Investing internationally has been made easier with the advent of exchange traded funds (ETFs). However, global investing still requires a little legwork on your part in order to see your investment portfolio perform optimally.
According to Carl T. Delfeld for Seeking Alpha, you can beat the benchmarks with a global portfolio by following a few simple ETF investment rules:
- Liquidity. You should have a “rainy day” account with enough cash to put into a money market fund or Treasury for any unforeseeable occurrences.
- Portfolios. Delfeld suggests having a core conservative portfolio for capital preservation and a growth portfolio for speculative capital growth. For the long-term horizons, investors may consider annuities specially structured for ETF portfolios.
- Diversity. An investor needs positions that are uncorrelated and would offset each other in unexpected turns. For instance, investments in developed markets may be offset by investments in emerging markets, or vice-versa. Spread your risk out and be sure to avoid having more than a 5% to 10% allocation in a single ETF for your portfolio, advises Delfeld.
- Know your picks. In picking out a country or region, be sure to know things that include: The stability and overall political and corporate governance, the legal environment, respect for contracts, low levels of corruption, due process and rule of law. The macroeconomic picture, including fiscal discipline and currency strength. Finally, get acquainted with what makes the particular market grow.
- Future outlook. Betting on a country with high valuations is not a good idea. Our investing strategy is to stick to the 200-day moving average to help us identify trends so we know when to be in and when it’s time to get back out. [ETF trend following plan.]
- Politics. Some investors fail see the changes as a result of politics. Bull markets usually began with economic reform. Regulatory and political risk can stifle emerging markets.
- Company risk. Investors can play individual stocks and be exposed to the potential risks, or they can minimize company risk by buying ETFs, which spread the risk among a large holding of companies.
- ETF holdings. It is important to know what makes up the ETF you are buying into. Looking into a fund’s portfolio and holdings is a good idea. [Know the holdings of your ETFs.]
- Manage investments. A stock has surged onward-and-upward but starts tumbling. What now? Delfeld urges investors to sell when a positions drops more than 8% to 12% from its high. Be sure to recognize the 200-day and 50-day moving averages as indicators for your investment guidelines. [What you’re missing by not investing globally.]
- Portfolio physical exam. At least once a year, assess your portfolio. Make the necessary changes so that you aren’t overly exposed to a single area with higher risk factors or volatility.
Delfeld is also the author of ETF X-Ray, where he frequently writes about matters related to investing globally with ETFs. Be sure to stop by and check it out. For more information on investing, visit our ETF 101 category.
Max Chen contributed to this article.
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.