Friday, March 03, 2006

Continue to go with international?

I've been loving my international fund for a few years now and even though I'm usually a pessimist when it comes to something doing so well for several years, I still recommend people to get invested in international stocks. There's really 2 factors for this.

1) Economic outlook of US. It's great that unemployment is low and all, but I continue to be concerned by the decrease in savings, the size of the deficit, the growing trade deficit, the looming problem of social security, and rising interest rates causing an impact that won't be fully realized for a while yet. Everything could turn out ok, so it's not like I pulled out of the US market, but I have more confidence in a global economy than just US.

2) Dollar's changing value with interest rates. The BoE is matching us at 4.5% right now, ECB is 2.5%, and BoJ is at 0%. Even though Nikkei has done well and there's those that say it's overvalued I just find now being a good time still to invest in Japan since those 0% rates should change in time bringing the value of the dollar down. This in turn would mean that even should Nikkei not perform well, we'll gain value from a falling dollar right? As for Europe, I don't hear as much talk about it being overvalued and I just don't see the dollar gaining all that much ground back from the Euro.

I'm not sure I've got a total picutre of it all, but anyone has ideas or comments, please feel free to share.


Anonymous said...

I think the total picture is that it doesn't matter. Your long-term portfolio should match the market cap split of domestic/international, and it shouldn't matter which is doing better right. Right now, it's about 50/50, but one should tilt slightly to US becuase of the additional costs of international investing (i.e., odd dividend taxation rules, higher trading costs, etc).

If you're talking short-term, then it's anybody's guess.

3/03/2006 2:43 PM  

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