You're a more worldly investor than you realize
By SCOTT BURNS
Universal Press Syndicate
Question: It has been suggested that since the U.S. market is a smaller portion of the total world financial market — and because the U.S. dollar is falling — it would be better to increase our exposure to non-U.S. markets to as high as 50 percent. What are your thoughts?
Answer: Having some amount of investment in international markets is a good idea — one I've advocated for years. Unfortunately, it isn't as simple as saying, "Well, let's make sure we don't forget Portugal or New Zealand.” As a practical matter, you already have a substantial overseas investment when you buy shares in a major index such as the Standard & Poor's 500 index or the Russell 1000 index.
Why?
Virtually every major American company earns a significant portion of its revenue outside of the United States. McDonald's and Coca-Cola, two quintessential American companies, both enjoy substantial foreign earnings.
Ditto Intel and Exxon Mobil. Current estimates are that about one-third of earnings for the S&P 500 come from overseas. As a result, many of these companies will be enjoying substantial currency benefits even as we worry the declining dollar.
The shoe fits on the other foot, too. Honda is a quintessential Japanese company, but a major portion of its sales and profits come from the United States.
As a result, you're an international investor even if you own only American companies. And you're less an international investor than you think when you own foreign companies.
That said, most Americans can, and should, make a much larger commitment to foreign investments, including emerging market investments, than they currently have. If you study the composition of all 401(k) investments, for instance, you'll find that the average 401(k) participant has only 10 percent of plan assets in international equities. A better figure would be a range of 30 percent to 50 percent.
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