It seems like every time I turn on the news I see the U.S. tearing itself apart. The media and politicians are so hell bent on destroying President Trump they’re willing to risk war to do so. On the ground level, most of my millennial peers worship socialism or some other form of left-wing totalitarianism. Unfortunately, I don’t exaggerate as indicated by opinion polling. However, us investors see the beauty of free market capitalism from the countless innovations to lifting millions out of poverty. Despite my status as a middle income American I’m experiencing solid incremental wealth accumulation. Enough so that I will be financially independent in the next 8-12 years. The question is whether or not the U.S. will survive that long.
An optimist, on the other hand, would say the most likely explanation for the current state of affairs is a societal “correction”. Like the stock market, civilizations inevitably go through periods of chaos as a means of moving forward. For instance, the U.S. survived the Civil War, a Great Depression, two World Wars, and a thousand events in between. Perhaps the most recent “correction” was the perpetual social unrest during the civil rights, 2nd wave feminism, and anti-war movements of the mid to late 60s. Today, issues surrounding social unrest involve immigration, healthcare, 2nd amendment rights, and national sovereignty.
Regardless, if this is the end of the U.S. or simply a healthy societal correction, life goes on. The political and social unrest in the U.S. underscores the need for international diversification. Roughly half of stock investing opportunities are outside U.S. borders. Going through foreign stock exchanges can be complicated and time consuming. Perhaps the easiest way to get involved in foreign investing are ADRs or Automatic Depository Receipts. Foreign companies can list their shares on U.S. exchanges in the form of ADRs. They trade just like regular stocks and they can pay healthy dividends. In my portfolio you’ll see ADRs in the form of Rio Tinto (RIO) and Bank of Nova Scotia (BNS).
International investing can limit potential losses due to domestic instability. Emerging markets can even offer higher returns. For example, South Korea, Singapore, and Hong Kong experienced higher returns than the U.S. from the 90s to today. However, high rewards are typically synonymous with higher risk. Dividend ADRs often fall victim to withholding taxes. If Company X pays $2.00 annually you may find you only got $1.50. Furthermore, international stocks carry additional political, social, and economic risk. Regulations also differ across regions and financial reports could be dangerously inaccurate. We’ll continue exploring international investing and ADRs moving forward. U.S. stocks have been fantastic in recent years but there are some truly extraordinary opportunities abroad.
DISCLAIMER: I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.