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Diversify Y our Investment Por tfolio

Relax, yes, but pay attention. It’s true that back in the good old days—the
great bull market in stocks that that ran from 1982 through early 2000—it
generally paid off for investors to buy and hold for the long haul.
But it’s different now. Investors need to be more vigilant and proactive than
before because the pace of change has accelerated significantly, thanks largely

to technological advances in the availability and transmission of information around

the world. The rapid flow of information, rumors and opinion can also increase the
possibility of investor confusion and uncertainty of today’s fi nancial markets.
Frightening? Sometimes, yes. But confusion, uncertainty and even crisis

always create fabulous opportunities for profit when you’re patient and prepared.

Think Globally

Perhaps the biggest change for U.S. investors over the past few years is the
coming of age and accessibility of financial markets outside our country.

In fact, most of the stock markets in the rest of the world outperformed the
U.S. markets by a significant margin in 2004–2006.

This means that when you think about how to diversify your investment
assets, stocks, bonds and cash alone aren’t enough. In addition to investing in
U.S. stocks of various sizes, either directly or through funds, you should
include non-U.S. equities too. If you’re serious about making money as an
investor, you need to view the world as one market, not many.
This shift in orientation is necessary for many reasons. Only 5 percent of
the world’s population is in the United States, while more than half the
world’s capital resides outside the United States. The opportunities for
economic and investment growth overseas have increased dramatically, in
Asia, Europe, and Latin America. In the 1980s, as I recall, roughly two-thirds
of the market value of the world’s publicly traded companies was in the United
States. Now roughly 60 percent is overseas—and close to 75 percent of the
world’s economic output occurs outside the United States.
You’re likely somewhat familiar with China’s economic boom, which includes

much of the rest of Asia. Japan finally has emerged from a severe economic and
investment downturn that lasted 13 years. Latin America offers some of the world’s
most exciting investment growth possibilities. Even Europe’s long-sluggish econ-

omies are now improving. Europe’s economy is finally creating jobs, underpinning
the region’s recovery, and helping to strengthen the global economy.
Another reason to look abroad is that we’re seeing two huge migrations
of capital. In other words, money is moving from the developed world (the
United States and western Europe) to the developing world (Asia, eastern

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