Im a big fan of investing in other countries. Ive been looking for hard numbers but it appears that the US is roughly half of the world market. So if you money is only in the USA, you are only participating in half the market.
But the decision where to invest is complicated. Here are two articles about overseas investing. One warns about international bonds and the other warns about staying out of the world markets.
Overseas Bond Funds Got All Wet When Recrossing the Oceans in '05
February 3, 2006
In one of the best years for mutual-fund investing abroad, world bond funds were especially prominent -- but for all the wrong reasons.
As a group, funds that invest largely in bonds outside the U.S. ranked as the second-worst performers last year, according to Chicago research firm Morningstar Inc., returning on average negative 3.2% in dollar terms. The only category to do even worse: bear-market funds, which seek to profit in a declining stock market.
This occurred as U.S. investors were busy pouring money into overseas investments in hopes of profiting on booming international stocks. Latin American stock funds returned an average of 54% last year, Japanese funds returned 33%, and funds invested in diversified emerging markets earned 31.6%.
The split between lackluster bond-fund returns and stellar stocks highlights the added risk for U.S. investors eager to boost their returns by putting more money overseas. While overseas bonds are usually only a small part of an individual's holdings, they can provide valuable added diversity. However, funds such as these come in many flavors, making it important to choose carefully. For instance, even though world bonds did poorly overall last year, the riskier subgroup of emerging-market bond funds did quite well.
Overall, there has been increasing interest in world bond funds in the past five years, with their assets under management doubling from $15 billion in December 2000 to almost $32 billion at the end of last year, according to Boston research firm Financial Research Corp. After outflows from 1999 to 2002, this category had an inflow of $2.4 billion in 2003 that rose to $6.3 billion by the end of 2005.
Hmm, not too sure I like the sound of "rotating leadership". Is it time to invest in Yuan?
Forget Xenophobia: Go Abroad for Gains
March 6, 2006
Last year foreign-stock funds soaked up nearly $131 billion in net investments, more than three times the amount taken in by U.S. stock funds after redemptions, according to Financial Research Corp. The beat went on in January, when foreign funds took in $27.8 billion compared with net shrinkage for U.S. stock funds.
But the trend also is driven by currents like overseas markets' higher economic growth and lower valuations. It says something sobering about how the U.S. fits into the global marketplace and, broadly, how shares of U.S. companies will fit into a diversified portfolio in coming decades.
"The trend toward higher investments overseas is a very healthy one," says Russ Kinnel, director of fund research at fund-tracker Morningstar Inc. "At the same time, it's an acknowledgment that, over time, leadership always rotates."
Financial advisers long have advised Americans to stash 10% to 20% of their money overseas. Yet, roughly half of the world's market capitalization is made up of non-U.S. companies. Thanks largely to the fast-growing "BRICs" markets -- Brazil, Russia, India and China -- there's more room for growth overseas than in the maturing U.S. economy.
Meanwhile, yawning trade and budget deficits in the U.S. are expected to weigh on the value of the dollar. These burdens didn't keep the dollar from rising last year, but many analysts believe they'll weigh the currency down long term. A falling dollar is good for U.S. investors holding foreign securities because those overseas holdings are worth more at home.
