Expat Investment Advice: Don't Chase Returns; Diversify Instead
As many expat investors know, sticking to a long-term strategy can be hard to do. In general, investors tend to be seduced by the recent performance of hot stocks and asset classes, meanwhile shunning those that are out of favor.
The talking heads on cable financial channels, with competing and contradictory forecasts, only add to the noise. But being drawn into following recent winners or any single idea raises the chances that you'll focus on one hot investment or asset class, just as it begins to do poorly:
The reality is that the real mover of prices in the short term is investors' collective greed and/or fear. These ordinary human emotions make bubbles in asset prices fairly common events, stretching at least back to the notorious Dutch Tulipmania of the 1600s. Some more recent examples include bitcoin, managed futures funds, gold, and some property markets. The truth is what rapidly goes up in price, can come down—and just as fast. So while some tech-related stocks may have done well in recent years, it’s wise to remember what happened in the aftermath of the tech boom at the turn of this century:
In fact, it's impossible to predict which asset class will be the best or worst in any given year. As the below chart from Morningstar's database shows, the performance of any asset class can change drastically from year to year:
The Best Investment Strategy for Expatriates
Instead of flitting between the latest hot asset class or so-called "safe haven," what works better is to draw up and stick to a long-term investment strategy consisting of a portfolio diversified among many uncorrelated asset classes. If you do not already have a long-term investment strategy, get started by reading a good book on investments. There are many out there, but as we've noted previously, some of our top picks remain The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between by William J. Bernstein, and A Random Walk Down Wall Street (11th edition) by Burton G. Malkiel.
The results of sticking to a disciplined investment strategy will become quite obvious over the long term. While you may not get golf course bragging rights, chances are good that over the long run, you'll do far better than those expat investors who are chasing returns, speculating in currency trading, or otherwise caught up in the cycle of greed and fear. As Dalbar Inc., a market research company that studies investor behavior states: "No matter what the state of the mutual fund industry, boom or bust: investment results are more dependent on investor behavior than on fund performance."
This article is a revised and updated version of one that had appeared previously on www.crevelingandcreveling.com.
About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. The firm is a Registered Investment Adviser with the U.S. SEC and is licensed and regulated by the Thai SEC. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future.
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