I generally believe that investing in foreign markets especially emerging and frontier markets, gives you a higher probability of success, with higher returns, greater appreciation, lower tax rates, and general diversification outside of your country.
Now of course, for a lot of people, that idea is scary, because so many people believe that their country is the best place on earth, and is the only safe place to invest.
But to my surprise when one investing legend came out and said that investing overseas was bad entirely, I’m going to comment on why he’s wrong in this blog.
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The legendary investor that I referenced is Jack Bogle.
Now, Jack Bogle was the founder of the Vanguard group which pioneered the idea of the low fee index funds.
And his idea was that you could obtain better results by investing in basically stock indexes, rather than going out and paying people, a much higher management fee to pick individual stocks and things like mutual funds.
Now, I’m not here to criticize Jack Bogle, he was obviously very successful in what he did, and started a new trend in the investing world.
Now you see all these different firms charging no commissions, very low spreads, and a lot of other good things.
But, I saw a video that was called, Why Jack Bogle Doesn’t Own Non-U.S Stocks, and I want to talk about what exactly it is he said.
In summary, the video says that Jack Bogle lived and invested in the United States, but the video said 2 key points.
- If you’re invested in U.S. stocks, you have international exposure, because US companies sell all over the world.
Now certainly you’re getting exposure from those sales, but I don’t think that would correlate to direct exposure to that country.
So, I don’t believe that argument holds any weight, but the bigger issue was number two.
- In which he said the U.S is going to be the best performing market in the world going forward.
Now, this may be generally a racial issue, where obviously you know in Jack Bogle’s lifetime, the United States was the perfect place to be.
What I’ve talked about here is if you were born in 1984 the United States was the best place to be born, I believe the second one was West Germany, but if you look at, KUALA LUMPUR
It didn’t look like this in 1984, but it does look like this now, you see fifty-story buildings everywhere, and you see construction everywhere.
So, I say to myself…
“What once was, won’t necessarily always be”.
The United States was the best place to invest for many years, and the stock market has, had some very good years recently, and I’m not saying it’s going to totally fall apart.
But the idea that the United States is the only market to invest going forward, to me is simply not true, I don’t see a compelling case for that, so what Jack Bogle does is list three markets.
As the basis for not wanting to invest overseas, the first market is the U.K. his reason for not wanting to invest in the U.K. is that they have a weird political system.
Which I don’t entirely understand what that means, the UK. has done relatively well, and so I don’t understand that.
Market number two was Japan, and what Jack talks about is that it has a low growth economy.
And he’s right, they’re also relatively anti-immigration, and they’re not replacing themselves, it’s an aging society, so on that, we agree on.
Market number three was France, (Okay a little American style French bashing, we get it, I’m not for thirty-five-hour work weeks either).
But there are plenty of good companies that are in France, so those three markets to me don’t represent the entire foreign market.
Another thing he says is, “Don’t think you’re not investing in those markets if you’re invested in international index funds, international ETFs, or international stocks because they’re going to be in there”.
No doubt I have a European income fund in my portfolio, that’s doing pretty well, since it has a nice yield.
A nice thing is that the European Union isn’t chasing me down for thirty percent dividends tax, on all my dividend income, however, the United States does.
Now I know people who are asset managers, make the case that even after the thirty percent tax, which we can be reduced based on where you live, potentially if you’re paying taxes in that country.
But you’re going to be paying about thirty percent on US stocks, and even with that you’ll get better performance from U.S. stocks in comparison to other countries, personally, I haven’t seen that trend in my portfolio.
I have a European portfolio that does relatively well, it does have some French stocks in there that are some of the better ones, it also has some British stocks in there that I guess are some of the better ones too.
So that particular fund has done relatively well, but I do have other funds I have focused funds, from many emerging markets that have done relatively well, I also have a Tai fund that’s done miserably.
I have plenty of Asia funds, and the example that every Asian fund is going to have Japan in it is incorrect, since there is a whole category of funds that are Asia Pacific ex-Japan.
Some of those have a little too much exposure to Australia for my taste, I want more of the emerging markets that are growing, but you can make the same argument that Australia and Asia have a certain symbiotic relationship.
So, on the equity side, there are plenty of opportunities to exposure to funds that exclude, for example, you can be in pure-play Asia funds and pure-play Latin America funds.
If you want to be in Europe, you can, unfortunately, there’s not a lot of funds that have exposure to the Slovenian equities, you’re going to be in those more developed countries, but I’m not sure that’s an example to avoid.
There’re plenty of other options I have exposure to REITS in Asia (Real estate investment trust) also, there’s plenty of different instruments I think that you can use.
Now here’s where I also don’t agree, and I think this is where the focus between someone who’s a Jack Bogle and someone who isn’t, comes into play.
You can go out and make direct investments into companies, or into real estate, or into any number of different mechanisms, to invest in a country, I have exposure in real estate in Cambodia for example through a boutique fund.
I have exposure to real estate in other countries by simply buying real estate, you could have exposure to companies in different countries, by buying part of those companies that don’t have platforms online.
You can buy into start-ups, there’re even golden visa programs in Europe, for people who invest in start-ups, or other countries, have an infrastructure where you can obtain residence or even citizenship by investing in their company.
If you want exposure to just Turkey you can go to Turkey, if you want exposure to a certain stock market that’s hard to replicate through the usual international funds and exchanges.
You can go and establish a brokerage account in that local country, or in that region since many countries don’t have a big stock exchange.
For example, I was in Armenia and I was asking a banker “So how many companies are on the Armenia stock exchange?”
And he said, “I don’t know maybe around twelve or something”, so there’s not a lot of robustness in that.
But certainly, if you come to Asia, you can get an Asia Pacific-focused brokerage account, and you can trade, Thai stocks and Singaporean stocks.
Sometimes you can do it through a bank account in that country, if you get a Singapore bank account, you can get exposure to Singaporean stocks, and also Singaporean government securities, (If that’s what you’re looking for).
IN CONCLUSION
To me, there are many ways to play in international markets, so to say that everyone’s going to buy an index fund, and you’re going to be exposed to France, UK Japan, and it’s all going to go down the toilet.
Is a little bit over the top, and with all due respect to a guy who accomplished a lot, I think we are in a bold new world right now, where there are so many new opportunities that didn’t exist before.
My suggestion is to have some equities, and have some debt in your portfolio, if you want, but I see people getting much higher returns, in what I think are much less risky vehicles, by owning government debt in pretty well-run countries.
Or owning real estate, in the middle of a city, that’s growing in a country that’s heading in the right direction, to me that’s a lot more solid than simply putting your money in some mutual fund and hoping for the best.
You get more control, you potentially have higher returns, also you could have much better tax benefits, especially if you’re not a US citizen.
For me, the world has changed and the idea that we’re simply not going to invest internationally, because there’s nowhere else to get a good return, is not true, probably not then, and certainly not now.
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