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Are You Biased Against Foreign Investments?

Seth Jentner04/30/2014

A recent survey of 1,000 investors found a distinct “U.S. investment” bias among employees investing for retirement. Employees who contribute to their 401k and other retirement plans may be missing the boat by not taking advantage of worldwide investment diversification.

Employees may routinely misunderstand the risks and rewards of investing overseas in international stocks and bonds, and many investors think the U.S. stock market had consistently been among the world’s top performers.

A recent Oppenheimer Funds survey found that most (96%) of the employees surveyed did not know that Peruvian equities outperformed U.S. equities in 2010. The survey also discovered that many investors do not know that global investment funds usually include significant U.S. stock holdings. This means that by combining a global fund with a U.S. stock fund, 401k investors are not getting the degree of international diversification they may desire.

Some economists believe future retirees will be faced with high medical inflation, rising prices and reduced yields on U.S. bonds. If this is true, it may be critical for retirees to include a greater percentage of foreign investments as they seek higher returns. Exposure to global equities and global fixed income could help retirees generate sufficient income during retirement.

Emerging foreign economies are expected to grow faster than developed economies over the next 20 years.

Adequate diversification in both U.S. and foreign markets may play an important role in preparing for retirement and maintaining financial independence throughout life. Click here to learn more about the advantages of global diversification.

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