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Signs Point to Ever-Growing Benefit of Global Investments

While U.S. equities may have surpassed other markets in the past couple of years, investing globally has never been a better idea, according to newly released report by Newton, a London-based global asset management subsidiary of The Bank of New York Mellon Corporation.

Newton found the benefits of making global investment arrangements in bond, equity and multi-asset portfolios override those of having biased domestic assets, and those of splitting between domestic and overseas allocations.

"A global investment manager typically has 'real-time' flexibility in asset allocation," said Paul Markham, global equity portfolio manager at Newton. "If market conditions change, the active global manager can make asset allocation adjustments immediately on behalf of a client," he said, "In studying a global approach over a longer timeframe, we conclude that a U.S. domestic focus is inappropriate in terms of managing/harnessing risk."

Confronting fears about global markets
Forbes predicts a continued decline of the value of the dollar, and that in roughly 20 years, the U.S. will no longer be home to the top-performing equity markets. The magazine's financial forecast also expects the current low valuation of non-U.S. markets, both developed and emerging, will not last, and that staying invested will provide future benefits when valuations return to sustainable levels.

Newton claims investors may be confronted with risks abroad that they're unfamiliar with, especially in countries that have developing economies and face debt. However, Newton points out that even the "safest governments" present dangers, and that risk taken anywhere can be understood and harnessed by using risk-management applications and derivative instruments, as well as diversifying investments.

The report found that creating a global bond portfolio would have generated higher returns over the past 10 years than a U.S. government bond portfolio alone. Newton encourages investing in developing markets, as developed markets will soon face debt-related challenges in the coming year. It stated that a single portfolio vs. a segmented fund-of-funds {this is in the press release} approach allows managers to better understand the risks and compare relative attractiveness of different regions, sectors and asset classes.

Introducing your portfolio to global investments
According to The Wall Street Journal's SmartMoney, roughly 20 percent of one's portfolio should consist of international investments. It also recommends starting slowly and adding a certain amount monthly to avoid investing too much at the wrong time.

Diversity is the key to success. Consider foreign funds in a variety of industries, bonds, and stocks. Real estate abroad is one of the safest forms of investments because it doesn't fluctuate at the same pace as global stock or with properties in any other area, according to SmartMoney. As Newton pointed out, a diverse portfolio should also include foreign bonds. Emerging market bonds are particularly attractive for financial advisors, while others associate with too much risk. Work with a bond manager to decide what is right for you.

It's important to consistently evaluate risk, and not to act based on popular investments. One shouldn't expect to gain immediately, and must understand that every market is volatile. Global investments are long-term commitments, and patience will get investors far.

How do you invest in global markets? What risks do you associate with investing in foreign bonds in emerging markets?