Investing Conflicts? Understand Your Investment vs International Allocation

Rebalance OptionsI have come to realize that there exists many conflicts in investing that many investors have to work through. I am an avid reader of Money Sense and Canadian Business and they often review portfolios and offer guidance for the readers. Often times, the rule book is thrown at the portfolio which follows different asset allocation strategies including international and emerging market investments.

On the other side of the coin, you start hearing that you are in charge of your portfolio and you should be aware of what your investments are, the fees and educate yourself since you are ultimately responsible for your portfolio.

Related: How To Track Your Asset Allocations

International Allocation Goals

The goal with international allocation is to spread your risks by not focusing on just one market. As a Canadian, we are often told that the Canadian market is small and it’s a big world of opportunities out there. I agree and that’s why I invest in the US markets as well. It’s the biggest economy after all. It’s technically considered international but the US economy is heavily tied to the Canadian economy that I personally do not view my US investments as international except for when the tax man is involved.

The only international exposure I end up having is to the US dollar when I invest in US corporations. My familiarity with the US and exposure to their country and regulations allow me to understand the businesses.

Any books or article you read promoting International Allocation will have convincing argument with historical data to back it up. Those markets can offer better growth and they can soften a downturn in your portfolio. However, you are still at the mercy of the governments in those countries. How much money would you have made investing in Japan over the past 10 years? You might be familiar with the companies but are you familiar with the countries where they operate? Those are as important questions to ask. I was naive when I started investing and tried to do the international investment but I stopped early as I just could not understand the businesses and countries. At the time, I decided to focus on the Canadian market first.

What do index investors do with international? Isn’t the conglomerates in their US index already covering those markets? What about the Mutual Funds and ETF investors? How do you really pick your international investment? Roll the dice? Let the monkey pick? All you have is the historical data and the manager behind it. Managers move places as often as they change cars … In short, you really don’t know what you are investing in and you are just following the rule that was highlighted through statistics. I personally chose to ignore that rule and make a conscious decision. Keep on reading :)

Related: International Allocation through Conglomerates Part 1 & Part 2

Know Your Investments

Just investing in Canada wasn’t enough though for me. We have less exposure to some markets compared with the US. A US investor probably has everything within the US market but in Canada, we are missing in medical, pharmaceutical and technology to name a few. In some cases, we have some companies, but they don’t fit my dividend investing strategy. At some point, I had enough utilities, banks and resources in my portfolio that I needed to diversify and the US definitely delivered. The US has actually been the best performing segment of my portfolio.

I understand the US economy and policies. In fact, we probably have more exposure to their elections than our own through television. What they do drastically impacts our economy. It’s natural to know about their economy and their businesses that I was confortable with investing in their businesses.

If you pay attention to your investments, you will realized that you are getting plenty of international exposure. If you owned Manulife (MFC), you were exposed to international markets. The same goes for the Canadian banks investing internationally. Cross over to the US and companies like General Electric (GE) and others have huge exposure to the international markets. In the end, if you focus locally, in the companies you know, you can get your international exposure. Many conglomerates are more global than you think. How much money does Apple have outside the US?

Final Thought

Is investing in the US international? Technically yes but I don’t consider it international. As a Canadian, anything outside North America is international. The more I thought about international allocations, the more I realized that through my conglomerate investments such as Coca-Cola (KO) and McDonald (MCD) that I had a massive international exposure but through companies I understand. It was an epiphany.

Readers: What do you think? Are you avidly investing internationally? Do you consider the US an international investment?

Disclaimer: Long KO and MCD

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One Response to "Investing Conflicts? Understand Your Investment vs International Allocation"

  1. I’m sticking mainly with the US mega-caps to get my international exposure. It’s much easier and more economical for them to try and hedge the currency fluctuations than it would be for me. There are some international companies that I own or want to own but it’s harder for me to keep track of them. Especially those that I don’t actually get to see their products.

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