Investing - Dominance of Non US Companies

[This post is written and copyrighted by FIRE Finance (]

Editor's Note: This post was published at the Carnival of Personal Finance #94.

There was a time when the corporations based in US had the lion's share of the global market. Investing in non US companies was extremely risk prone. It was better left to the professionals. It was neither advisable nor within the average investor's reach.

But somehow and sometime during the last decade things started to change. A general rise in awareness, technological advances, unleashing of the power of internet, political crises, the dot-com boom and bust, terrorism and warfare, migration of businesses and hence jobs overseas, rise in purchasing power among citizens of developing nations, economic reforms, de-nationalization and nationalization of industry sectors - we can go on and on - all these amalgamated to bring about this transformation.

Currently about 75% of all the companies whose stock is listed in some stock exchange in the world is a non US business entity. Needless to say, if we are only invested at home, in other words in domestic US equity only, we would definitely be missing out on the growth potential beyond our borders. The advice which worked in the sixth, seventh an eighth decade needs to be modified to account for the present economic equations. Only 2 out of 5 americans currently own global equities.

We feel this ought to improve. Here is more data to show why. Given below is a chart showing the ratio of 10 largest Non-US and US companies for a few sectors. It was quite a revelation for us.

Thus, investing overseas is a necessity now more than ever before. That does not mean we are ignorant of the greater volatility of global markets and the myriads of factors that affect them. It is entirely a different topic to determine whether those factors affect the markets rationally or irrationally. But the key point here is we must diversify into global markets.

The risks can be minimized by identifying the individual goals and scenarios followed by disciplined asset allocation. Recently we completed a mini series in order to help our readers get comfortable with the concepts of asset allocation and its importance. In it several asset allocation models were discussed with historical performance data for comparison. Please note, we are not professional traders rather common investors. We have firm faith in buy and hold strategies as opposed to market timing. We encourage our readers to read for themselves and see how ineffective market timing can be over the long run.

To summarize the following needs to be put in place for a great nest egg:
  • a sound asset allocation
  • an appropriate portion invested in equities outside US
  • buy and hold strategy
We have followed the above guidelines for our own investments. We are in the market for the long haul. You can find out more about our investing philosophy in this post. Do you have a similar philosophy or do you differ radically in your investment style? Please feel free to share your views with the rest of us.

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