The Investing Revolutionaries by James N. Whiddon & Nikki Knotts

Author:James N. Whiddon & Nikki Knotts
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2009-02-21T16:00:00+00:00

Global Diversification

Investors often ignore international markets because they regard them as too risky. This is a mistake. Investors also tend to believe that if they own domestic companies that sell products or services overseas, they are investing internationally. Research indicates that stock prices of companies tend to follow the trends of their domiciled country even if a majority of their business comes from foreign markets.8

International markets tend to move in different directions from domestic markets. “Different” may mean that they are both going up or down but each at a different pace. Figure 6-1 demonstrates how U.S. and international markets outperformed each other during certain time periods. The case of foreign markets being led by Japan in the mid- to late 1980s was a good example of times when international markets have outperformed U.S. markets by a wide margin.9 Additionally, even during the bull market run seen in the United States from 2003 to 2007, international markets were the winners. Diversification into foreign markets during these and other time frames has preserved capital for many investors.

Invest internationally has become pretty standard advice from most advisors. But the next question becomes, which countries or regions should be included in your portfolio? The Heritage Foundation, in conjunction with the Wall Street Journal, has created the annual Index of Economic Freedom. For the last 14 years, the

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