Going global with exchange traded funds (ETFs) has never presented a better opportunity than now, and it has become so much easier and cost-efficient with the advent of these funds.
MoneyShow.com interviewed us regarding the ETF as a gateway to going global.
The major hurdles investors want to avoid with foreign investing are regulatory, economic, currency and market risks. Many investors are not aware that two-thirds of the market capitalization is outside the United States, and with the use of an ETF, professional management and diversification occurs within a group of companies that the fund is representing.
Another plus with ETFs is that you don’t have to pick just one country. Investors can choose a region, which is represented by the basket of companies in the ETF. Recent selloffs have scared many investors away from foreign investing, but consider these points:
- Not all countries are created equal. Some have greater risk than others and for different reasons. Russia is dependent on energy, and Israel has instability within the political system. Points such as these can cause a fund to take a huge hit.
- Smaller countries have more volatility. Some of the smaller countries have smaller stock markets, so a company that has a hard day could cause the ETF to take a dive.
- Remember to have an exit strategy and stay disciplined. Sell if a fund drops below its 200 day moving average or 8% off its high.
On that note, areas of the market to avoid would be ETFs sitting below their 200-day moving average. Areas such as financials and housing are trading 16-36% below it, and European and Asian ETFs are trading 12% and 15% off. Even if there are bargains to be had, investors tend to do better when they are not chasing trends and instead focusing on buying and selling when certain milestones are reached. However, the badly beaten down areas of the market are going to gain the most attention.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.