Daily Gains Letter

Forget American Markets, These ETFs Have More Room to Run

By for Daily Gains Letter | Apr 12, 2013


The Dow Jones Industrial Average and the S&P 500 continue to soar into uncharted territory. With strong gains over the last four-plus years, you’d think there must be a lot of really wealthy investors out there who are celebrating.

There aren’t many rags-to-riches stories coming out of this bull market. There are a lot of rich-to-richer stories, though.

Regardless of which way the markets are headed, people are, for the most part, bad at investing. Between 1990 and 2010, the average U.S. equity investor earned just 3.8% annually, less than half the 9.1% return from the S&P 500. The average fixed-income (bonds) investor pocketed just one percent annually over the same 20-year time frame, as opposed to the 6.9% annual return reported by Barclays U.S. Aggregate Bond Index. (Source: “Investors Can Manage Psyche to Capture Alpha: Dalbar Study of Investor Returns Offers Way to Improve Investor’s Alpha,” Dalbar, Inc. web site, April 1, 2011, last accessed April 11, 2013.)

The average stock fund investor barely beat inflation, while the average fixed-income investor lost money after factoring in inflation. Why are we so bad at investing? Technically, it’s not our fault. We’re hardwired not to lose, but to cut and run.

In days of yore, we survived with our fight-or-flight instinct by running when it made sense to run. The vast majority of those who stuck around to fight the good (no-chance-of-winning) fight didn’t make it. Those who did, though, had bragging rights.

Fast-forward to today, and it’s hard to fight our instincts when it comes to investing. We overestimate our investing acumen when the markets are doing well, and we run for the sidelines when the market dips lower. Best-case scenario: we buy high with the hopes of selling higher. But more often than not, we end up taking a loss.

It’s difficult to invest against the herd, to buy when most investors are selling. On the other hand, it’s important to remember that the markets have always rebounded, as evidenced by the record runs on the Dow Jones and the S&P 500.

This brings us back to investing at inopportune times. With the markets doing so seemingly well, investors are once again deciding what the best entry point is. If they can stomach the stress, investors could consider great equities that are not performing well. But it’s getting harder to find those kinds of investments in this climate—at least here in the U.S. it is. However, that doesn’t mean potentially greener pastures cannot be found.

If you’re looking for a broad-based investment strategy with great long-term potential, you could consider investing in global exchange-traded funds (ETFs) in countries that are performing poorly because of current economic conditions.

iShares MSCI Austria Capped Invstbl Mkt (NYSEArca/EWO) seeks to correspond to the yield performance of the MSCI Austria IMI 25/50 Index, which consists of stocks traded primarily on the Vienna Stock Exchange. iShares MSCI Spain Capped Index (NYSEArca/EWP) seeks to correspond to the yield performance of the MSCI Spain 25/50 Index, which consists of stocks traded primarily on the Madrid Stock Exchange. Finally, India Fund, Inc. (NYSE/IFN) seeks long-term capital appreciation achieved by investing primarily in the equity securities of Indian companies.

Record highs on the Dow Jones and the S&P 500 do not mean Wall Street is a safer place to park your retirement money. That said, weak economic conditions around the world, high unemployment, European debt problems, and reckless global money printing mean international investment opportunities still exist.

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