Recent reports suggest that investors relying heavily on domestic markets to fund retirement are not following the guidance of investment advisers. The traditional doctrine of investing is to follow a diverse investment strategy which includes investing across industry’s, markets and countries. Many will spread their money over various industry groups to help them weather various financial storms. They do not seem to be investing in emerging markets nearly as much. We wondered why consumers would follow this domestic investment strategy. There are several reasons, that by coincidence the writer also agrees with and follows.
Domestic Markets to Fund Retirement
Most people rely on local news about local companies in our country or continent. The local news is far more readily available. As a consequence we know much more about our own economies than we do about other emerging market economies. Emerging market economies are also much higher risk. They have a great deal to learn, companies come and go and they are very dependent on cheap labor as well. For our money and conservative approach, we would rather invest in companies that are based in our own country. Let the experts in that company decide if they want to pursue opportunities in other countries. This brings us to the next major point.
Country Diversity to Fund Retirement
Most large companies that pay dividends and are based in the US or Canada. They have a strategy to grow their revenues by investing in markets that are potential growth opportunities for them. They may be establishing sales opportunities or manufacturing opportunities or even both scenario’s. As a result by buying common shares of a domestic company that pays reasonable dividends you can obtain emerging market diversity while at the same time obtaining dividend income on a stock that has the potential for growth as well.
Some might consider this a conservative investment style, however for this writer it seems to be working well with dividend income, growth in the value of the stock and not needing to follow what is going on in another country were there is little news to follow. This allows this investor to sleep at night without needing to be spending a lot of time reading about something going on in another country in another culture for which we have little understanding or even none.
Emerging markets also have a habit of being very volatile. Is this something that you would like to risk your retirement savings on? If you do allow us to at least suggest diversity should be considered. Do not place all of your savings in one investment or even in one market. Spread it around after doing the appropriate research to ensure that your money is well invested and has a better than average chance of earning you a decent return.