IT’S TIME TO GLOBALIZE YOUR PORTFOLIO
As originally appeared in The Jerusalem Post on May 25, 2018.
On my recent trip to Seattle I was talking to people about what I do for a living and once they heard that I am a financial advisor, they immediately sought some free advice. I’m used to it as it’s a professional hazard. When I started talking about how I like investing in emerging and other international markets, I was met with blank stares. You need to understand that Seattle still is a very provincial town. When day after day the top story in the news somehow revolves around the weather, you realize that for all the amazing hi-tech companies based there (Microsoft and Amazon to name two) it’s still a small town.
Living in Israel by definition we are more “worldly”, and it’s much easier to explain to clients the concept of true global investing. The fact that Israel is a nation of immigrants has a lot to do with it. Just on Shavuot, we hosted someone who made Aliyah from Chile; I’ve had a secretary who came from Gibraltar; how many Americans can say that they have friends from so many countries? In fact, I received a few phone calls this week asking about investing in Guatemala and Paraguay as a way of reciprocating for their moving their embassies to Jerusalem. Not a lot of articles in the financial media about investing in either one of those countries, but for people living here, it’s in the thought process.
A big world
I don’t believe that investing should be like the Wild West. I still think that it makes sense to invest in the U.S., and that should be the core of any portfolio, but there may be more attractive investment destinations. There are markets out there that provide more value than the U.S. Keep in mind the most important investing mantra; buy low and sell high. It’s no secret to readers of this column that for the long-term I am a huge fan of investing in international and emerging market stocks. Since the sub-prime crisis and the “great recession” that followed, the last decade has seen U.S. stocks seriously outperform their global rivals. Over the last year, things have started to reverse. Up until a few weeks ago, non-U.S. markets and especially emerging markets saw stellar returns over the last year.
It’s not just the U.S anymore
Those who only invest in the U.S. miss out on some of the biggest, most profitable companies in the world. Global leaders like Nestle and Samsung are just two examples of the type of exposure being missed. More than 50% of the global stock market value is outside the U.S., and almost 75% of the global economy in not U.S based. There is an economic revolution taking place in much of the emerging world. Just like in Israel where the economy is being propelled by technology, innovation and a growing middle class that has become a big consumer base willing to spend money on all kinds of material goods, the same holds true in emerging markets.
According to the World Intellectual Property Organization as of February ’17, 46.5% of all global patents were registered in emerging markets. This is a dramatic rise. In 2005 just 20% were registered there. 12 years ago, about 30% of the MSCI Emerging Market Index was comprised of energy and materials stocks. A decade later and that number had been halved. Conversely, the percentage of technology companies in the index has nearly doubled over the last 10 years. See it’s not just in Israel.
This innovation drive brings with it prosperity, as has happened everywhere else in the world where it has happened. This will increase incomes which in turn will create a boom in consumer spending, always a good thing for domestic economic growth.
Tax cut party
As I have written previously, these markets may be relatively cheap already but there is another potential boost. President Trump’s major tax cut has already started to really jump-start the U.S. economy. I think this will create not just a big U.S. economic boom, but the boom will go global, just like in the mid-1980’s after President Reagan cut taxes. It will be like dominoes as country after country will also cut taxes, maybe even our brilliant minds in the Knesset will follow suit, although I wouldn’t hold my breath!
There is certainly risk with investing in international and emerging markets and over the short-term, they can be volatile, but speak with your financial professional to investigate whether there is room in your portfolio for this asset.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email aaron@lighthousecapital.co.il.
