Putting a portion of your retirement portfolio in another country is a good way to diversify risk on a global level. The risks associated with the economy of any single country can be mitigated by purchasing assets in other countries. Geographic diversification can be achieved through a U.S. brokerage firm by buying foreign stocks, REITs, and foreign corporate and/governmental bonds.
Examples of global investment opportunities
• Ownership of Foreign Stocks: Most major stockbrokers can purchase foreign shares on your behalf, taking care of any currency conversions if necessary. Frequently, though, and even easier, they will buy “ADRs” (American Depository Receipts), which trade like stocks on the U.S. exchanges but represent shares of foreign corporations.
• Exchange-Traded Index Funds: These are funds that track stock indices fairly closely. For example, the “MSCI EAFE” is the most well-known index for foreign investments. The acronym stands for Morgan Stanley Capital International Europe, Australasia and Far East, and it follows the equity market performance of developed markets outside of the U.S. & Canada. There are many ETFs that track a variety of different markets and sectors.
• International Mutual Funds: There are many funds that invest in non-U.S. stocks and provide professional management overseeing the international assets.
• Foreign Asset Purchases: Acquiring assets such as real estate in countries other than your own can be done, but it usually requires more investment capital than buying stock or mutual funds. Apartment buildings, offices, and businesses can be purchased as investments, but they involve a considerable commitment of time and effort to manage them properly. Many people will buy international REITs (real estate investment trusts), which make it easier to own properties overseas since they frequently trade on the stock market.
Why bother with foreign investment opportunities?
Investing some of your retirement portfolio in international assets can hedge your portfolio against inflationary swings in the domestic economy. However, added risks include currency and political uncertainties that can devastate an account quickly.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published December 17, 2014.