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Saturday, September 18, 2010
China, India, and Brazil were poor, "Third World" countries not long ago.
Today, they're making investors rich.
India's Sensex index has risen 20%, just since last November. And the iShares MSCI Brazil fund is up more than 100% since early 2009. The China Shanghai index rose from 1,100 to 5,900 in just two years, 2005 to 2007. That's more than five times your money.
There's definitely money to be made in growing foreign markets.
But you should be very, very careful about betting on a whole country's stock market. In this essay, I'll show you a much safer way to profit over the long term from these hyper-growth situations, rather than blindly buying hot foreign "story stocks," like most folks do.
Stock markets that shoot up quickly can, and usually do, fall just as quickly. Buying a whole stock market isn't really investing, anyway. You're just betting on the direction of a whole country's stocks – and there's no way one person can know enough to invest in every one of those stocks. It's not really investing. It's more like gambling.
But it's still a good idea to invest in foreign stocks.
You don't want all your investments in one country. If the U.S. economy continues to suffer, all of your investments could suffer, too. It's better to spread your money around, so you can take advantage of good things happening in other countries.
Fortunately, it's easy to make safe, liquid investments in foreign countries. It's just as easy as investing in the U.S. You don't have to open a special account or deal with a foreign broker. You don't have to worry about foreign laws or taxes. Here's why...
Some of the world's biggest, safest, most profitable businesses get more than half their sales from outside the United States.
They're the easiest and best foreign investments you can make. Here are five companies from a list of elite companies I follow...
You can invest in foreign markets and still get the peace of mind of buying safe blue-chip stocks. When the market crashed in 2008, investors in stocks like these had nothing to worry about. They made a safe 6% return on McDonald's... even though the stock market fell almost 40% by the end of the year.
Now that you know McDonald's gets 65% of its sales outside the U.S., won't you sleep better as a McDonald's shareholder, even if the U.S. dollar gets worse? Foreigners will be able to buy more McDonald's products, and McDonald's loyal customers and strong brand name will allow it to raise prices in the U.S. to adjust for a weaker currency.
When you buy great companies with high foreign sales, you often get a growing stream of dividends, too. Procter & Gamble has raised its dividend every year for 56 years in a row. Colgate-Palmolive's dividend has increased more than 11% per year over the last 10 years.
It can be complicated and difficult to buy stocks in foreign markets. You and I aren't allowed to invest in stocks in India, for example. We have to go through complicated and expensive legal procedures to do it. Other countries have all kinds of taxes. A subscriber recently wrote to me and said there's a 25% withholding tax on some of his foreign stocks, even in his IRA. His broker says there's nothing he can do about it.
There's little need to invest in foreign stocks. It's much easier to stick to the best-quality U.S.-traded stocks – and find the ones that have more than half their sales outside the U.S.
If you know nothing else about investing in foreign stocks except this simple, powerful idea, you'll outperform 99% of investors who spend their time trying to find the next hot foreign stocks.
For another simple, timeless investing rule that will put you ahead of 99% of the world's investors, don't miss Dan's Thursday essay.
"I realize this secret sounds so obvious it's almost laughable," Dan writes. "That's just because the real secrets to successful investing aren't complex, like they are in science. They're so simple, anyone can understand them... It's just that almost nobody has the discipline to actually follow them."
Find Dan's secret here: Use this Simple Secret to Find the Best Stocks.
CHART OF THE WEEK: A GREAT PIECE OF WEALTH INSURANCE
Our chart of the week takes a look at an asset that we're such big believers in, we put together a book about it. The asset is gold.
If you haven't read our book yet, we encourage you to get a copy of it as soon as possible (learn how to get it for free here) and read it. Inside, you'll learn why gold is our chart of the week.
While the talking heads on CNBC work themselves into a lather trying to pick apart every $20 move in gold, we simply look at the metal as a great piece of wealth insurance. We see gold not as an investment, not as something we expect to make money on. We see gold as money... as something we accumulate and hope we never have to actually use.
And while we've been encouraging folks to buy gold for over seven years, many market players are just starting to wake up to gold's "real money" allure. That's why the metal hit a new all-time high this week... producing the chart you see below.
Stat of the week
In The Daily Crux