Investing Abroad: Buy One Stock Per Country to Maximize Returns
Pick up the papers and you would think that you can't make a decent buck anywhere but in the U.S. stock markets. Indeed most U.S. stock indices are way up. But there are plenty of foreign stock markets that are way up too. It's only the recent strengthening of the Dollar that has made their returns seem paltry.
Virtually any investment manager worth her salt advocates that individuals should put 10 percent or more of their stock portfolio in foreign shares. While many suggest buying a fund that invests in many stocks in many countries to reduce exchange rate risk, researchers at Augusta College and Lander University advocate another approach; to maximize returns and limit exchange rate risk, the best strategy is to buy one stock in a single foreign market.
Except for "investors with a low-risk tolerance, the acquisition of a single asset in a foreign country provided the vast majority of all gains available in that country. Additional gains from more acquisitions were minimal," the economists found in a recent study.
The economists also suggest avoiding foreign bonds and real estate. Foreign stocks enjoyed the highest rates of return and exchange rate fluctuations have "less influence" on stocks than other assets.
The Bottom Line: Find one good stock per country, buy and hold it and don't worry about foreign exchange risk or trying to capture greater returns.
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