The Twelve Rules of Investing, Rule #9: Don’t be a xenophobe

Posted on Posted in Financial Blog

Most people concentrate their investments in their home countries. Americans have the bulk of their assets in US stocks and bonds, while the Japanese focus on Japanese investments. This made sense many years ago when it was difficult to buy securities in foreign countries, but things have changed dramatically in recent years. The global financial markets are becoming more integrated, it’s relatively easy and inexpensive to buy foreign stocks and bonds, and the US share of the global economy has declined as foreign economies have blossomed. The US now represents less than half of world stock market capitalization.

You won’t enjoy the full benefits of diversification (see Rule #4) unless you invest outside your home country. If you’re a US citizen, that means that about half of your investments should be in other countries. Don’t worry about currency fluctuations: they can just as easily improve your investment performance as hurt it, and they even out over the long run. The main difficulty in foreign investing today is in analyzing non-US securities, as accounting rules and disclosure requirements vary dramatically between countries. Unless you understand these differences, it’s best to have a professional invest on your behalf.