Friday, December 17, 2010

Are you invested in markets other than the US ? If not, you should be...

The vast majority of people saving in their 401k and retirement portfolios are investing only in the US stock markets. To me, this is myopic, if not downright negligent. The GDP growth rates for the US, for the foreseeable future, is going to be in the 1.5% to 2.5% annual rate at best. The countries with the best GDP growth rates, which are both high and substantial enough to be meaningful, are China and India, and to a lesser extent, the European Union. Their forecasted GDP growth rates are 7% to 9.5% for atleast the next 3 decades. 

 Below is the forecasted GDP for the coming decades through 2050 -

Top 10 GDP Countries 2000-2050

This table shows the top 10 countries by GDP (Gross Domestic Product)expressed in billions of US$, for the years 2000, 2010, 2020, 2030, 2040 and 2050, listed by projected 2050 rank. 
SOURCE: Goldman Sachs 

2050 RankCountry Name2000GDP2010 GDP2020 GDP2030 GDP2040 GDP2050GDP
1 CHNChina107829987070143122643944453
* EUEuropean Union *93951296516861210752832335288
2 USAUnited States98251327116415208332722935165
3 INDIndia469929210449351236727803
4 JPNJapan417646015221581060396673
5 BRABrazil7626681333218937406074
6 RUSRussia3918471741298044675870
7 UKUnited Kingdom143718762285264932013782
8 GERGermany187522122524269731473603
9 FRAFrance131116221930226726683148
10 ITAItaly107813371553167117882061
* European Union GDP, which I calculated myself, is shown for comparison, but not ranked.

A well allocated investment portfolio would do the following -

 1. Allocate the portfolio among countries based on their share of World GDP, weighted in favor of countries with a high rate of GDP growth.

 2. Allocate funds between stocks, bonds, ETFs, mutual funds and cash. In other words, diversify based on investor's risk and return criteria.

 While the above allocation would work for both the aggressive and the defensive investor, the selection of index funds or individual stocks would differ for the two types of investors.

Investment accounts, 401K retirement accounts, etc. should be rebalanced now  to benefit from growth in the emerging markets and the EU in the coming decades. If you are not doing this yourself but would like to, I would be glad to discuss this further. Shoot me an email at RDhawan at sbcglobal dot net. Later !