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Guarding Your Wealth for Senior Citizens
Keep the U.S. in Perspective as Overseas Markets are
Booming
90% of money invested in recent week went to equity
mutual funds focused outside U.S.
By Jeffrey D. Voudrie, CFP
 June 28, 2007 - They say there’s no place like
home and, for most American investors, our domestic markets have created
handsome returns over the years. But the tides are turning and foreign
markets are presenting great opportunities. The average annual return
over the last 5 years for foreign developed countries (EFA) was 18%
versus 10.5% in the U.S. (SPY). The 3-year average annual return of
emerging-market countries (EEM) was over 36% per year.
Investors are obviously eager to participate in
these returns. In fact, for the week ending May 16th, 2007, only 10% of
the money flowing into equity mutual funds went to those that invest
primarily in the U.S. Over 90% of the money invested that week went into
equity mutual funds focused outside the U.S.
After looking at the facts above, some might
conclude that they need to increase their exposure to overseas markets.
But how should you do it? Should you find an equity fund that invests in
a number of foreign markets, or find one that caters to just a single
country, or niche within a country? Or are there better ways to
capitalize on foreign growth that have a greater chance of providing
superior returns?
Understanding world trends in population, domestic
product and annual incomes will go a long way to answering these
questions. It’s estimated that there are around 6 billion people in the
world. Roughly 300 million people live in the United States. So only 5%
of the world’s population lives in the U.S.! 95% of people live in
foreign countries. There are 1.3 billion people in China and 1.1 billion
in India alone.
America still leads the world as measured by the
goods and services it produces (GDP) each year. We produce $13 trillion.
Still, we only produce about one quarter of the world’s GDP and that
percentage is only going to decline. China’s GDP is $10 trillion,
India’s is $4 trillion.
We are also near the top (#3) based on annual
income. The average American brings in $42,000 a year. China is ranked
105th at $6790 per person. India is ranked 146th at only $3420 per
person. These are considerable gaps!
We don’t just want to know where things are today;
we want to know where they’re expected to go in the future. From an
investment perspective, we will have a better chance increasing our
wealth by investing where the growth is.
The population growth rate in America is declining,
and has been since 1950. It’s estimated that it will decline 32% between
1950 and 2050. That means that the rest of the world’s population is
growing faster.
It’s likely what foreign countries produce will
grow faster as well because they are starting from a much lower base. It
is going to be easier for China to increase their GDP by 50% than it
will be for the U.S.
The population ‘bulges’ in China and India
represent 350 million people with about 2/3rds of them under the age of
21 and 1/3 between the ages of 37-41. Talk about Boomers! We see
dramatic affects in our economy as a result of the 44 million Baby
Boomers. Multiply that by 7 times and you can imagine the impact it will
have in those countries.
Life expectancies will increase. Education will
improve; poverty will decline. The list can go on and on. I’ve mainly
used China and India as examples, but there are many, many other
countries that have similar growth trends. Larger populations mean more
demand for electricity, fuel and infrastructure like bridges and roads.
Many will need automobiles, homes, furniture, cell phones, etc.
So how should this affect how you invest? First,
recognize the global trends underway. It’s my opinion that an investor
can improve their return by focusing on specific opportunities as
opposed to large international mutual funds or ETFs. Take the major
trends I’ve mentioned and determine their impact at a micro level. What
are the companies best poised to take advantage of that trend?
Major trends or themes can help you know how to
position your portfolio. But you can’t base your decisions on one
isolated theme. This global-growth trend is just one of the major
investment themes that I use when investing my client’s portfolios.
There are many others. We’ll look at another one next week.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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