by Stacy Francis, CFP®, CDFA
With China recovering from a devastating earth quake, and Burma still receiving aid to fix the damage from the enormous cyclone that hit the country recently, it is easy to pass “overseas” off as a scary place where you could lose your money just as easily as those people lost their homes. But the thing is, spreading your capital across several countries and markets may actually put you in a position of less overall risk. Here’s how.
First of all, it is important to note that between the tornado in the Southeast, Hurricane Katrina and the California Wild Fires last fall, plus a war at our hands and an economy headed for disaster, the US isn’t exactly the yoga retreat of investing, either. Those of you who have kept an eye on the stock markets this spring will know what I am talking about. By diversifying between different countries, you lessen the effect it will have on your portfolio if one of those economies turns sour.
Secondly, with the dollar dwindling lower and lower, if you invest in foreign markets, even if your stocks (or funds) remain flat, you can make money off the exchange rate. Of course, if you think the dollar is about to bounce back, investing overseas may not be the right thing for you, as your foreign investments will lose value if that happens, in dollar terms.
Finally, when countries that have traditionally been poor start to catch up, the growth rate can be tremendous. A good example is the explosive growth we saw in several South East Asia in the late nineties. Of course, as I have pointed out before, the higher the potential return, the higher the risk. But if your faith in the good old greenback is dwindling, it just might be worth it to look into a few interesting alternatives.