Have you noticed any economic upheaval lately? The American economy has been sputtering for several years now, enough to make me wonder whether I should be investing more money internationally. Maybe you're wondering the same thing.
Why NOT to invest abroad
There plenty of reasons not to invest abroad, at least not directly. I've written about them before, as have other Fools. A big one is that most of us know much less about goings-on abroad than we do at home. We just don't have a good handle on how well various foreign companies will perform given their local competition, national business laws and accounting practices, and the overall geopolitical stability in the region.
Bill Mann, an experienced international investor, has even warned about it, saying in 2000: "Go forth with care, dear Fools. I do not feel that one should explicitly avoid investing overseas, but you can gain significant international exposure by holding Coca-Cola
Another reason not to invest heavily abroad is this: Even though we may be in a period of economic uncertainty now, it may simply pass. Economies don't necessarily keep deteriorating. Often, they advance and retreat, and then advance again. America may well maintain or regain its international leadership position in short order. It may be the best place for most or all of your investment dollars.
Why to consider it
All that said, I still find myself contemplating international investment these days. First off, there's the weak dollar. I've written about what a weak dollar means, but it's not all that simple. Fool contributor Mark Mahorney warned against oversimplifying the implications of this.
Next, while I don't mean for this to be a political article, I must confess to worrying about some things, such as budget deficits, continually growing consumer credit card debt, and our rapidly rising national debt. We're running annual deficits now, with our national debt hitting about $8trillion, with little relief in sight, as Iraq, aid for hurricane victims, and the reconstruction of New Orleans are likely to continue requiring much moolah. At the same time, there's continued interest in keeping taxes down, tapping Social Security funds, reducing Social Security benefits, and more. Significant inflation looms as a possible side effect of attempts to reduce our debts.
Don't get me wrong, though. I still love my country and I believe that things can turn around. I'm old enough to remember how some nations have gone from pedestals to pits (or vice versa) in fairly short order. It's just that right now, I wonder whether it might be smart to spread a little more of my savings abroad.
I'm not alone, either. In 2004, Forbes magazine profiled Berkshire Hathaway
How to invest abroad
If you're now eager to learn just how you might invest abroad, let's review some options.
Let professionals do your international investing for you via mutual funds. Some mutual funds are expressly dedicated to investing in international stocks and/or bonds. And the managers of many other mutual funds have substantial freedom to invest at least some fund money in suitable international investments. Do a little research into funds that interest you and see how their managers are thinking about global economies and how they're investing. If you want some pointers to outstanding mutual funds, take advantage of a free trial of our Champion Funds newsletter, which includes international investments in its scope. An international fund it recommended last June has gained more than 45%.
A $10,000 minimum investment can get you an FDIC-insured certificate of deposit (CD) denominated in any of 20-plus foreign currencies, such as the euro. These can be bought from Everbank, a bank based in Florida (www.everbank.com). Some foreign-currency CDs can offer you higher rates than U.S.-based CDs, and if the dollar falls, you'll make even more (less if it rises). Note that the FDIC designation means you're protected against the bank failing, but not against poor performance of the CD or currency.
A BusinessWeek article offered some more options: "... set up a savings account in the Euro or one of its constituent currencies. The New York office of Rome's Banca Nazionale del Lavoro (BNL) (212 314-0242) will set up a contoestero (foreign account) in one of several currencies.... For higher yields, look at International Assets Advisory Corp. (800 432-0000; www.iaac.com). A broker-dealer in Winter Park, Fla., IAAC will help you buy short-term Euro-denominated bonds."
Consider currency funds, which aim to profit as the dollar's value changes. They're risky, though, and may not be necessary if you take other steps, such as those listed above. Another option is buying American Express
Finally, remember that there are many good old American companies with substantial overseas operations and revenues. PepsiCo
My bottom line
So what's my bottom line? Well, I'm no expert on international finance and economics. For all I know, the dollar is at the beginning of a long climb. So for now, I think I'll just try to keep reading and learning about these topics. And I'll pay attention to the global reach of American companies I'm invested in or could invest in, as that's one good way to benefit from a troubled U.S. economy.
What are your thoughts on these topics? Please share them on our discussion board, or just drop in to see what others are saying. (We're offering a free 30-day trial to our entire online community, which is full of smart, friendly, helpful people.)
This article originally ran in January 2005. It has been updated and revised.
Selena Maranjian has visited more countries than she has directly invested in. She owns shares of Berkshire Hathaway, eBay, PepsiCo, and Coca-Cola. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.