Diversify with international allocation
A main benefit of investing internationally is the diversity it can add to your asset allocation. So wouldn’t it be easier to get that diversification by simply investing in a U.S. company that has world-wide exposure? Our experts explain why this strategy may not be the best solution.
Other highlights from this webcast
- What’s an appropriate international allocation?
- Be aware of “home bias” in investing
- International investing and currency hedging
Akweli Parker: So, does it make a difference then if you invest in a U.S. company that does have international operations? I mean it is exposed to those international markets.
Kim Stockton: Yes, yes, that’s right and there is the thought that when you invest in the US markets, there are a number of multinational companies, companies like McDonald’s that have business and do business all over the world. So with a multinational company, you do get exposure to markets outside the US, but our view is that it still makes sense to have a portion of your portfolio in non-US stocks and bonds for a number of reasons.
Bryan Lewis: And just to my point earlier about the market-cap weighting, right? So if you’re only investing in the United States, you’re excluding very global companies, large companies that are out there which is roughly half of the stock market. So, it’s important that you have investments outside of the US border that are domiciled outside the United States.
Bryan Lewis: What we found with the performance, as we were alluding to this earlier around the source of revenue, is the performance of the stock itself more closely follows or correlates the market or the domestic market in which they trade in rather than their source of revenues. So if a company has 40% of the revenues coming from overseas investments, that stock in a poor market based on perception is probably not going to trade or do as well even though a lot of the revenues might be diversified.
All investing is subject to risk, including the loss of the money you invest. Diversification does not ensure a profit or protect against a loss.