Additional portfolio diversity. Currency diversity. Greater growth opportunities. These are all good reasons to invest in Toyota
But all of these reasons are trumped by the fact that total U.S. market capitalization now makes up just 45% of the world's total market capitalization.
It wasn't always this way. In 1974, the United States was 57% of the world's market capitalization. In 2001, it was still at 55%, but the weakening of the dollar over the past few years and gains in Asian and European markets have allowed the rest of the world to leapfrog the U.S. -- even as the Dow and S&P 500 trade within shouting distance of their all-time highs.
Don't limit your opportunities
This still means that the U.S. is, by far, the largest market in the world, and seasoned investors know that sizable gains can be found in value, growth, and income-producing investments in the United States. But when it comes right down to it, it's tough to make an argument to ignore or marginalize more than half of the opportunities in the world.
This becomes more important when you consider that globalization cuts both ways, and American companies won't be the only ones benefiting from competing outside their borders. A fantastic example is the cement industry, where Cemex
Foolish final thoughts
Investing in foreign companies also requires understanding the political and cultural undercurrents in other countries. This is a challenge, because we obviously don't experience firsthand everyday life in other places the way we do at home. It means understanding currency risk, and digging into financial statements in which some of the accounting standards can be different than those in the U.S., such as the inflation accounting that FEMSA
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Nathan Parmelee is an analyst for Global Gains. At the time of publication, he had no financial interest in any of the companies mentioned. Cemex is a Motley Fool Stock Advisor selection. The Motley Fool has a disclosure policy.