Evelyn Zohlen knows a handful of ways to jumpstart discussions with her more provincial clients about the sound reasons behind why they should aim for geographical diversity in their portfolios.
“We talk about all the products they use in their daily life that are not produced by American companies,” says Zohlen, a CFP and the founder and president of Inspired Financial in Huntington Beach, Calif.
Alternatively, for her clients who respond better to visual aids, she relies on graphs that show the size of the global market in comparison to that of the United States.
Zohlen’s secret weapon is historical global market data.
Zack Shepard, a vice president of communications at Mason, Ohio-based registered investment advisory firm Matson Money, agrees that historical data highlights for many clients the need to diversify investments geographically.
His firm turns the clock back to the 1970s to show investors the positive difference that diversifying globally can make to a portfolio.
“We look at the historical data as far back as we can go,” Shepard says.
Using index allocations, his firm’s advisers build for clients allocations showing that had they invested in 70% domestic equity, 20% large-capitalization international equity and 10% small-cap international equity from 1973 through last year, they would have a higher return and lower volatility than if they had simply stayed with domestic stocks.
“You can actually reduce volatility with international equity exposure,” Shepard says his firm’s advisers tell clients.
Sean O’Hara, a director at Pacer Financial in Paoli, Pa., knows about the challenge of persuading investors to think globally.
His firm recently launched a global large-cap ETF that includes companies of well-known American brands that sell worldwide to help investors tread further afield with their investments while staying within their comfort zones.
“There are a lot of iconic brands known in the United States that are actually produced outside the United States,” O’Hara says.
These provide what he calls “a transitory bridge” for investors who aren’t used to global investing.
But O’Hara also recognizes that another obvious characteristic of many global investments will draw investors: high-yield dividends.
About 50% of international equity offerings present such opportunities, he says.
“It’s a tremendous incentive,” O’Hara says. “Income soothes all ills.”
O’Hara warns, however, that investors expanding their asset portfolios’ global horizons shouldn’t consider only the yields and the underlying value of the investments but also the possible currency values.
“Make sure you are diversified by currency,” O’Hara says. “You can get your equity decision correct but be wrong on the currency.”
Miriam Rozen writes about the financial advisory industry and is a staff reporter for Texas Lawyer.
This story is part of a 30-30 series on ways to build a better portfolio.
