Insider Secret #3: International Stocks will Beat U.S. Stocks in the Next 20 Years

The year is 1955.

Home ownership rates in the U.S. hit a fresh all-time high. Color TVs are flying off the shelves. Parents are saving for college.

With Europe and Japan’s manufacturing industries virtually destroyed from the war, America has become the manufacturing powerhouse of the world. The American Dream is born.

During the 1950s and 1960s the American economy grew into the largest and most powerful in the world. In the 1980s and 1990s the party continued.

The S&P 500, Dow Jones Industrial Average and NASDAQ all hit record highs. Take a look below.

S&P 500 all time highDuring this golden age of America it was very profitable to invest in American companies.

Investing in companies like McDonalds (NYSE: MCD), Coca Cola (NYSE: KO), IBM (NYSE: IBM), Microsoft (Nasdaq: MSFT) and Starbucks (NASDAQ: SBUX) before they grew into global leaders transformed millions of American into millionaires.

Today – America is a mature economy. It will continue to grow, but not at that same break neck pace from 1950 to 2000. And that’s too bad. Because that created a lot of great investment opportunities.

But don’t worry. If you’re like me and were too young to profit from the Golden Age of America it’s not too late. That same cycle is repeating itself in other parts of the world.

Take a look at the map below. While the North American economy is still growing, other continents are growing much faster as their own versions of the American dream unfold.

Asia and Africa are the two fastest growing continents in the world.

global gdp growth by contient

Out of the 15 fastest growing economies in the world, not one comes from North America. Take a look below.

GDP growth by country

Consulting firm Price Water House Cooper estimates that between 2015 and 2050, developing countries will grow at 3.8% vs 2.1% for developed countries.

The message is clear – investors looking for the best opportunities have to look outside the US. I’m talking about international stocks.

Investing in international stocks today is like investing in American companies in 1950. As these countries and companies grow, investors have the potential to reap big returns.

Looking deeper into the numbers investing in international stocks investing becomes even more compelling. Let me explain.

In the U.S., there are around 5,000 stocks traded on the major exchanges.

Yet there are more than 100,000 international stocks trading worldwide across global exchanges.

Looking at just the US is like only looking at one small portion of the menu when you go out to dinner.

Why limit yourself?

International stocks also pay better yields than their U.S. counterparts.

In the U.S., the S&P 500 offers a 2.17% yield. That’s one of the lowest in the world. Other regions and countries offer yields three to four times that amount. Take a look below.

yield by country

For example, the iShares MSCI Australia (NYSE: EWA) offers a 5.95% dividend yield.

The iShares MSCI United Kingdom (NYSE: EWU) offers a 4.37% dividend yield.

But wait – there’s more.

International stocks are also undervalued compared to U.S. stocks.

Nobel Prize winning economist Robert Schiller has developed a unique way to value the stock markets of different countries. It’s called a cyclically adjusted P/E ratio (CAPE) and it accounts for earnings cycles over a longer period of time.

According to Schiller’s research, the U.S. is one of the most overvalued stock markets in the world despite its lackluster growth projections.

Conversely, emerging markets such as China and Brazil, expected to grow much faster the U.S., are trading with CAPE ratios at a fraction of the U.S. Take a look below at Schiller’s CAPE ratios by country.

S&P 500 CAPE ratio

For example, the iShares MSCI Brazil capped (NYSE: EWZ) has a P/E ratio of 11.

The iShares Asia 50 (NYSE: AIA) also has a P/E ratio of 11.

Investing Lesson: Invest internationally. That’s where you’ll find the best opportunities.

If you’re interested in learning more about international investing sign up for my free video:

Or take a look at a few of my articles below. Or if you’d like to speak directly you can send me an email.

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Your Investment Partner,

Mike

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.