U.S. stocks rock, but you need to look beyond them

Check out these other options

The U.S. market and economy is a dynamic, innovative and growing powerhouse. I wouldn’t bet against it for the long-term. And I typically recommend a significant core position in large U.S. stocks. Owning domestic equities has been vital to growing wealth.

The S&P 500, a stand-in for the U.S. economy, just had its sixth up year. We’re recouping from the trials of the Great Recession, recent GDP was up 5 percent, oil is down, buying is up, and just about everything else is clicking for America.

But large stocks aren’t the only game in town. In each of those years other markets or categories have outperformed the big benchmarks. For example, according to CNN Money, Argentina was the best-performing market last year (up 54.51 percent). The Unites States did well, up 12.73 percent, but was still in seventeenth place globally, behind countries such as Denmark, Ireland, China, India and Belgium.

CYCLES

Markets are a popularity contest. The U.S. has been taken to the dance for six years in a row now. This popularity will eventually weaken only to come back again in the future. But there will be weakness and underperformance compared to other countries and assets.

GETTING EXPOSED

How does an investor take advantage of other asset types? The easiest, and usually most efficient, way is using mutual funds or ETFs (exchange-traded funds). ETFs trade all day long, like a stock, but still have the diversification and professional management of traditional mutual funds. They also have lower internal fees. You do have to purchase them through a broker or brokerage fee-based program, though.

To invest in emerging markets there’s Vanguard FTSE Emerging ETF (symbol: VWO). This fund goes into developing markets like China, India, Mexico and South Africa. It has almost one thousand stock positions, an annual dividend yield of 2.86 percent and a super-low expense ratio of 0.15 percent. Keep in mind that a 30-year Treasury bond only yields 2.45 percent. While you wait for potential growth, this fund can pay you more than a three-decade-long bond.

Another international fund is the iShares MSCI EAFE fund (symbol: EFA). It tracks the EAFE index, which stands for Europe, Australasia and Far East. It owns more developed countries like Germany, the U.K., Japan, Australia and Switzerland, among others. It has a high income of 3.69 percent yearly and a very low expense ratio of 0.33 percent.

For another unique category there’s the Vanguard REIT ETF (symbol: VNQ). This fund invests in real estate-owning companies. They own properties including apartments, commercial, storage and hotels. They tend to respond differently than the typical U.S. fund and can have significant outperformance at times. It pays over 3½ percent annually with a dirt-cheap expense of 0.10 percent yearly.

Keep looking for opportunities outside of your core holdings to increase diversification, increase income and take advantage of different markets. You don’t want to miss the next investment that jumps up 50 percent in a year.

Categories: Finance, Web Exclusives