Just one in three Americans feels "comfortable" investing in foreign stocks or bonds. That's according to the National Association of Investors.
And that, my friend, spells trouble
If this kind of thinking continues, we could be headed for some pitiful performance, if not worse. Or so says "the smartest man in Europe."
The smartest who in what? I know, that's what I said. But Byron Wein calls him that. According to Wein, this guy earned that title by consistently spotting trends that would have major impacts on global financial markets.
He even called the collapse of communism and the dismantling of the Berlin Wall, or so the story goes. And yes, he warned us to start investing overseas before the stunning bull market in foreign stocks. I wish I'd listened.
You think I've lost my mind, don't you?
In my defense, I read this in The Washington Post, and Byron Wein is no hack. He spent years as a strategist for Morgan Stanley. So, I'm inclined to hear him out. As for his "mystery man" on the ground ... who cares? Just look at the numbers.
In 2005, stock markets in countries as diverse as Egypt, Russia, Turkey, South Korea, and Austria all gained 50% or more -- dwarfing U.S. stocks. Just about the same thing happened in 2006, too. I don't know about you, but I'm starting to sense a term trend.
In other words, when it comes to global investing, we haven't missed the boat. In fact, when Wein last crossed the Atlantic to consult with his "source," he was even more adamant that we consider moving some of our investments overseas. For what it's worth, I'm finally listening up.
"Global is definitely the way to go"
If you'd rather not trust your future to some "mystery man," how about a Wharton professor? When Professor Jeremy Siegel met with us here at Fool HQ last year, those were his exact words. More important, Siegel suggests that we hold as much as 40% of our portfolios in foreign stocks.
I wish I'd listened. I imagine some U.S. fund managers agree. Vanguard's respected Wellington Fund (VWELX), for example, managed a solid 15% gain last year, riding massive positions in AT&T (NYSE:T), Citigroup (NYSE:C), and IBM (NYSE:IBM), among other strong U.S. performers.
Yet not even a record year and blowout finish from top-10 holding ExxonMobil (NYSE:XOM) could get the fund within 10 percentage points of the MSCI EAFE International index. But it could have been worse. At least Wellington finished in the green. Too many former American superstars, from Applied Materials (NASDAQ:AMAT) to Motorola, struggled just to break even on the year.
Given that French oil company Total SA (NYSE:TOT) is the only overseas stock among its top 10 holdings, it seems that Wellington might have benefited from a bit more foreign exposure. After all, international stocks and stock funds flat-out thumped their U.S. counterparts last year -- routinely delivering 20%-plus gains and, in many cases, a whole lot more.
Born on the fourth of July
I can only imagine what you must be thinking. But I assure you, I'm no doomsayer prophesizing the collapse of the West and the rise of "Chindia." I have too much faith in America for that ... and too much invested here in the U.S. markets.
But there's no denying that more than half the total capitalization of public companies already resides overseas, and that just last year, investors poured $53 million into foreign large-company funds, up a staggering 32% from the year before. And, yes, I'm one of them.
So far, I've settled for that iShares EAFE Index. Because, I confess: Until recently, I've been reluctant to invest in overseas stocks on my own. But now I have a mystery man on the ground, too -- a Bill Mann, to be specific. I recently had the pleasure of traveling with Bill to visit with companies and investors in China and India, so I can confirm that Bill knows his stuff.
Need some help, too?
Now, you don't have to cross the Atlantic (or the Pacific) for good advice, either. Bill recently launched an investment newsletter service called Motley Fool Global Gains to cut through the red tape and help investors like us make money overseas. If you already have some experience, all the better.
Like I said, Bill's a serious expert. It's not exactly cheap to join Global Gains, and it's not for everybody. But that's why I want you to try the complete service free for 30 days and pay nothing. Of course, you won't actually go broke if you don't invest overseas. But it could cost you some serious money.
Why not take Bill up on his free trial offer and try Global Gains, instead? To learn more, click here.
This article was originally published on Jan. 17, 2007. It has been updated.
Fool contributor Paul Elliott owns shares of the iShares EAFE index, but no other security mentioned. Total SA is an Income Investor pick. As always, you can view the entire Global Gains service immediately scorecard with your free trial. The Motley Fool has a disclosure policy.
