Although most American prefer to invest in U.S. stocks, investing in foreign stocks may be a better idea for the reasons listed here.
Americans like to buy American stocks.
Europeans prefer European stocks.
And Chinese investors… well, you guessed it, they go heavily into Chinese stocks.
This is the essence of a phenomenon called home country bias.
As investors, we feel most comfortable buying the stocks of “our own” domestic companies. And we routinely under-allocate to foreign stocks.
That means U.S. investors are likely invested in…
Apple… not Samsung
Google… not Tencent
Amazon… not Alibaba
Intel… not the Taiwan Semiconductor Manufacturing Company
Verizon… not America Movil
Coca-Cola… not Fomento Economico Mexicano
Generally, though, we know well U.S. investors’ preference for U.S. stocks.
Let’s be honest… it feels uncomfortable investing in a foreign company… and it’s worse when you can’t even pronounce its name! Right?!
But sticking too close to your home turf – in the name of comfort, or otherwise – could be costing you a lot of money.
Each of the foreign companies listed above is beating the pants off their U.S. counterparts so far this year.
Samsung is beating Apple (49% to 29%)
Tencent is beating Google (57% to 23%)
Alibaba is beating Amazon (75% to 36%)
Taiwan Semiconductors is beating Intel (24% to -6%)
America Movil is beating Verizon (36% to -21%)
Fomento Economico Mexican is beating Coca-Cola (35% to 7%)
So, what’s an American investor to do?
Two simple things…
The first step is to acknowledge there’s nothing “special” about U.S. stocks.
They aren’t pre-ordained to be the investment world’s best market all the time. Sometimes U.S. stocks outperform foreign stocks. Other times, it’s the other way around.
U.S. stocks will always feel more comfortable to U.S.-based investors. Reinforcing that preference, currently, is the fact that U.S. stocks have indeed outperformed foreign stocks for a long while now. From the March 2009 bottom through the end of 2016, the S&P 500 gained a massive 225% while emerging-market stocks were up just 82% and foreign developed markets just 46%.
But as I first warned in March, there’s no guarantee U.S. stocks will always outperform foreign stocks. The reality is that U.S. stocks are more likely to underperform ahead, as they’ve done so far this year.
Once you acknowledge that there’s nothing special about U.S. stocks, you’re halfway toward finding lucrative opportunities all around the world.
The second step is simply figuring out the best way to invest in foreign stock markets. And, as I see it, that decision is a no-brainer…
You should invest in ETFs.
Look, finding the “next Apple” in China is no easy feat.
Frankly, most investors don’t have what it takes to be stock-pickers in their home markets, let alone foreign markets. So most ordinary folks are better served investing in a diversified basket of foreign stocks and calling it a day.
ETFs make that easy and cheap to do.
Take for instance the iShares MSCI Mexico ETF (NYSE: EWW).
Around 22% of this ETF’s assets are invested in America Movil, Verizon’s counterpart, and Fomento Economico Mexican, the “Mexican Coca-Cola” both up around 35% this year. But it’s also invested in roughly 60 other Mexican stocks, ranging from banks and cement companies to airlines and real estate investment trusts.
This ETF gives you a simple way to “buy Mexico” – with one click of the mouse, and for a measly 48 basis points. So far this year, that’s been a good buy.
Mexico (EWW) is the top-performing stock market ETF among the 15 countries I track in Cycle 9 Alert and 10X Profits.
Shares of the ETF are up more than 31% year-to-date. That’s three-times better than the S&P 500 (SPY)!
Chinese stocks are also having a great year. And because it’s daunting to buy individual stocks out of China, the iShares China Large-Cap ETF (NYSE: FXI) offers a diversified, low-cost, and simple way to gain access to China’s market.
Shares of the iShares China ETF are up 20% this year, nearly four-times the return we’ve seen from U.S. small-cap stocks so far.
The bottom line is, you’re missing a world of lucrative opportunities if you’re restricting your portfolio to U.S. investments only.
According to private equity firm KKR, China’s economy will account for a full 35% of global GDP growth in 2017. Emerging-markets outside of China will contribute an additional 41% of global growth.
Meanwhile, U.S. economic growth will be just 10% of the global pie this year.
That should make you think twice about loading up on U.S. names… and make you take a second look at global stock market ETFs, from China to Mexico and beyond.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
Get lower hotel prices, better services with these insider tips
There are ways you can get better hotel prices and services when you travel. Take these tips from an insider...
What to do before investing in foreclosed property with your IRA
Buying a foreclosed property is different than acquiring one through normal channels, and so buyers need to have extra knowledge.
Car rental industry increases transparency that could end surcharges
The car rental industry is slowly changing as companies are providing more price transparency for customers.
How singles should plan for retirement
About 56 percent of Americans have less than $10,000 when they retire. Follow these tips if you want to have...
India’s tech scene brings in foreign investments
India's economy is growing fast today, and it's ready to take in new foreign investments. The IBM-HCL Technologies partnership is...
Featured4 days ago
CEOs Fishkin and Ramsay: From financial burdens to million-dollar companies
Destinations4 days ago
Millennials with money escape to Mexico’s Bohemian luxury
Sponsored3 days ago
Cannabis retailer Choom secures leadership position with Ontario expansion
Business5 days ago
Disney continues quest to buy Fox, Brazilian regulators raise concerns
Sponsored4 days ago
The Alkaline Water Co. begins trading on NASDAQ today
Business5 days ago
IoT and LaaS mean stronger growth for LED market
Crowdfunding4 days ago
Why female and minority founders should look to crowdfunding
Crowdfunding4 days ago
Dispelling misconceptions about startup accelerators and their role in the startup industry