The number one reason why more investors are thinking global is diversification. They are looking for global investment opportunities that help them protect their principal and produce better returns for their assets.
At the same time, they are looking at investing in foreign markets for more stability – markets that may not be facing the dual impact of inflation and recession (sometimes referred to as stagflation). So what can you do? We will cover the following global investment topics in this article:
- How are the U.S. securities markets performing in 2022?
- Why diversify into the global markets?
- What are the best alternatives for global investing?
- What are some of the risks when you invest in global securities?
We live in a global economy, so a global investment strategy makes sense. Consider your own buying habits. You may drive a Lexus (Japanese), store your food in a Bosch refrigerator (German), and wear a Rolex watch (Swiss). You do not limit your purchases to U.S. products because you want the best products you can reasonably afford.
The same can be said for the investment of your assets. Your goal should be to invest in the companies that produce the best products and services.
How are the U.S. securities markets performing in 2022?
The U.S. Federal Reserve is increasing interest rates monthly to fight the highest inflation in 40 years. It hopes the higher interest rates will be enough to increase costs and slow spending in ways that reduce demand.
The risk is recession, when the U.S. economy stops growing and starts declining, which is beginning to happen. Next comes lay-offs of personnel and the closure of factories to reduce supply and match demand.
The stock market, as measured by the Dow Jones Industrial Average (30 large capitalization stocks), has officially dipped into Bear Market territory. The Dow has had a recent 52 week high of 36,953 and a recent 52 week low of 29,161. 7,800 points is a 21% decline in the market capitalization of the stock market.
The next question is duration. How long will the decline last?
The most recent and short-lived bear market in history occurred in March 2020 when the pandemic put the U.S. economy into a very brief recession. This produced the shortest bear market in history compared to the dot-com bear market that lasted a total of 31 months (2000-2003).
There is a significant amount of speculation that the U.S. elections in November may have a substantial impact on the U.S. economy and the securities markets if the Republicans win back control of Congress. This will create the gridlock that Wall Street prefers because future economic events and earnings will be more predictable.
Why diversify into the global securities markets?
We have already established that we live in a global economy and our investment practices should follow our lifestyle choices. If I bought a Swiss watch because it was the best product available, why wouldn’t I invest in the company that produced the watch. Or, if I bought a German made car why wouldn’t I invest in the manufacturer?
Global investing represents the best way to diversify your investments among different countries, economies, and currencies. In this case, a global strategy could create more investment opportunities that produce increased stability and the potential for better results.
A global strategy could also enable you to invest in the best companies regardless of where they are headquartered and where they derive most of their earnings. For example, Shell Oil is headquartered in the Netherlands and generates most of its revenue in the U.S. Coca Cola is headquartered in the U.S. and derives most of its earnings from outside the U.S.
It makes sense to hire an experienced team of fiduciary financial advisors that specializes in providing global investment management services to investors in the U.S, Europe, and other regions around the world.
What are the best alternatives for global investing?
A global portfolio may be compromised of investments from several different regions of the world. These regions are represented by the following populations:
- The U.S. and Canada (400 million)
- Europe (775 million)
- Asia (4.7 billion)
- Australia (28 million)
- Central & South America (600 million)
- Africa (1.4 billion)
- Middle East (300 million)
Global investors have the potential to invest in companies that reach the world’s major population centers. Why limit your investments to one country or region? This opportunity cost makes a global investment strategy your best alternative.
Mexico may be an increasingly positive investment opportunity as more U.S. companies reduce their dependency on China and move their manufacturing closer to the U.S. Not only is Mexico a contiguous country, it still has substantially lower labor costs than the U.S.
At LFA, we specialize in global investment management! Use this guide to learn how this can work for you.
Related article: Are offshore accounts legal for Americans? Swiss banking explained.
Related article: How does the Swiss franc compare to the U.S. dollar?
What are some of the risks when you invest in global securities?
There are certain risks when you invest in the global securities markets.
There is political risk, based on, onerous tax policies, and anti-business practices that could impact investments in certain countries more than others. For example, investments in Russia, China, and Brazil can be riskier than investments in Switzerland, Japan, and Australia.
Some countries are just as developed as the U.S. and Switzerland with similar investment regulations and oversight. Other countries are referred to as emerging markets. They are the less developed countries that can represent additional risks because they do not have the same investment regulations and oversight in place as the more developed countries.
Another example of a relative risk is the exchange rates of a country’s currency. When this article was written, the U.S. dollar was close to parity with the Swiss franc, English pound, and Euro. However, these currency exchange rates can change with very little notice, which can impact the performance of the underlying stocks in those countries.
A stable currency, like the Swiss franc is another way to offset the volatility of the underlying stocks.
Conclusion
Global investing is a way to invest your assets in the best companies in the world regardless of where they are located. You still need expert advice to select the best securities for your portfolio and track their results on a frequent basis.
Make LFA your solution for investing in the global securities markets. Reach out to begin today!
