Are you suffering from
‘Home Bias’? Only investing
in stock markets that are
familiar to you? Historically
it’s been hard and expensive
to invest in international
markets, but there are many
advantages to being invested
in foreign equity markets.
Are you missing out on the
opportunities because of old
myths?Today it’s possible to make
international investments
with the tap of your finger on
your phone. This can be done
for the same cost as buying
domestic shares, and yet
this simple fact is still widely
unknown. One common
myth is that global shares are
expensive to purchase: the
good news is that many low-
cost international brokers are
changing this trend.Individual investors can now
get access to opportunities
that were out of reach a
decade ago. So how do you
choose what to invest in once
you realise you can access the
global markets?Historically one of the best
investments has been what’s
called a ‘Stock Index’. An
index represents a basket of
stocks, the most famous being
the Dow Jones Index. Imagine
30 stocks all mixed together
to represent one number. An
index gives us a snapshot
of what the market is doing
as a whole. There are many
types of indices that represent
different markets: the S&P
500 represents the top 500
companies in America, the
Nikkei 225 represents the top
225 stocks in Japan, and the
Euro Stoxx 50 represents the
top 50 stocks in Europe.In Jeremy Sigel’s now
infamous book Stocks for
the Long Run he showed
that indices, like the ones
I mentioned, produced an
annual return of 6.8 per
cent (after inflation!) from
1871-2001. Our human mind
cannot intuitively understand
compound rates. So let me
ask you this: if you started
out with $10,000 and each
month you deposit $500 into
an account and this account
magically compounds at 6.8
per cent, how much will you
have if you keep this up for 30
years? About $620,000!You can see why you need
to tap into this power of
long-term stock returns.
However, because of past
crises, the tech bubble, the
GFC, and the European debt
crisis, stocks are still not a
popular investment. In fact,FINANCE