Should You Invest Overseas while the Dollar is Weak?

Many financial analysts and investment gurus will tell you that if you want to offset a weakened US Dollar that you should invest in overseas entities. Jeremy Siegal, renowned investing sage and Wharton professor created quite a stir 5 years ago in the investment arena by revealing that nearly 40% of American investors had overseas holdings. This equated to more than twice what the average investor pursued in the US at that time.

If you had caught wind of that, and then followed his line of thinking by trading in an index fund (e.g. the S&P 500) that was following the world market, your potential gains would have doubled. Additionally, if you had been a little riskier and invested in an index fund that tracked emerging global markets, you would have squashed the S&P four-fold and doubled your money.

The following is a list of 6 key reasons for investing overseas while the US Dollar is weak:

Remember that we are talking about the global market – when it comes to stating a case for investing in foreign stocks, this has less to do with a deflated US Dollar and equates more with those fundamental forces which have triggered the decline in its value. You need to realize that markets such as China and India are no longer considered as emerging markets. They are joining, and in some cases overtaking the global markets.

Americans typically under-invest in international markets – the primary reason, according to numerous economists and financial analysts, is the fear of the unknown. This is also significant where Americans traveling abroad is concerned.

One of the most intelligent ways to diversify your investment portfolio – with a significant portion of public companies being located overseas, when you exclude these from your investment portfolio, you might as well come up with a strategy of only investing in companies whose names begin with the letters A, E, I, O, U, and sometimes Y. Emerging markets oftentimes feature larger, well-managed firms that are extremely profitable.

Slow and steady increases to your foreign holdings is the recommended course of action – you want to decide how much exposure you have to foreign stocks and then settle on what you feel is an appropriate percentage for your investment portfolio. Fortunately, you can find diversification tracking programs online.

Just like you would divvy up a US portfolio, you should do the same with foreign stocks – focus on blue chip stocks in developed foreign companies while splitting up the rest between an emerging market and a small-cap investment fund.

For once in your life, forget about hedging – too many investors rely on this to offset risk factors. No matter what funds you do decide to sink your money into, make sure that their currency exposure is not hedged.

On a closing note, the declining value of the US Dollar since the 4th quarter of 2008 should be enough of an incentive for considering foreign stocks as part of your investment portfolio. Just keep in mind that the value of the USD has fallen approximately 15% in the past two years.