Over the past few years, a number of his clients have told Riaan Nel, managing partner of Eugene, Ore.-based financial advisory firm Detlefsen Nel & Associates, they’re not sure there’s much point in investing in international markets because the U.S. stock market has been such a great performer—a far better performer, in fact, than most international markets.
“The argument I give them, though, is that we are a financial planning firm that’s planning for the long term,” Nel said, “and although the U.S. is a very large presence and dominant on a relative basis, in the long-term, other countries will increase their portion of the world economy, so if an investor is planning for the long-term, then they have to have exposure to those countries.”
And anyway, even if an investor isn’t directly buying securities from companies in other countries and isn’t directly invested in an international or an emerging markets fund, almost every company these days, and that goes for U.S. firms as well, is deriving some portion of its revenues from abroad, he said.
“Over time, the integration of the markets has led to very few things being disconnected from one other, and even a significant number of companies in the S&P 500 derive a major portion of their profits from abroad, which means that most investors have some kind of exposure, direct or indirect, to international markets,” Nel said.
For any investor with a long-term outlook, this exposure is important, not least because more than half of the publicly traded companies in the world are not in the U.S., and because three-quarters of the world’s GDP is produced outside of the western world, supported in large part by the rising middle class in many countries.