The Case for International Investing INTRO: For the last several years the good old U.S.A. has generally been considered a great place to invest your money. Various areas of the world have experienced political unrest, currency devaluations and economic slowdowns, resulting in poor investment results for investors with exposure to those countries. However, Bruce Hagan, certified financial planner with RAI Investments and CSG is here to tell us why we might consider taking a global outlook. Q1: We hear the terms global investing and international investing. Are these terms synonymous? A1: Not really. When we speak of mutual fund that invests globally that means investments can be made in companies all over the globe, including the U.S. International is more synonymous with foreign because an international fund contains stocks or bonds of companies outside the U.S. Q2: Aren’t there some risks associated with international investing that one wouldn’t expect to find with domestic investments? A2: Indeed there are. These risks can include political instability, less regulated industries and banking operations, currency fluctuations, questionable accounting practices, and more volatile and fragile economies. Q3: So why, in the face of these additional potential pitfalls, would someone want to invest outside the U.S.? A3: Well, first of all there’s something of a blur with many companies as to whether or not they’re just a U.S. company. A company such as Coca Cola, headquartered in Atlanta, does the great majority of their business outside the U.S. Likewise, Samsung Electronics in South Korea derives most of their revenues outside of their country. The World Bank has issued some reports indicating standards of living are expected to rise quite dramatically in many developing countries and as that happens there could be great demand for the same goods and services that are available in more developed countries. Companies that can satisfy that demand may offer promising investment opportunities. Q4: You’ve said many times that investors should focus on long term results. Are there studies that indicate how international investing has generally worked out in the long run? A4: There’s a good bit of evidence that indicates adding some international exposure to a diversified portfolio of domestic bonds or stocks improves the overall return. In the March issue of the Journal of Financial Planning a study is reported that looks at 20 year periods. It looked at rolling periods from 1969 through 1989, 1970 through 1990, etc ending in 1997. The study compared 100% domestic bond portfolios and 100% domestic stock portfolios with portfolios that had an 80% domestic and 20% international mix. In all nine periods returns were enhanced for both the bond and stock portfolios and in almost every period the portfolio volatility was decreased. Q5: Very interesting. Now, last time you were on you indicated that sometimes riskier assets can be added to a portfolio without increasing the overall risk. Is this an example? A5: I think so and the key is to mix asset classes that have dissimilar patterns of returns. So you might want to take a look at some global or international funds as a means to diversify. The discussion offered above and in the movie should not be considered an endorsement by Florida State University. They are offered in the educational sense of providing thought-provoking information for our Web audience. Copyright shared with Florida News Channel (FNC), all rights reserved. Broadcast 2/18/2000