The sun never sets on overseas investment opportunities
For many Canadians, international investing has meant, for the most part, investing in U.S.-based companies. Yet you only have to start your day with a cup of Brazilian coffee brewed in your Krups coffee maker before heading to work in your Toyota or Honda to realize that a world of investment opportunities exists far beyond North American borders. And right now may be a particularly good time to consider sending some of your loonies overseas. Consider the following:
Economic growth: You’re well aware that a severe recession recently hit Canada, the U.S. and other world markets. However, some countries’ economies continued to grow, albeit at a slower pace. In the world’s developing markets, growth prospects — and, consequently, investment possibilities — remain attractive.
Expanded global investment opportunities: In the past, the U.S. dominated the world’s investment markets, but that’s no longer the case. Today, countries outside North America hold two-thirds of the world’s stock market capitalization. And emerging markets — countries such as China, India, Brazil and Mexico, which are characterized by younger, less mature economies — have grown from 10 per cent of the world’s equity (stock) value in 2003 to 24 per cent as of October 2009. Furthermore, the U.S fixed-income market represents only about one-fourth of the global market, down from 56 per cent in 1982 — which means you now have a much wider selection of bonds from which to choose.
Diversification: If you invest only in the Canadian and U.S. markets, and a downturn hits these economies, your portfolio will likely take a hit. But, as mentioned above, international markets don’t always perform exactly like the Canadian or U.S. markets. Consequently, if you expand your international investments beyond the U.S., you can help diversify your portfolio. While diversification by itself cannot guarantee a profit or protect against loss, it can help reduce the effects of volatility and give you more chances for success.
As you can see, you can gain some clear benefits by investing internationally. Yet these potential rewards do not come without risks. For example, some parts of the world can experience politi- cal instability. New governments can come in, nationalize companies, drastically change policies or rules affecting commerce, or take other actions that could affect your investments. Also, international investments may be affected by changes in the value of the loonie or the U.S. dollar relative to foreign currencies.
Because of these additional risks associated with international investments, when investing outside North America you may want to consider investing in mutual funds, whose individual stocks and bonds are selected by portfolio managers with the experience and expertise necessary to navigate foreign markets and find growth opportunities among many countries and companies.
In any case, when you think about putting some of your money to work outside Canada, don’t confine yourself to the United States. Instead, consider taking out a “passport” to the wide world of international investing. Like all journeys through the investment world, it may include some detours along the way, but the potential rewards are well worth seeking.