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The global investor.

Diversification is key when it comes to investing, because this practice of spreading investments among a number of different securities reduces risk. However, the average investor's portfolio is limited to domestic securities. But anyone who is interested in growth and safety should take a closer look at foreign securities.

"Just investing in the U.S. market is like going into a store and saying I want to see everything on the left-hand side," says Maceo K. Sloan, president and chief investment officer of NCM Capital Management Group Inc. in Durham, N.C. "Everyone needs to add some global exposure to his or her portfolio."

World markets have undergone profound change in recent years, according to Pierre Dunagan, account executive at Dean Witter Reynolds Inc. in Matteson, Ill. "The United States accounts for less than 30% of the world's stock market capitalization--down from more than 50% just a decade ago." Although many U.S. companies still offer substantial potential for investors, investment opportunities are being uncovered in foreign companies, adds Dunagan.

By investing globally in emerging markets, investors can maximize their returns. Some of the strongest economic trends include the consolidation of Western Europe and the rebuilding of the Eastern Europe. Also, Australia and parts of Asia and Latin America are growing faster than the United States. Moreover, now may be the best time to own foreign securities because of favorable interest rates.

There are some drawbacks, though. One, many foreign deals are hard to evaluate. It's tough enough trying to understand the value of U.S. investments. Well, investing overseas is complicated further by the fact that in order to do an outstanding job at picking foreign securities, one would have to follow foreign economies, interest rates, tax laws and currencies (relative to the dollar), in addition to measuring the potential growth and profitability of each company. But anyone who is willing to take some risk, should not shy away from foreign investments. The easiest and safest solution is to invest via global and international mutual funds. Global funds buy company stocks worldwide, including the United States, whereas international funds buy the stocks of companies located everywhere but the United States.

A Broad Approach

The advantage of such mutual funds is that they are diversified in the number of securities and countries in which they invest. There are also funds that invest in single countries or regions, such as the Pacific Rim. Financial experts advise caution when investing in any single given area. Consider what would happen if all of your assets were tied up in one country. Should that country fall into a recession, your entire portfolio could suffer, because its return is dependent on that one nation's economy.

Diversifying your portfolio globally goes even further than just protecting your assets from recession. It provides the greatest level of safety by allowing you to invest in the world's largest companies. In fact, nine out of 10 of the largest companies in the world, eight out of the 10 largest automobile manufacturers and all of the 10 largest banks in the world are located outside the U.S.

Owning global and international funds also gives investors the chance to invest in the best-performing markets in the world. The U.S. stock market has had the best performance record only two times in the last 20 years. And Japan, Germany and Singapore have had the best performance levels three times each.

The numbers paint an even better picture. The cumulative returns for stocks in Hong Kong and Japan were over 4,000% compared to U.S. cumulative returns of less than 700%.
COPYRIGHT 1992 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Sanders, Amory
Publication:Black Enterprise
Date:May 1, 1992
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