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A Counterintuitive Greek Lesson

Evan Cooper Jul 01, 2015


Now that Greece has defaulted, will we see the return of the drachma? Will Germany and the European Central Bank extend more credit?

Wait ‘til tomorrow and the next episode of “As the Euro Turns.”


In the meantime, look at the news photos of ordinary Greeks standing in line outside banks and tell me they don’t look like your neighbors waiting in line for the next ATM in New York, Omaha, Jacksonville or wherever you live.


The All-Important Dollar?


That thought got me to wonder about how insulated we are as Americans from the risks facing other investors around the world — and how maybe we ought to think a little more like them. Namely, we should be thinking outside the dollar and outside the U.S.

Consider the buck. Unlike Greeks or Latin Americans or the relatively few economic survivalists here at home (who despite seeming weird may well be proven right about the dollar at some point in the future), most Americans never worry about the dollar being replaced by some other currency. We’re America, after all, and the dollar is…well, the dollar, dammit!

The dollar may no longer be as good as gold, but it’s still the currency the whole world wants, including every international bad guy from Russian kleptocrats to jihadi murderers. Moreover, it’s the unit in which oil is priced and it’s the world’s reserve currency. So until the Chinese truly flex their economic muscles and push the dollar off its pedestal, or the rest of the world says “whoa” and doesn’t want any more of our paper promises to pay (which is what the survivalists rightly worry about, given our huge deficits and looming Social Security and Medicare crises, among other long-term problems we blithely ignore), we’re OK.


Home Bias


But while there’s no need to keep a stash of Swiss francs or British pounds (although a little gold wouldn’t kill anybody), Americans should take a tip from savvy Europeans and rich South Americans, who long ago realized that wealth preservation required investing beyond their borders. We stay close to home, exhibiting a severe case of what’s known as “home bias,” which is understandable given how blessed we are with a huge domestic market and a stable government.

According to the National Bureau of Economic Research, domestic companies represent 90% of the holdings in the average U.S. stock portfolio, despite U.S. stocks representing only 49% of the world market. So even if an American investor just nibbled at foreign issues, he or she would be increasing portfolio safety.


For dividend investors, going more international is easy. For every U.S. stock that’s a great dividend payer, there is an international version. For fans of Johnson & Johnson (JNJ ), which yields about 3%, how about adding Swiss giant Novartis (NVS ), which yields about 2.7%? If you like Whirlpool (WHR ), which yields about 2%, why not consider Sweden’s Electrolux ELUXY, which yields more than 2.3%?

For purposes of comparison, I’ve used foreign companies whose American Depositary Receipts (certificates issued by U.S. banks representing actual shares held in the home country) trade in the U.S. Buying foreign company shares directly from overseas markets is cumbersome and expensive, thanks largely to U.S. tax law.


The Bottom Line


Of course, one might think I’m nuts to propose more foreign investing at a time when the world is seeking refuge in the dollar. But many venerable, dividend-paying companies around the world have endured circumstances much more severe than the current Greek crisis. Odds are they’ll be around long after the Greeks and Germans settle their differences.


Evan Cooper, is an award-winning financial journalist. After reporting on business at The Miami Herald, Evan worked on Wall Street at the New York Stock Exchange, the Securities Industry Association and Drexel Burnham Lambert. He was Editor-in-Chief of On Wall Street, a publication for financial advisors, research editor of Institutional Investor, and Deputy Editor of InvestmentNews, where he was honored by the Society of American Business Editors and Writers with a “Best in Business” award for his online opinion column.

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