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Investing for a Lifetime: Managing Wealth for the "New Normal" by Richard C. Marston

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CHAPTER 8 Foreign Stock Markets: Industrial Countries of Europe and the Pacific

Back in the early 1990s, investors considered themselves adventurous if they invested overseas. Foreign stock returns had exceeded U.S. returns for 20 years. But somehow Americans were more comfortable investing in the likes of General Electric and AT&T than in European companies like Phillips or Nestle or Japanese companies like Toyota. Americans might buy European or Japanese products, so their tastes were not exactly parochial, but their portfolios were U.S.-centric. Many investment advisory firms were recommending international diversification. But the 10 percent allocation to foreign stocks that they typically recommended seems quite timid by today’s standards. And hardly anyone was recommending emerging market stocks. It’s true that pioneers such as John Templeton were introducing some American investors to emerging markets, but most investors kept clear of those markets.

Contrast the situation today with that of the early 1990s. There is a wide array of foreign stock funds available to ordinary investors. Some funds offer broad diversification into markets across the globe. Others specialize in Europe or the Pacific or elsewhere. Today one leading investment bank urges that its private banking clients devote 40 percent of their stock allocation to foreign stocks. It’s ironic that the recommendation is so much higher today since the advantages of diversifying into foreign stocks are not as ...

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