Thursday, July 12, 2007

Foreign Investing Once More

As a little kid, I was the guy that people called "Alex P. Keaton" and was a dipstick who read the Money section of the USA Today. I used to love opening up the Money section and pouring over the stock listings. I would look for the companies my parents worked for, the companies with presence in my homestate, and try to find the biggest movers on the NYSE. I remember when stocks were listed in fractions instead of decimals. So much fun for a little dork.

Now that I am older and actually have some money, I enjoy investing on my own. My 401K is always stocked to the max of what I can put in, and I like to check up on it monthly. My 401k rollovers can be checked anytime I desire. Thank you Internet. One thing that I have started to take advantage of concerning my money, and that I have written about before, is foreign investing. The benefits of foreign investing are diversification away from the risks in the US markets. Does this mean you buy the weirdest of stocks out of foreign countries? No. Does this mean you just buy a big, broad index foreign stock portfolio? Maybe. It means that you look for opportunities to hve your portfolio outperform the US market, to hedge against shocks that might be peculiar to the US, and to add exposure to different types of economies (natural resource, industrial, or service based).

There are a lot fo vehicles for this type of investing, and I currently use mutual funds for my foreign exposure. I have a core holding of a broad, foreign index mutual fund, some other smaller actively managed mutual funds in my current 401k, and very soon, I will be adding single country ETFs and an actively managed mutual fund to the mix (DODFX). I am keen on investing in foreign holdings because I feel that the US dollar is going to get weaker. This has major ramifications concerning investments, and earnings from foreign companies, can boost a domestic based portfolio. Likewise, multinational corporations that do business worldwide are a good buy since their foreign earnings will become more dollars.

Why does a falling dollar matter in your investments? Look at today's rally. Gains that you made today, if turned into actual dollars in your pocket, would be worth less than they were vs. the rest of the world's currencies (except those that peg to the dollar & the sh*tty Yen). Let's look at the US dollar index since mid-2005 and the S&P 500 index since 2005. The S&P has gained around 30%, but inflation has eaten into that "officially" around 5%. With the dollar's 5% value depreciation since mid-2005, an investor of the S&P has had maybe 1/3 of his or her gain for the period eaten away. I am one of those S&P 500 investors, damn you dollar!

A few of the ETFs that I am going to purchase for a long term buy and hold are EWY (South Korea), EWC (Canada), and EWA (Australia). I wanted to purchase EWA a year or so ago when it was in the high teens, but I had to pay for a honeymoon. Damn you best tropical trip ever! EWA and EWC are both more natural resource oriented, and if we are at the beginning of a decades long commodity bull market, yippee. South Korea is a destination because I trust it's banking sector much more than I do Japan's or China's. China and India are extremely juiced to the point of bubble trouble, and I like what South Korea is doing. They have invested in a ton of automation, and are trying to be at the forefront of robotics & other cutting edge technology. A few positives for South Korea are: democratic government, good trade relations with China/Japan/US, huge currency reserves yet it has let it's currency appreciate vs. the dollar freely, and a huge IT infrastructure with an eye on robotics. These ETFs are trading rather high right now in value, but my vision, Asian influenced, is long term. Why plan for just the next quarter, when you can plan for the next quarter century?

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