In the wake of the drop-off in stock values, it's no surprise that investors are weary and wary of the market and wondering where they should put their money.
One vehicle often overlooked by investors is foreign stocks, says Gil Davis, president of Financial Advisors. Davis says there are plenty of opportunities to invest in companies outside the United States, and investors should consider including foreign securities in their portfolios.
Investors haven't taken much interest in foreign stocks because of fear of the unfamiliar and because there were plenty of opportunities in domestic companies in the boom market of the late 1990s.
"The U.S. market has been so strong that there hasn't been much of a case study to invest in foreign markets," says Davis.
Davis cites several reasons why increasing your holdings in foreign stocks might be a good idea.
* Most portfolios lack sufficient international exposure. For years, investors have neglected the global market and have lacked adequate international exposure as an asset allocation strategy. Davis says most of the portfolios he manages include some foreign stocks.
* There's a good possibility foreign funds will outperform the U.S. markets this year, so it makes sense for investors to take advantage of global opportunities.
* P/E ratios for many foreign stocks are lower now than in the recent past, making them good for value-oriented investment strategies.
* It appears the U.S. dollar is at or near its peak. The inevitable decline in its value will make foreign investments more attractive.
Davis warns, however, that investors must be wary of the risks of foreign investing when increasing their international allocations.
The international market remains more volatile than the domestic market. Japan's economy is still weak, and the unstable Middle East may be a serious concern for a long time. Moreover, says Davis, investors shouldn't view foreign stocks as a place to park money for near-term gains.
"This is not a short-term haven," says Davis.
Rather, foreign stock investments should be viewed in the context of a long-term investment strategy. And, as always, each investor needs to allocate assets in the context of his or her situation and investment goals. How to reach: Financial Advisors, Inc., firstname.lastname@example.org