Save more, grow more?
I’m subscribed to a number of ezines on finance and investing; The Motley Fool is one such. Just got a new instalment, with some interesting statistics. This one is on investing overseas (non US, that is).
Or perhaps you think you don’t need to invest overseas? Or that it’s too difficult or risky. Well, nothing could be further from the truth, as you’re about to see.
But first, here are three undeniable trends you MUST consider before deciding whether to bolster your exposure to international investments…
- Of the 5 major makers of steel, electronics or consumer appliances, NONE is based in the U.S.
- Since 1993, the U.S. stock market was NEVER the world’s top performer.
- Last year, NONE of the top 18 best-performing stock funds were U.S. funds.
And here’s one more. Since April 2003, the iShares Emerging Markets Index, which tracks the performance of international stocks, has gained 186% (as of March 26, 2006) — thumping the S&P 500 by better than 3 to 1!
If any these trends surprise you, you’re not alone. In fact, despite what you just read, U.S. institutions like pension funds continue to invest just 5% to 10% of their client portfolios in foreign stocks!
…….
And, of course, it’s not just China and India. Upstart economies from South America to South Africa are developing at an alarming rate. Far faster than you can expect from mature economies like ours.
Some days ago, I’d commented on the difference in savings rates between the US and emerging economies. And wondered whether that was why their incomes were growing.
Now here comes another pointer. High savings surpluses would translate into investment - even leaving aside the amounts that the US sucks in to fund the deficit, there’s enough left over to drive growth. Plus, by funding US consumption, there’s enough demand to help the investment recoup a fair return; after all, most of the things a consumer buys (clothes, gadgets, cars and the like) have a significant import component.
Let’s get back to brass tacks. As an individual or a family, would you expect your net worth to grow without any saving or investment? That you could spend all you earn and more, year after year, and still end up with a lot more wealth than you started off with?
But yet, for a country, it looks as though logic doesn’t make sense. That consumption with no saving would still drive growth and wealth.
My guess is that the growth is driven by investment all right. Not home grown, but investment from overseas, coming in. The only questions are, for how long, and for what purpose.
Unless you believe that every one overseas is an altruist, committed to helping the US maintain a high standard of living which they don’t themselves enjoy. If so - Where’s that bridge I wanted to sell?
Written by 2cworth on March 29th, 2006 with
1 comment.
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#1. March 29th, 2006, at 5:52 PM.
Canada’s problems started with the deficit financing fiascos of the 1970’s, and we are still attempting to dig ourselves out of that hole. A great deal of Canada’s DEBT is held by Canadians, but I don’t remember the exact amount (in Government Bonds), what happens when they cash in to retire? Hmmmm….
–C8j