Many people were forced to sell at rock-bottom prices in order to keep their heads above water financially. That drove the price of US stocks way down and made them look like a very unattractive investment, so people started shifting more of their portfolios into European stocks instead. But since then, things have changed dramatically – US stocks have rebounded spectacularly and are now in the midst of an unprecedented bull run that has been going on for nearly 15 years now! However, are there risks associated with having such a large portion of your portfolio in one single country? Is your portfolio too heavily invested in US stocks?
No. 1: Time
Stocks can be volatile, but over a period of time you should make money. For example, while Amazon’s stock fell 14% since January 1st 2018, it still managed to beat its benchmark S&P 500 by 7.6%. The average three-year return on Amazon stock is nearly 17%, whereas India’s small-cap and mid-cap benchmarks returned less than 9% each over that period.
No. 2: Your personal goals
Whether you are saving for retirement, setting aside money for a child’s education or building a home, you need to know what you are trying to achieve so that you can make informed decisions. A financial adviser can help here by tailoring an investment plan to suit your personal goals.
No. 3: Where are you based?
Just because a company is based out of California, doesn’t mean it’s a great investment opportunity. While there are plenty of exciting companies and industries to invest in in America, there are just as many not-so-exciting ones. While we don’t want to discount any opportunities, some industries do make better investments than others. You’ll want to consider where you live as part of your research—and even how that could affect how you approach investing.
No. 4: What is your appetite for risk
If you aren’t ready to lose a significant portion of your money, you should not be investing in stocks. This is true for any type of investment, not just equities. Understanding what level of risk you are comfortable with will help you determine which types of stocks are right for you. Here’s how to get started: look at different indices and compare their Sharpe Ratios—this is a measure that takes into account both returns and risk to help you make an informed decision on where to invest.
No. 5: How do they perform vs similar Indian stocks
You probably don’t want to own an S&P 500 index fund and a Vanguard FTSE Developed Markets index fund, as both do exactly what they sound like they should: track similar indices. By all means, if you want to invest in U.S. stocks that are not available on Indian exchanges and that you’re interested in following, then by all means go ahead.
No. 6: Do I need an India centric fund or can I find good India focused funds outside India
It is possible to find a good India focused fund outside India. Many countries like Singapore, Luxembourg, Hong Kong and so on have very good mutual funds focused on investing only in India. But I feel it is easier for Indians living abroad to invest in mutual funds based outside India because many companies find it hard to get approvals of Indian regulators if they are based out of other countries.