What does the above title mean?.

First of all, when I mean SIP I refer to a concept in the field of investing called Systematic Investment Plan (SIP). In a SIP you invest a small amount each month for a particular period of time. With a SIP you develop a discipline to invest regularly. So “SIP your way to success”means your invest systematically each month to attain success.

In order to start a SIP you need to decide how much you want to invest each month and for how long. For eg. – you can start a SIP for $100 a month for a year or 5 years. You can setup auto-debit facility into your brokerage account and have the money deducted from your regular checking account each month on a particular day. By this way you will not forget to save each month and the money will be saved automatically for you. Most online brokers would allow to SIP at least $100 per month.

Where can I invest the SIP funds each month?.
There are many to invest the SIP funds. The best option is to open a mutual fund account and ask your broker to invest the SIP money into that mutual fund each month. Many brokers will do this for free. Otherwise you can even invest with the mutual fund house directly. Since $100 is a small amount it will not be possible to invest in a stock each month due to transaction costs.

What are the advantages of SIP?
1. You develop a consistent method of investing.
2. In a Mutual Fund investment, you can get more units when the markets are down.This will help you to save a particular amount quicker or your gains will increase since you will average price per unit will go down.

More on SIP strategies in future posts.

Start a SIP tomorrow and SIP your way to a prosperous future !!!

There are many reasons why one should invest a part of their portfolio in good dividend paying foreign stocks. High dividend paying stocks can also be called as high-yield stocks. Some of the reasons are listed below. This list is nowhere near incomplete since there are probably a million other factors in support of investing in foreign bank stocks.

With the markets the way they are now some of you might wonder why in the world should I even talk about those financial stocks. The fact is that this “crisis” will also end and when it does the bank stocks will takeoff like crazy. So read on if you are an optimist..

Reasons for investing in foreign hi-yield bank stocks (ADRs):

1. Dividend Yield:
Many foreign bank stocks pay an average of 3% or more as dividends each year. Some even pay over 5%. One can find quite a number of banks that pay 5% or more dividends. This is high compared to most domestic US bank stocks. Dividends play a major in portfolio growth. For eg. – when the markets are down, dividends keep coming and if you reinvest them automatically, you get more shares. The trick here is to look for banks that have consistently paid dividends and have increased it over the years. Stocks like Bank of Novo Scotia (BNS), Barclays (BCS) Bank have increased dividends consistently.

Another fundamental reason that foreign banks pay higher dividends than US banks is that they do not try to reinvest most of their profits (net income) into the company and use it for growth.

2.Dividend Payout Ratio:
This means the percentage of profit that that banks pay out to shareholders each year. Look for stocks with payout ratio of 40% or more. The more the payout ratio is the better for shareholders since they can get the cash and reinvest it elsewhere or use it for their own personal uses. A bank that increases its payout ratio on a consistent basis is also a very good bank.

3. Pillars of the economy:
No matter which country you invest in, banks form the “pillar” of an economy. Without banks countries cannot exist. So whether a country is in recession (economy in doldrums) or a country produces only consumer goods and not any high-tech goods or a country has only natural resources, it needs banks to manage the economy and for people to invest and save their earnings. So its no brainer that one should invest in foreign ADR banks in any country that they are interestd in. For example, if you want to invest in the tiny country of Singapore, start with the United Overseas Bank. This trades on the OTC exchange with the symbol: UOVEF.PK

4. Long Term Growth
Top quality large banks have growth over the long term. So invest in them for many years. Its not uncommon for people in countries like Canada, UK hold bank stocks for generations and reap huge rewards. Many banks also expand into overseas markets to invest their excess cash reserves. For eg. Canadian banks like TD Bank, British banks like Barclays invest and grow in the US markets.

5. Stability:
Large high quality banks offer stability to one’s portfolio. There are many banks which are not “sexy” to own. But they move slowly and steadily over the long term. Just buy some for you portfolio and forget them for many years to make decent gains. Of course, in situations like today, bank stocks may seem like they do not offer any stability at all. But thats not true.

The reasons stated here are true for most foreign banks. However there are always exceptions and remember one cannot win all the time. Examples like Northern Rock of UK, Barings Bank come to mind. So do your own research and pick up some good quality ADR banks stocks today.:-)

See you here tomorrow.

Cheers !!
David
www.topforeignstocks.com

This is a good question that a lot of people have wondered about. There are many reasons one SHOULD invest some part of their portfolio in foreign equities.

Some of the “experts” say that one must allocate 20% of their assets in foreign investments. I would say that they are wrong and that one must invest at least 40% of their assets in foreign stocks due to reasons discussed below.

The advantages of investing in foreign stocks:
1. Diversification:
The first and foremost rule for any investor is “Diversification”.By investing in overseas stocks you are basically diversifying your risk country wise. If one keeps all of their investments in one country like the US, they make a huge bet that the US markets would perform better. By putting your money to work in different countries’ markets you are reducing the risk of over-exposure to one particular country.

2.Returns:
When you invest in foreign stocks, you are able to capture the returns which may be better than the investment in the US. It is possible that the foreign investment might do worse than the US investment. But if the US markets do not return an above average return and foreign stocks do, then an investor would be better off putting some of their assets in those stocks as well.

3. Opportunities for finding negatively co-related investments:
Well for “non-financial” folks this may sound too geeky.But this means that one asset is negatively to co-related to another if they don’t fall or go up at the same time.
For eg – if the price of gold goes up while the price of houses fall, the house and the gold are negatively co-related assets. So to better spread one’s risk, one should invest in both the assets.

Investing in foreign stocks one can find opportunities to get negatively co-related assets in their portfolio. For eg – Usually foreign small cap stocks are negatively correlated to US stocks. This is because most the large US companies derive their revenue from foreign countries as well. But the small cap companies in those countries usually derive their revenues from local domestic markets. So when large caps stocks like GE, P&G; fall in the US, the small cap stocks in foreign countries may go up.So by putting some money in these foreign small caps an investor can capture the returns which are better than the US large caps.

Note: Investing in foreign small cap stocks is difficult and sometimes very risky. This is due to lack of information availability on the internet and it is also difficult to evaluate such small companies due to lack of knowledge about local markets. So an investor should leave this part of the game to the professional money managers. There are plenty of avenues to do this like mutual funds, ETFs etc.

4.Less Option mess:
Unlike US companies, foreign firms generally do not issue a ton of “free” options to their executives to cash in. This reduced expense adds more profit to the company coffers and ultimately the shareholders. One can easily go to Yahoo finance and see how much shareholder wealth is siphoned off in plain sight legally by US company executives. On top of this, many US companies lavishly pay their execs all kinds of other freebies even in retirement. It is not uncommon for a company to cut or reduce dividend to shareholders and pay a few hundred million $ to a lazy and greedy executive in the US. I am not saying that this is not present in all foreign companies. But in most countries people to seem to be less greedy and don’t demand more and more and more like the US ones.

The disadvantages of investing in foreign stocks:

1. Currency Risk:
When one invests in foreign stocks, they take two types of risks. One is the risk of the asset falling in value. The other is called the currency risk. This means that the currency of the country where one invested should not appreciate against the US $. Otherwise they will loose most of their returns to currency exchange rates.

For eg. – If one invests in Germany and lets say that the Euro continues to go up in value against the $ – maybe 2$ = 1 EUR. It is currently around 1.4 to a $. If that happens then the investor will loose a lot of his/her returns to exchange risk when he/she tries to convert their EUR profits into US $.

2. Information risk:
This risk is present since it is harder to get information on a foreign stock than it is for a US company. However many quality companies now have good websites in English where investors can get all the information they need.

3. Returns:
It is possible that the foreign investment will perform worse than the US investment. This is true especially about merging countries. Many emerging countries such as Brazil, Argentina, Thailand, Korea etc. have had difficult economic and financial problems a few years back and may fall into those situations again.

Some other risks that an investor is exposed to investing in foreign countries:
4. Sovereign risk
5. Monitoring costs
6. Transaction costs
7. Political risks

How can I can invest in foreign stocks without leaving the US?
There are many ways to invest in faraway companies without converting the $ to other currencies or going to other countries. Here are some options:

1. Direct company stocks via American Depository Receipts (ADR) Stocks
2. International Mutual Funds
3. ETFs
4. Closed-End funds

If you are amateur investor or new to foreign investing, a good place to begin your hunt for high quality stocks is : https://www.topforeignstocks.com