Transcripts

"Money File"-International Investing

SUSIE GHARIB: In the Money File tonight, the latest thinking on international investing. Here's Eric Schurenberg, managing editor at "Money Magazine."

ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: Until recently, you couldn't help but see the wisdom in investing a good chunk of your money outside the U.S. The economic future looked incredibly bright beyond our shores, especially in developing nations like China, India and Brazil. The stock markets there had been on a tear. Besides, shifting money overseas was supposed to be good defense. If a bear market were to strike Wall Street, international stocks would offer some protection. Well, we had our bear market and those foreign funds didn't help, did they? The past 10 years was one of the worst such stretches for U.S. stocks ever. And the good old S&P 500 still did slightly better than Chinese stocks. So what went wrong? Partly it was the strengthening dollar. When the buck gets stronger, stocks denominated in other currencies lose value for American investors. But the worst headwind was the performance of foreign markets themselves. They got clobbered by the same credit crunch as we did here. Many were clobbered worse. Now that doesn't mean foreign investing was all a big mistake. The world economy is still expected to grow 15 to 20 percent faster than the U.S. But you need to be judicious. History suggests that 25 percent in foreign stocks is a good allocation. It's safer than betting entirely on U.S. stocks, but still gives you most of the boost you get out of those risky, . Now history isn't a perfect guide as we all know these days. But as the world grows closer, not farther apart, maybe we should expect a little less magic from those exotic foreign markets. I'm Eric Schurenberg.