INTERNATIONAL STOCK FUNDS

For those of you who struggle with deciding upon which funds to choose for your 401K, I will be reviewing all of the different categories of funds available to 401K investors.  Today, I will be focusing on one of the common 401k investing options - international stock funds.

Many investment professionals encourage investors to own international stock funds in an effort to diversify their portfolios.  The idea behind this concept is that certain international stock markets may have better growth potential than the US market.  As I will show below, international stock funds are not a good choice for your 401k.

There are a variety of different international stock funds.  Some focus only on developed countries.  Some focus on emerging markets.  Some focus on particular geographic regions like Europe or Asia.  Most 401K plans only offer one or two international funds.

When we compare the performance of the US economy and stock market to the rest of the world, we continue to see that US companies are the best in the world by far.  To this day, no other country or region performs as well as the US stock indices like the S&P 500 or the Nasdaq.

For decades, forecasters have been predicting the decline of the American economy and the emergence of some other country or region.  It has yet to materialize.

When we look at the actual investment results of international stock funds vs. something like the S&P 500 in the table below, the conclusion should be very clear.  The results are not even close.  Most of the international index funds have not been around for 20 years or more so we can only look at 5-year or 10-year performance but the longer term results are the same.

When your financial advisor tells you that you need international exposure, show them this chart and ask them what they could possibly be thinking?  They will say that this data is based on past performance and not future performance.  You should then ask them if they are predicting that the international markets will outperform the US indices in the future and on what basis are they making that prediction.

Other reasons to avoid international stocks are currency risks and geo-political risks.  Gains you make in international markets can be wiped out by currency fluctuations.  Political instability in other parts of the world could lead to losses in your international holdings.  

Avoid international stock funds and stick to US stock funds.  

Happy Investing,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.