Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How to Truly Globalize Your Investment Portfolio

Stock-Markets / Investing Sep 17, 2007 - 12:53 AM GMT

By: Peter_Schiff

Stock-Markets

Americans may be known for their appreciation of world cuisines … but when it comes to investing, they generally stick with homegrown meat and potatoes.

That's too bad. Reason: As global economic imbalances finally right themselves, the American-only investors may be forced to start an unwanted crash diet.


As a Money and Markets reader, you're already aware of just how important it is to diversify your portfolio into foreign markets. You know that many emerging economies are expanding more rapidly, and you know that many foreign investments are vastly outperforming those here in the U.S.

But even if you've already got a stake in foreign markets, I'd like to tell you  …

Why You May Not Have Enough Truly International Investments

In the last few years, many U.S. investors have begun pouring money into global mutual funds, and they think they're getting great diversification.

However, many of the funds receiving the biggest inflows are about as authentically foreign as an Italian meal at the Olive Garden!

Here's why:

A lot of so-called "global" mutual funds have only 30% or 40% of their portfolios in foreign investments. Plus, many "emerging market" funds are heavily concentrated in mega-cap multinational companies that have huge U.S. businesses.

So these funds could suffer grievously when the U.S. economy sputters.

I'd like to take this a step further …

The typical U.S. investor considers foreign stocks and bonds to be extremely risky. So they allocate perhaps 5% or 10% of their holdings to international investments. In contrast, my colleagues and I believe the vast majority of investment risks are currently found in the U.S.

As a result, we recommend investors allocate at least 90% of their portfolios to non-dollar-denominated assets!

If you've been steeped in the rhetoric of Washington and Wall Street, that might sound extreme. But when you consider the current realities of the global economy, then I think you'll agree that our suggested approach is not at all risky, extreme, or as some would even argue, unpatriotic.

The Typical Foreign Stock Has Better Fundamentals, a Superior Yield, and a Lower Valuation than its Domestic Counterpart. Plus It Protects You Against a Declining Dollar.

We believe that the growing imbalances in the U.S. … its twin budget and current account deficits … its lack of domestic savings … and the erosion of its industrial base … have now reached a tipping point.

In our view, the dollar will have to decline substantially in value, perhaps as much as 50% or 75%. The principal factor that has prevented this from happening already is the unprecedented currency intervention of foreign central banks.

When this crutch is removed, and one day it will be, the dollar will fall hard. We do not celebrate this trend, but we do recognize it as an intractable force.

Some assume that a declining dollar is only a problem for those Americans who vacation abroad. What they don't realize is that a weakening greenback will also raise the cost of living right here in the U.S.

A falling dollar will not only limit the amount of goods flowing into the U.S., but also increase the share of U.S.-produced goods and services flowing overseas (as foreigners outbid Americans). The drop in supply means that prices will rise in real terms.

Buying foreign shares can help you prepare for that scenario, because you'll be setting yourself up for higher current income. Moreover, we believe this rise in income will occur precisely at a time when income from other sources, such as wages, stock price appreciation, and home equity extractions becomes increasingly hard to come by.

In short, we think a non-dollar-denominated investment portfolio will be the deciding factor in maintaining your current lifestyle.

We are not alone in our view that the greenback will fall, either. Former Fed Chairman Paul Volker, PIMCO Bond specialist Bill Gross, and legendary investor Warren Buffett have all sounded the same warning.

In fact, Buffett is positioning his own portfolio for that day. His holding firm, Berkshire Hathaway, recently paid $4 billion to purchase Israeli metalworking firm Iscar. Mr. Buffet expressly stated that he made the purchase because Iscar had a low valuation, generous cash flow, and generated almost all of its income from non-dollar sources!

So, how can you practice what Mr. Buffett preaches?

Although Many U.S. Brokers Still Make It Difficult, It's Never Been Easier to Buy Foreign Stocks and Bonds Directly

When asked about foreign exchanges, most American stock brokers will offer guarded appreciation while warning of loose financial controls and political, economic, and currency risks.

And even if your broker does offer access to foreign stocks, it's likely that they trade through domestic market makers. Typically, these middle men pocket the difference between the bid and offer prices on the thinly-traded U.S. over-the-counter markets.

Sometimes the spreads are really wide — as much as 10%! In most cases, investors don't even realize just how much of their money winds up in the pocket of market makers.

To avoid these extra costs, seek brokers that have relationships with on-the-ground traders in Sydney, Auckland, Toronto, Singapore, Hong Kong, Tokyo, London, and more.

By executing orders directly on foreign exchanges, they can cut out the market maker, and pass the savings on to the customers. Sure, they charge a trading commission, but the net charge is substantially less than going through a market maker.

The advantage: You'll be able to buy the kinds of foreign stocks that aren't typically included in global mutual funds or traded on U.S. exchanges as American Depositary Receipts (ADRs).

What to buy? At my firm, we believe that a conservative portfolio should be dominated by proven companies generating superior income for shareholders.

And right now, we think those investments are foreign companies that have no listing on U.S. exchanges, and are not included in U.S.-managed mutual funds. To name just a few categories:

  • Canadian energy trusts,
  • European Commercial REITs,
  • Australian Mining Firms,
  • Chinese utilities, and
  • Korean steel manufactures.

These are the sectors with companies that tend to trade at lower multiples — and offer much higher dividend yields — than their better-known rivals.

Reason: Their share prices have not been bid up by throngs of U.S. investors … YET!

By Peter Schiff
Euro Pacific Capital
http://www.europac.net/

Peter Schiff is President of Euro Pacific Capital , a stock brokerage firm specialized in serving investors interested in foreign securities. He is author of the Amazon.com bestselling book Crash Proof and appears frequently on CNN, CNBC, Fox News and many other media . To receive a free copy of his new Special Report, The Collapsing Dollar: The Powerful Case for Investing in Foreign Securities, click here .

Peter Schiff Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules