The easiest way to protect your portfolio from geopolitical risk is to not invest internationally. This is not to say you shouldn’t reap the rewards of international growth.  It is to say let the US Companies that you invest in do international investing.  As much as 60% of US Firm revenue comes from outside the United States. 

US Geography and political structure give us economic advantages over every other economy in the world. In The Accidental Superpower, Peter Ziehan makes some important observations:  

Our ability to trade with both European and Asian Trading Partners almost effortlessly is another factor in our economic superpower status.  Should Europe go into a recession, we can easily pivot to working with Asian partners.  All must go into a recession for us to do the same. 

Also, when thinking of US companies’ superiority to their foreign counterparts as investments we cannot ignore the policing role our regulatory agencies play in safety. US companies have to go through rigorous reviews with regulators. The United States is second to none in terms of creating the most financial regulatory agencies. Between the Federal Reserve (the Fed), the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and a host of others, the financial regulatory regime in the United States towers over the regimes in the United Kingdom, Canada, and many other developed countries   

Another factor contributing to US stock’s superiority is the wide variety of media outlets covering the investment and securities business in the United States.  News outlets like The Wall Street Journal, Bloomberg, CNBC and Barrons have in-depth reporting, analysis and market data.  Also, outlets like Investopedia, Forbs and many other online sources provide information. 

European companies generally report earnings only twice a year, while publicly-traded US Companies are required to report earnings quarterly. Far more public disclosure. 

Will avoiding international investing hurt my performance? 

In a word, no. This graphic can be maneuvered to show different time horizons, but it clearly shows the superiority of US companies.  Why, you ask.  Here’s a comparison of the companies in the different indices.  Note that the top US companies fit the IT and communications profile.  These are the fastest growth companies in the world. 

In 2018, there were a series of tariffs put into place with China, this might serve as a test case on any future tariff circumstances.  Oddly, you look at the best and worst performing sectors during that time period, they might surprise you. Research into this will show you that there are so many other factors affecting stock prices, it is impossible to separate out the effect of one single factor. 

The US Dollar is also the reserve currency of the world and the most stable currency of the world. 

Do US based companies spend time and resources to manage their risks of operating in questionable countries? 

Former Secretary of State Condoleezza Rice, who like many others has developed a consulting practice with both global political leaders as well as Fortune 500 CEOs, notes in her book “Political Risk” that most global companies have their own departments who spend all their time weighing the risk and reward factors of both buying and selling goods in other countries.  They constantly judge political and therefore currency risks of their global enterprises. 

So, the best way to invest globally while avoiding geopolitical risk is to invest in large US Companies. 

*Note: For more detailed information and sources, please click on the embedded links throughout the text. * 

About Michael Ross 

Michael Ross is a 30+ year veteran financial advisor. After 30 years with Morgan Stanley, he is now an independent financial advisor who excels in helping business owners exit their businesses and move to the next phase of their lives. 

  Investment Advisory Services offered through Integrated Advisors Network LLC (Integrated), a Registered Investment Advisor. Registration does not imply a certain level of skill or training. 

Learn more: www.mylatticewealth.com 

Disclaimer: 

The information provided in this blog is for informational purposes only and should not be construed as financial advice. It is important to consult with a qualified financial advisor to discuss your specific financial situation and goals. Past performance is not indicative of future results. Investing involves risk, and there is always the potential for investment loss.