Look beyond US borders for investment opportunities

The United States accounts for 4.5 percent of the Earths population and 6.6 percent of its land area. Yet the US gross domestic product accounts for 22.5 percent of the worlds total gross domestic product, according to 2014 figures. While Americans may be proud of their countrys outsized contribution to the global economy, the fact that more than three-quarters of the economic activity in the world is happening elsewhere means there may be abundant potential for US investors who are willing to consider putting their money to work across borders.

Furthermore, foreign stocks and bonds may be especially attractive these days. Since the end of the Great Recession, the US economy has grown slowly, but steadily. And this growth, combined with continued low interest rates, has helped push US corporate earnings and stock valuations (such as price-to-earnings ratios) to multiyear highs. Additionally, accommodative Federal Reserve policy has kept US interest rates low.

Even as the Federal Reserve moves toward a change in monetary policy at some point in 2015, many high net worth individuals in the US may already be taking a more global approach with their equity and fixed income allocations. Indeed, according to the United States Wealth Report 2014, produced by Capgemini and RBC Wealth Management, high net worth investors surveyed boosted their international allocations to nearly 32.7 percent in 2013, up from 19.7 percent a year earlier.

Apart from todays potentially favorable valuations and interest rates, international investments may be practical for two other important reasons.

Growth potential — Some of the worlds fastest-growing economies are in developing nations. Plus, an exploding middle class in countries around the world is opening new markets and driving new demand for a broad range of consumer goods and services. Generally speaking, allocating a portion of your portfolio to international investments may help you participate in wealth building that in many cases may still have room to continue.

Diversification — By investing internationally, you can position yourself to take advantage of global market cycles. In any given year, the markets in one region may outperform others. And the performance leaders tend to change as global economic and market conditions change. So diversifying geographically may help reduce overall portfolio volatility while potentially improving risk-adjusted returns.

Although international investing does provide some important benefits, there are also unique risks. Political instability could threaten the financial markets of a country or region. Changes in the value of the US dollar relative to foreign currencies could affect the value of your investments.

Other considerations include a possible lack of liquidity and potentially complicated tax consequences, as well as lower-than-expected growth in foreign economies and central bank policies, which may keep rates low for a long period.

How can you begin to invest internationally, assuming it is appropriate for your financial goals, circumstances and risk tolerance? You could purchase mutual funds or exchange traded funds that invest in foreign stocks. International funds focus on companies outside the United States, while global funds may invest in both foreign and US companies.

Or you could invest in American Depository Receipts (ADRs), which are securities representing shares of foreign stocks traded on a US exchange. ADRs allow you to participate in international markets and still benefit from the disclosure and listing standards required by US exchanges.

Because of the potential complexity of investing internationally, consider hiring a financial professional who can help assist you in meeting your financial goals.

This article is provided by Steven C. Anderson, CIMA, a financial advisor at RBC Wealth Management in Reno, and was prepared by or in cooperation with RBC Wealth Management. He can be reached through his website at www.stevencanderson.com or 775-824-7159.

The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management, a division of RBC Capital Markets LLC, member NYSE/FINRA/SIPC

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