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Should I pay attention to the performance of foreign stock markets?


The United States has the world’s biggest economy and financial markets, but developments around the world affect conditions here and vice versa. While trends come and go, the increasing interconnectedness of economic, commercial and financial activity – what’s known as globalization – is one that is unlikely to erode anytime soon. More information is usually better than less when investing. An awareness of what’s happening overseas will give you a fuller picture of investment prospects here – and it would do so even if cross-border links were more tenuous than they are – and it also could alert you to better opportunities in foreign stock and bond markets themselves, which are easily accessible through mutual funds, exchange-traded funds and individual stocks listed on U.S. markets.

Foreign companies and economies often feature faster growth than their American counterparts, their stocks can trade at cheaper prices and their bonds can feature higher yields. At other times, U.S. assets offer better prospects. All of this matters less if you’re saving for retirement, rather than trading actively, and only want a portfolio that you can set and forget. But even in that case, it makes sense to hold some of it in foreign markets. How much is up to you and your financial adviser, if you have one, but no foreign exposure is almost certainly too little.

-Conrad de Aenlle