Newspaper article The Christian Science Monitor

It's a Good Time to Be Overseas

Newspaper article The Christian Science Monitor

It's a Good Time to Be Overseas

Article excerpt

The world is changing for American investors. In the past decade or so, foreign stocks have become more easily accessible through mutual funds - and, sometimes, more profitable.

"Generally speaking, the rest of the world did better last year [for American investors] than the United States," says David Wyss, chief economist of Standard & Poor's, a New York investment information firm. "Not that the US did terrible."

Many foreign stocks were in a catch-up phase. Some were blessed by high prices for raw materials. Others by a more stable financial or political picture.

Mr. Wyss suspects foreign markets may again offer a better return than the US market in 2006. But that's a prediction, not a certainty.

Behind the world's financial markets lies a rapidly shifting - and risky - economic scene. For example, China probably has just displaced Britain as the world's fourth-largest economy.

But widows probably should not load up on Chinese stocks.

Nor on Russian stocks. Yet who would have suspected 15 years ago that Russia's leader would become president of the Group of Eight (back then, the G-7) industrial nations? Not only that, Russia has been using its swollen oil and gas revenues to repay huge chunks of the foreign debts piled up by the former Soviet Union - debts once regarded as of shaky value.

A few years ago, few foreign business people saw India as a promising market for consumer goods. But last year, sales of such items as microwave ovens, air conditioners, washing machines, VCRs, DVD players, and color TVs were up 12 to 27 percent in that nation.

For most American investors, however, the more likely and conservative choices for foreign investment are the markets of Europe, Japan, and Canada.

Last year, the S&P 500 stock market index - a popular index of American stock prices - rose 3 percent. When dividends are included, the return for an investor reached 5 percent.

US economic and investment growth last year was significantly higher than that of Europe, Japan, and other industrial nations. But foreign stock markets have been slow to recover from the bursting of America's Internet-stock "bubble" in 2000. That's not so true now. In US dollars, S&P's World Index rose 15 percent last year.

The American investor who accepted the risk of a change in the value of foreign currencies and invested money abroad did better than the investor who kept all his money in the domestic market.

"It's a good time to have an 'overweight' internationally," says Wyss. He recommends that investors have 65 percent of their total portfolio invested in corporate stocks, of which one-quarter should be in foreign stocks. The remainder of the portfolio, he says, should be invested in short-term bonds (that is, bonds with maturities of two to five years) and cash.

Many conservative analysts recommend that any money to be invested abroad be put into mutual funds rather than individual stocks. …

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