Global investing might have once seemed like an exotic venture for only the most intrepid investors. But here’s a newsflash: the world is changing and if you don’t have international exchange traded funds (ETFs), you could be missing out on some opportunities.
The United States is no longer the dominant global trading power. About two-thirds of the stock market capitalization is in foreign overseas markets. Larry D. Spears for Money Morning further makes the case for global investing:
- Economic growth and expansion is led by China, India and other emerging markets. They’re headed by strong middle classes and young populations. [China Is Now the World’s Second-Largest Economy.]
- New products considered “must-haves” are designed, manufactured and distributed in these emerging markets.
- The U.S. dollar is the world’s reserve currency, but it’s fighting to stay that way.
So, you’re convinced: you want to build a global ETF portfolio. Here’s how to get started.
- The most important aspect is the allocation of assets in building a global ETF portfolio. You need to decide which countries and/or regions on which to focus.
- Spears suggests having 25% of your assets in international investments, with an ultimate expansion to as much as 50% as your portfolio grows or as foreign ETF valuations increase. We suggest having an entry and exit strategy, such as trend following. [Emerging Markets Are Back in Favor.]
Further, Carl Delfeld on Investment U suggests considering a range of factors when selecting specific countries or regions for your portfolio. Most important is taking a targeted approach – don’t just dump things into your portfolio without thinking it through.
- While a basket of stocks in an ETF gives you valuable diversification for less risk, it comes at the cost of limiting your upside. A single country ETF can only take you so far, so it is necessary to look at the relations of the country’s currency, and their main source of trade. This can also help with over exposure to a particular sector or commodity.
- Consider the political and economic climate of any country you’re investing in. Emerging markets often have degrees of political turmoil and government corruption not seen in most developed markets, so this is a risk to be aware of.
ETFs can add the right amount of diversification to a portfolio, it is important to realize that there are numbers of ways to blend your exposure and maximize your returns while cutting down on risk.
If building a global portfolio on your own is a hefty undertaking, consider one of our model portfolios designed to target various regions and risk appetites:
For more stories about global ETFs, visit our Global ETFs category.
Tisha Guerrero 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.