Investing

Should You Invest Internationally?

 
Should You Invest Internationally?Investing in foreign stocks provides access to a world of opportunities outside the United States, which may help boost returns and manage risk in your portfolio. However, it’s important to understand the unique risk/return characteristics of foreign investments before sending a portion of your money overseas.
 

Reasons to go abroad

 

Here are some of the potential benefits of international investing.
 

Additional diversification. Other countries may be at a different stage in the business cycle than the U.S. economy. They could recover more quickly (or more slowly) from a recession.
 

Long-term growth potential. Some of the world’s most rapidly growing economies are located in emerging markets that may be reaping the benefits of new technologies, a growing consumer base, or natural resources that are in high demand.
 

Possible hedge against a weaker dollar. The U.S. dollar has been strong in recent years, but having some investments denominated in foreign currencies may help offset (or even take advantage of) any future dips in its value.
 

Reasons to proceed with caution
 

Here are just some of the potential risks.
 

Politics and economic policies. A nation’s political structure, leadership, and regulations may affect the government’s influence on the economy and the financial markets.
 

Currency exchange. Just as a weak U.S. dollar could work for you, additional strengthening in the dollar could work against you. That’s because any investment gains and principal denominated in a foreign currency may lose value when exchanged back.
 

Financial reporting. Many developing countries do not follow rigorous U.S. accounting standards, which often makes it more difficult to have a true picture of company and industry performance.
 

Risk/return potential
 

Some international investments may offer the chance for greater returns, but as with other investments, stronger potential comes with a greater level of risk. For example, over the past 30 years, foreign stocks have outperformed U.S. stocks, bonds, and cash alternatives 11 times. However, they have also underperformed 11 times, tying cash for the highest number of lowest-performing years during the same time period.
 

Number of highest-performing years, 1989-2018
Cash 4
Bonds 5
U.S. Stocks 10
Foreign stocks 11

 

Number of lowest-performing years, 1989-2018
Cash 11
Bonds 6
U.S. Stocks 2
Foreign stocks 11

 

If you decide to spread some of your investment dollars around the world, be prepared to hold tight during bouts of market volatility. And remember to rebalance your portfolio periodically to help align your asset allocation with your long-term investment strategy.
 

Performance is from January 1, 1989, to December 31, 2018. Cash is represented by the Citigroup 3-month Treasury Bill Index. Bonds are represented by the Citigroup Corporate Bond Composite Index. U.S. stocks are represented by the S&P 500 Composite Price Index. Foreign stocks are represented by the MSCI EAFE Price Index. All indexes are unmanaged, accurate reflections of the performance of the asset classes shown. Returns reflect past performance, which does not indicate future results. Taxes, fees, brokerage commissions, and other expenses are not reflected. Investors cannot invest directly in any index.
 

The principal value of cash alternatives may fluctuate with market conditions. Cash alternatives are subject to liquidity and credit risks. It is possible to lose money with this type of investment. The return and principal value of stocks may fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest, whereas corporate bonds are not. The principal value of bonds may fluctuate with market conditions. Bonds are subject to inflation, interest rate, and credit risks. Bonds redeemed prior to maturity may be worth more or less than their original cost. Diversification is a strategy used to help manage investment risk; it does not guarantee a profit or protect against investment loss.

What’s the real return on your investments?

 
What's the real return on your investments?As an investor, you probably pay attention to nominal return, which is the percentage increase or decrease in the value of an investment over a given period of time, usually expressed as an annual return. However, to estimate actual income or growth potential in order to target financial goals — for example, a certain level of retirement income — it’s important to consider the effects of taxes and inflation. The remaining increase or decrease is your real return.
 

Let’s say you want to purchase a bank-issued certificate of deposit (CD) because you like the lower risk and fixed interest rate that a CD can offer. Rates on CDs have risen, and you might find a two- or three-year CD that offers as much as 3% interest. That could be appealing, but if you’re taxed at the 22% federal income tax rate, roughly 0.66% will be gobbled up by federal income tax on the interest. Continue reading

Time for a Mid-Year Investment Check

 
Time for a Mid-Year Investment CheckMany investors may be inclined to review their portfolios only when markets hit a rough patch, but careful planning is essential in all economic climates. So whether the markets are up or down, periodically reviewing your portfolio with your financial professional can be an excellent way to keep your investments on track, and midway through the year is a good time for a checkup. Here are three questions to consider.
 

1. How have my investments performed so far this year?

Continue reading

Mergers & Acquisitions: What’s in the Deal for Investors?

 
Mergers & Acquisitions: What's in the Deal for Investors? Merger and acquisition (M&A) activity in North America and Europe reached its second highest level on record in 2018. There were 19,501 deals worth $3.6 trillion — a 6.3% increase in deal volume over 2017. There was also a rise in mega deals exceeding $10 billion.1
 
Collectively, U.S. corporations had plenty of cash to spend after a long string of solid profits and a significant tax cut.2 High stock prices also provided plenty of equity for deals involving the exchange of stock, while relatively-low borrowing costs made it possible to finance acquisitions. Continue reading

Test Your Investing IQ

 
Test Your Investing IQ

How much do you know about market basics? Put your investing IQ to the test with this quiz on stocks, bonds, and mutual funds.

 

Questions

 

1. What does it mean to buy stock in a company?

   a. The investor loans money to the company

   b. The investor becomes a part owner of the company

   c. The investor is liable for the company’s debts

 

2. Which of the following statements about stock indexes is correct?

   a. A stock index is an indicator of stock price movements

   b. There are many different types of stock indexes

   c. They can be used as benchmarks to compare the performance of an individual investment to a group of its peers

   d. All of the above

 

3. What is a bond?

   a. An equity security

   b. A nonnegotiable note

   c. A debt investment in which an investor loans money to an entity

 

4. What kind of bond pays no periodic interest?

   a. Zero-coupon

   b. Floating-rate

   c. Tax-exempt

 

5. What is a mutual fund?

   a. A portfolio of securities assembled by an investment company

   b. An investment technique of buying a fixed dollar amount of a particular investment regularly

   c. A legal document that provides details about an investment

 

6. What is the difference between mutual fund share classes?

   a. The investment advisers responsible for managing each class

   b. The investments each class makes

   c. The fees and expenses charged by each fund class

 

Continue reading

BrokerCheck

Newsletter Subscription

  • This field is for validation purposes and should be left unchanged.