Global Investing

U.S. investors tend to stay close to home, prioritizing domestic stocks and funds. But non-U.S. markets comprise 57% of global investment opportunities, which means that close to half of those opportunities exist beyond U.S. borders. Some of the world’s largest technology, energy, and financial companies are international, such as Samsung in South Korea, Mitsubishi in Japan, ING in the Netherlands, and Allianz in Germany.

What Is Global Investing?

For many investors in the U.S., going “global” means investing in European companies. But this is a limited — and limiting — view of global investing. There is plenty of energy in non-U.S. and non-European markets around the world, from Southeast Asia to South America to Africa and beyond. 

Global investing means taking all of the markets around the world into consideration and putting some of your investment dollars in stocks and funds outside of the U.S. and Europe. 

Global Fund vs. International Funds

In the world of investing, “global” and “international” are not interchangeable terms the way they are in other contexts. Global funds and international funds are distinct, with different rules, goals, and opportunities.  

Global funds are comprised of securities from around the world, including the investor’s home country. Global funds give investors the chance to diversify and reduce country-specific risk while still including their own country in their investment portfolio. 

International funds, on the other hand, contain securities from around the world with the exception of the investor’s home country. These funds are a way for investors who already have a robust domestic portfolio to diversify outside that sphere. 

Why Invest Globally?

Investing globally — and for U.S. investors, specifically beyond the U.S. and Europe — is an effective way to reduce risk in a portfolio and also opens up the door to investing in all sorts of opportunities that don’t exist in one’s home country. 

As we pull out of the acute phase of the coronavirus pandemic, the economies of emerging-market and developing economies are projected to grow faster than the United States. These countries are on track to be the largest contributors to global GDP by 2042, and by 2050 will account for almost 60% of the world economy.

Accordingly, developed and emerging markets are beating the S&P 500 so far this year, with China, South Korea, and Japan showing strongest growth. In fact, some analysts are predicting that foreign equities might outperform U.S. stocks as a whole in 2021.

The growth of global funds in particular is a huge opportunity for investors. PwC predicts that global assets under management will reach $145.4 trillion by 2025, almost double the $84.9 trillion that was under management in 2016.

Investors who overlook these opportunities are limiting their ability to diversify, which increases risk in their portfolios. Owning a globally diversified portfolio protects investors against seeing serious losses when stocks in one country suffer setbacks that aren’t felt elsewhere.

Overlooking global investments also causes investors to miss out on some phenomenal investment options. There are exciting things unfolding in business around the world — in Brazil and China and Eastern Europe, for example — and U.S. investors who aren’t tapped into global options will lose a chance to capitalize on that energy. 

How to Invest Globally

While global investments are unlikely to make up a majority of a U.S. investor’s portfolio, it’s a good idea to target a sizable chunk of assets to invest overseas. According to Christine Benz, Morningstar’s director of personal finance, professionally managed asset allocations typically target 25-33% of the portfolio in overseas investments. This can be a good benchmark for individual investors to look to. 

Investors can add global investments to their portfolios by buying stocks or exchange-traded funds (ETFs).

Stocks 

There are a number of ways to invest in foreign stocks. U.S. depositary banks issue American Depository Receipts (ADRs) that attest to a right to ownership of a share or fraction of stock of a foreign company that trades in U.S. markets. U.S. Investors usually find it more convenient to own the ADR instead of the share of foreign stock itself. Alternately, depositary banks in an international market, usually in Europe, issue Global Depository Receipts (GDRs) that attest to ownership of shares in a non-U.S. company. GDRs are available to institutional investors in and outside the U.S.

Some investors may find it advantageous to invest directly in the stocks or bonds of foreign entities, perhaps with an eye toward acquiring a decisive stake in a company. This is not a good strategy for the casual investor, as there are many complex factors involved in these transactions, such as tariffs and trade barriers.

Exchange-traded funds (ETFs) 

ETFs group many different stocks or bonds — sometimes thousands — into a single fund that is traded on the stock exchange like an individual stock. These funds can focus on global stocks and sometimes have a regional focus. Individual investors are not allowed to buy mutual funds that are based outside their home country, so investors should buy a fund based in their own country that includes global investments. 

4 Ideas to Remember About Global Investing

Global investing is a good strategy for those who want to reduce their risk, open themselves up to exciting new opportunities, and become more sophisticated in their investing approach. Here are four important ideas to remember when considering global investing:

  • U.S. investors should look beyond Europe to truly diversify their investing globally. Great opportunities exist in regions all over the world. 
  • Global investing allows you to diversify your money and mitigate your risk so that when stocks in a given country take a hit, your portfolio stays strong.
  • Being open to investing beyond the U.S. and Europe opens up many phenomenal investment opportunities that you may have not known existed. 
  • Global funds are a fast-growing and potentially lucrative investment opportunity.

Unlock a World of Investing with a Free Investment Trading Account

START INVESTING TODAY

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as of the June 17, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.