Saturday, July 13, 2002

Personal Finance

Try looking outside of Wall Street

        Seems that Wall Street hasn't been a safe place for your money recently.

        Why not try Old Broad Street, Kabuto-cho or Paseo de la Reforma?

        Stocks traded on the London, Tokyo and Mexican stock exchanges seem to be struggling significantly less than their U.S. counterparts.

        Indeed, just look at the Nikkei-225 Stock Average, a measure of stocks traded on the Tokyo exchange. It's gained 1.2 percent in the year's first half, while the Standard & Poor's 500 Index dropped 13.2 percent.

        The Mexican Bolsa Index gained about 1.6 percent, while the FTSE 100 measure of British stocks fell only 9.2 percent.

        But don't just run out and invest in any foreign market — they didn't all zig while Wall Street zagged.

        Stocks were scarier in the Hausen district, home of Germany's Frankfurt Stock Index. The DAX index there fell 15.1 percent in the year's first half.

Declining dollar

        But regionally diversified international mutual funds were mostly safer than any U.S. fund you could find.

        According to Lipper, U.S. diversified stock funds dropped about 12.2 percent just from March through June. In the painful quarter, more than 93 percent of equity funds were down for the quarter, with a total decline of $358 billion in value.

        But international funds held up — losing only about 4 percent on average.

        Part of the answer is the lack of crisis and scandals in those markets. But most of it seems to be in the currency exchange rates.

        “The decline in the dollar has helped,” said Madelynn Matlock, director of international investments at Huntington National Bank. “It's helped somebody with non-U.S. investments translate that performance back into dollars.”

        Indeed, the dollar has weakened about 10 percent in the last six months. That means that it takes fewer pounds, pesos, euros or yen to equal a dollar.

        And that helps with international investing, because a small increase over the last six months in a Japanese stock would mean a bigger increase in dollar terms. The currency fluctuations would also shrink any losses.

        “Obviously, someone with a portfolio with international exposure would overall be doing better,” Ms. Matlock said.

International funds

        Because each foreign market has its own factors working for or against it, just picking a single country to a few of its companies would be difficult and counterproductive.

        Most investors, therefore, are better off with an international stock mutual fund.

        Ms. Matlock suggests selecting one that does not try to hedge, or protect itself, against movements in the exchange rates. A fund with such currency hedges would not have had those 10 percent gains in the last six months.

        “If this is your only diversification outside of the United States,” Ms. Matlock said, “the first thing you'd want to do is hold a broad-based, regionally diversified mutual fund that takes a pretty straightforward approach to world markets.”

        Contact Amy Higgins at 768-8373; e-mail; or 312 Elm St., Cincinnati, OH 45202. She regrets that she cannot reply to every question.


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