“Our clients come to us for advice on how to protect their future. We take that level of trust very seriously.”
- Dan Junkin

Is Ours an American or an International Economy? - Fourth Quarter, 2007

Dan Junkin

Our clients ask us about international investing. Or how much of what happens abroad affects us here at home? Or vice versa?

Here is a surprising fact — which may shed some light on those questions — more than 45% of the earnings of the companies in the S&P 500 index come from overseas. Now remember, these are the 500 largest public companies in the United States. So, there are many smaller — and perhaps private — companies which do not have any or much business overseas.

However, the net result is that a significant portion of our economy is tied to (and affected by) the world’s economies. So, whether you set out to do international investing or not — if you own large US stocks — you already are internationally exposed.

We believe this is a fact of life today which is unlikely to be reversed. Indeed, we suspect the trend will only continue. With the value of the US dollar reduced, overseas consumers can buy our goods and real estate more cheaply than in the past. US exporters are doing very well right now. We need foreigners to buy our debt instruments. They continue to do so, since the US political system and our dollar are still seen as stable and safe. And our consumers have a strong preference for less expensive overseas-made goods.

But back to the first question: should you invest abroad? Generally speaking, if you own stocks, we recommend some international exposure. That means you own stocks which are domiciled outside of the US — for example, in Great Britain or Japan or Germany. And you can invest in well-developed economies or in emerging markets — such as Turkey or China. Normally, we recommend you make your international investments through no-load mutual funds.

How much should you have in international? Somewhere between 5% and 20% — depending upon your risk tolerance and how the rest of your portfolio is allocated. International investing does provide some increased diversification — which is a proven investment strategy.

Call us to discuss this issue or any others which may be on your mind.

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