Before I began my investment career, I was an avid motorcyclist during my “crazy youth” in the 1980s.
And during that decade, my home state of California had not yet passed a helmet law.
Therefore, I have to admit, I didn’t always wear one. Sometimes yes, sometimes no, depending on the circumstances.
Obviously, helmets can and do save the lives of riders who get into serious accidents.
On the other hand, wearing a helmet can contribute to a fatal accident that a helmetless rider might have avoided.
How can this be true?
It’s simple…
We humans tend to convert potential safety benefits into performance benefits.
A motorcycle rider who is wearing a helmet tends to feel more invincible than a rider who isn’t. That sense of invincibility can lull a rider into developing bad habits, like excessively speeding or “splitting traffic” on the highway.
Bad riding habits, coupled with the sensory impairments that helmets cause, could explain why motorcycle deaths pretty quickly returned to their pre-helmet law levels, as shown by the chart below.
Disasters like these occur when risk often wears the guise of safety.
And it may surprise you to learn that it is the same on Wall Street.
So, in today’s Smart Money, I’ll explain why “safe” investing isn’t always as safe as it seems… and then I’ll share one risk worth taking.
One man is saying: FORGET most stocks. Because his strategy ignores 99% of stocks out there… And focuses on one — just one — to deliver gains of 85% in 14 days, 120% in under 3 months, and even 222% in just 8 days. In this video, he’ll tell you the name and ticker symbol, completely FREE. Click here to watch right now.
Familiar vs. Foreign
Because U.S. stocks have delivered consistent, world-beating results for nearly two decades, many American investors assume this delightful trend will continue long into the future.
Additionally, a second, less sensible factor also entices U.S. investors to load up their portfolios with U.S. stocks: familiarity.
Because U.S. stocks are more familiar than foreign stocks, they feelsafer. After all, U.S. stocks have names like Starbucks, Apple, and McDonald’s… and do not have names like Daiichi Sankyo, Muenchener Rueckversicherungs, or Financière Richemont.
Even though these three foreign companies would be unfamiliar to most U.S. investors, they are, respectively, a $40 billion pharmaceutical company, an $85 billion worldwide insurance giant, and an $110 billion maker of luxury watches.
For many American investors, a foreign name is a deal-breaker. It adds complexity to an investment process that is complex enough in English. Therefore, even though most American investors can appreciate the value of international diversification, they cannot embrace it emotionally.
U.S. stocks simply feel safer than foreign stocks.
But, like the motorcycle helmet case study, “safe” isn’t always as safe as it seems.
This perception emboldens investors to continuously boost their allocations to U.S. stocks, no matter how high valuations might be.
But we American investors should never remain “overweight” in U.S. stocks and bonds simply because they are familiar.
We must remember that, as investors, the world truly is our oyster.
To be sure, America is home to millions of entrepreneurs who create and launch successful companies, year after year. Many of these companies issue stocks that become fantastic shareholder-enriching investments.
But the United States does not possess a monopoly on investment opportunity. In times like these, when the U.S. markets are featuring more uncertainty than average, and when U.S. stock valuations are much higher than average, select foreign markets deserve a closer look.
In other words, if a new cycle of outperformance by foreign stock markets is underway, we should try to maximize that opportunity by diversifying some of our capital into select foreign investments.
Here’s the best way to do that…
How to Diversify Into Foreign Markets
At Fry’s Investment Report, I have already initiated a cautious diversification into select foreign markets. Four of the eight “Buy” recommendations I have issued this year have been foreign stock investments.
The early results are encouraging, as all four are showing gains. More importantly, all four stocks have topped the results of the S&P 500 during the corresponding timeframes.
On average, the four new stocks have advanced 13.8%, compared to the S&P 500’s average gain of 5.7% during the corresponding timeframes.
I’ve been making the case for foreign stocks since the Trump administration announced its new tariff regime in early April. That was also when I recommended a “tariff-proof” company from our neighbor to the north to my Fry’s Investment Report subscribers.
Since my initial recommendation, less than two months ago, this foreign play has soared over 70%.
Now, I will continue to scout for outstanding investment opportunities here in the U.S. But as I have done throughout my 35-year career, I will also keep a close eye on emerging opportunities in overseas markets.
Sometimes, the best gifts come in foreign packages.
