This week on the podcast, we’re continuing our mini-series dedicated to debunking popular misconceptions around investing by exploring the truth about whether U.S. multinational securities provide enough international exposure for your portfolio. Throughout today’s episode, we dive deep into why international exposure benefits investors, how the differences of key aspects between the U.S economy and other countries influence the returns of an investment, methods of accurately evaluating the potential of foreign investments, and how you can avoid some of the biases that negatively affect our financial decision-making.
Show Notes
[2:50] Diversification – Why people feel that they have ample diversification in their portfolios and what they’re missing out on by only investing in U.S. corporations.
[04:00] U.S. Economy vs. Other Countries – Grant reviews some key aspects of world economies that make some other countries, such as China, grow rapidly in comparison to the United States.
[9:40] P/E Ratio – Grant explains what the P/E ratio is, how you can use cyclically-adjusted P/E ratio to assess the potential returns of stocks, and why it’s better than just looking at the historical performance of stocks.
[16:14] Correlations – Securities markets have some trends and behaviors that show correlations between U.S securities and foreign securities. Grant talks about why investors should invest in international securities despite these correlations.
[21:05] Diversification of Currency – Why investing in companies that do business transactions in a diverse selection of currencies can be beneficial to investors in the long term.
[22:52] Dealing with Biases – How certain psychological characteristics of the human brain can get in the way of making savvy investment decisions and how to avoid these traps.
Resources
Morningstar: Does International-Stock Diversification Still Work?
morningstar.com/articles/1034112/does-international-stock-diversification-still-work
Hartford Funds Chart on the Performance of International Stocks:
hartfordfunds.com/dam/en/docs/pub/whitepapers/CCWP014.pdf
The Wall Street Journal - Why It Might Be Time to Invest in Non-U.S. Stocks:
wsj.com/articles/why-it-might-be-time-to-invest-in-non-u-s-stocks-11596900477