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Help Protect Yourself by Investing Globally

Seth Jentner05/07/2016

I recently read about a small town in northern Chile that is about to get its first Porsche dealership.  Over the past 20 years, this obscure port town has grown to more than 300,000 people. With the growth of Chile’s copper mining, people are becoming increasingly affluent. Truck drivers can earn over $80,000 annually working for the local copper mines.

Undoubtedly, you are also hearing similar stories of modernization and a growing middle class all around the world. This is similar to what the United States experienced in the 1800s and 1900s. We were an emerging market, eventually growing to become one of the most dominant economies in the world.

There are many who believe that it makes sense to diversify investment portfolios with investments from around the world. Would I recommend concentrating your investment portfolio overseas? No. There are additional risks, including political risks, currency exchange risks, and local economy risks. Historically, emerging markets have been more volatile than the U.S. market.

There may be great opportunities to couple domestic and foreign investments in your portfolio, which can enable you to take advantage of the differences. An investor can do this by rebalancing periodically from the higher performing areas to capture the gains and reinvesting the proceeds into the underperforming areas. However, this is not for the faint in heart. It will take a commitment to a systematic, disciplined approach that ignores the short-term volatility in order to realize the potential, long-term benefits.

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