It may be in mutual funds or ETFs. It may be in developed or emerging markets through reliable stock exchanges.
But should you own companies outside of the US? Emerging markets in developing countries have not moved much in the last 10 years. The US has had quite a run. Why would you invest internationally? These are all good questions to ask. I will do my best to answer them in this episode of Best in Wealth.
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Outline of This Episode
[2:21] Should I be internationally diversified in my retirement portfolio?
[4:58] You are likely investing internationally already
[7:05] Investing internationally creates a diversified portfolio
[8:44] How the US ranks compared to other countries
[16:25] Other asset classes performed well
[17:59] Another reason to be internationally diversified
You are likely investing internationally already
What kind of car do you drive? If you drive a GM, a Ford, or a Tesla, they are domestic-based companies. You are likely invested in them, too. Many car manufacturers are based internationally. BMW, Mercedes, Volkswagen, Porsche, etc. are owned by a German company. Chrysler, Jeep, and Dodge companies are owned by companies in Italy. The list goes on.
We know these cars. Most of the cars we buy and drive every single day are sold by companies that exist outside of the United States. There are many outstanding companies located outside of the US. And if you are invested in them, you’re investing internationally.
Investing internationally creates a diversified portfolio
You know that we do not try to time companies, sectors, countries, international vs. US—we do not time anything. Instead, we diversify your portfolio at a risk level you are comfortable with. We make sure it fits within your retirement plan. A well-diversified portfolio sets you up for a greater chance of success, without big swings. The more asset classes we can add—including international investments—the smoother the “ride” will be.
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How the US ranks compared to other countries
It may surprise you that the US is not the only big “player” in the stock market. There are what we consider 45 “reliable” stock exchanges globally. Where did the US rank out of the 45 international stock exchanges in the 4th quarter of 2023? We were not #1. Poland actually produced the best returns. The US ranked #20, about the middle of the pack. Let’s look at some more numbers:
What about the full calendar year? Hungary, Poland, and Greece were up over 50% in 2023. The S&P 500 was up 26%. The US ranked 13th. Thailand and Hong Kong stock exchanges ranked last.
From 2010–2020, the US did really well. But during that decade, the #1 country was New Zealand. The US was ranked #2.
What about 2000–2009? This was a rough time in the US. We started the decade with the Doc-Com bubble. We ended it with the Great Recession. The top two countries were Brazil and the Czech Republic. Greece, Finland, Japan, and the United States ranked at the bottom.
If you started the 2000–2009 decade with $1 million, you ended it with about $900,000. Not good. But if you had a diversified portfolio that included international investments, you would not have a “lost” decade. You may have had a positive outcome from your investments. It did not need to end badly.
Disclaimer: These are not investments that you can invest in. You can invest in ETFs or Mutual Funds to gain exposure to some of these countries.
Why international diversification is a must
We can not afford to overly concentrate portfolios in one company, sector, or country. A family steward diversifies their investments, both domestically and internationally.
When we design portfolios, we do not invest half and half. The US only represents 60% of the global market. We like to see 70% of portfolios invested in US companies and 30% internationally. But that is not the answer for every portfolio.
We need to find a mix that you can stick with that fits your retirement plan and be disciplined. Let your advisor do the strategic rebalancing, tax-loss harvesting, Roth conversions, etc. Why would we not be internationally diversified?
Why else is international diversification a must for a family steward? I share more in this episode of Best in Wealth.
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PODCAST FAST TRACKhttps://www.podcastfasttrack.comPodcast Disclaimer:
The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.