Interested in Investing Abroad?
CHOOSE CAREFULLY WHEN DIVERSIFYING YOUR PORTFOLIO
A constant dilemma in the world of wealth management is whether it’s wise to stick with the security of U.S. stocks or venture into the international marketplace. This seems especially relevant now, when tough talk on tariffs threatens to roil the seas of international trade and usher in unintended consequences.
Yes, the international space has been shaky over the past three or four years. The U.S. got its act together quickly after the 2008 financial crisis, whereas the international markets were not as swift to respond. Nevertheless, international investing is an important component to a portfolio and should be considered.
At Coral Gables Trust Company, we recommend that 25 percent of equity portfolios are allocated towards international investments, with 20 percent of that in emerging markets. When investing in emerging markets, don’t be country-specific, but instead approach it as a broad basket.
So when, how much, and where to diversify? The following are some things to consider.
There is opportunity in the European market, but investors must be patient. The U.S. is expensive relative to foreign markets, so overseas investments could be a better deal over the next five years. But the European zone is cheaper for a reason. They’ve had a lot of bad news: Brexit and the Greek debt crisis are still lingering issues.
The U.S. is trading at a premium for several reasons, including better job numbers and the Trump administration’s massive economic stimulus. Europe and Japan are three to four years behind us, and emerging markets are probably similar in their cycle, so it’s been challenging.
The data is getting better: 2017 was a very strong year for all markets. Emerging markets were up 37 percent and Europe was up 25 percent. The U.S. market, with a 21 percent market return, underperformed for the first time in several years. But all the markets experienced growth. In 2018, we seem to have broken away from the pack. But we don’t known how the tariff talks are going to affect us or the international markets.
The Trump administration seems to be friendly to the European Union, but negotiations with China are struggling. Right now, investors don’t seem to be concerned with the tough talk and harsh rhetoric about tariffs, possibly because they assume it’s all a negotiating tactic. But they could lose patience and run for the exits. That would have a strong influence on the markets.
While we naturally have a U.S. bias, we have strategically placed allocations with high quality international investment managers that have added value above their respective target benchmarks. Fortunately, South Floridians tend to understand the importance of investing beyond our borders as many have connections to South America or Europe and are generally more educated on foreign issues, currencies, regulations and markets.
Diversifying your portfolio — both geographically, between companies, and across investment vehicles — is the wisest move and the surest path to achieving your goals. With the right guidance, don’t shy away from investing abroad, but be selective and diversified.
Mason Williams is chief investment officer at Coral Gables Trust Company, with more than 18 years of experience in building investment strategies and customizing portfolio solutions.
