Every year the Heritage Foundation evaluates all the world’s countries using their Index of Economic Freedom, where a high score correlates to nearly every positive measure of a country. We then use this analysis to craft our Foreign Stock investment strategy that we call “Freedom Investing.”
Sometimes the medium term trend seems to weigh more heavily in our minds than the long or short term trends.
Countries are constantly in flux, and with all the noise of the markets, it is easy for the noise drown out the signal.
How the five countries with the most economic freedom (Hong Kong, Singapore, Australia, Switzerland and Canada) and Emerging Markets have been faring in comparison to the EAFE Index?
Freedom scores ranged from #1 in freedom Hong Kong at 89.9 to #92 ranked mostly unfree Italy at 58.8.
Over the past five years, countries with the most economic freedom averaged annual returns just below emerging markets.
Sovereign debt and deficit weigh most heavily on a country’s level of government spending, one of the ten components of freedom in the Heritage Foundation economic freedom study
We believe this is one of the times when your asset allocation should tilt foreign and overweight the handful of countries with high economic freedom.
New Zealand, the fourth highest country in economic freedom, joined the United States with positive returns for 2011.
The equation of the trend line shows that every point on the freedom index was worth 0.36% annual return over the past year.
Now at year end, I will review how freedom investing fared in 2011 and in the decade since 2002.
The world markets groaned as the burden of the rising American debt and the European deficit weighed down more productive countries.
Q: I have put my investments in bonds until this global economic crisis settles down and the economic woes of the European Union subside. Do you have any suggestions for indicators that I should look for to get back in?
This is what makes the stock market in some countries better than others. Make sure that you understand freedom investing for your portfolio.
Growing investor despair that somehow we have entered into a new era in which individual investors can no longer make money in the markets is an overreaction to the headlines.
Libertarians and economists both recognize that countries with more economic freedom experience higher gross domestic product (GDP) growth. That growth translates into higher stock returns for investors savvy enough to look for governmental fiscal restraint rather than government stimulus.
We simply can’t spend our way into prosperity.
The legendary PBS TV series “Free to Choose” (1980) by Nobel Prize-winning economist Milton Friedman is now available on Google Video for free (by courtesy of the Palmer R. Chitester Fund).
International bonds now make up more than 35% of the world’s investable assets, and yet many domestic investors have little or no exposure to these securities.
On Jun 21, 2011, David John Marotta appeared on Radio 1070 WINA’s Schilling Show to discuss which countries to avoid investing in, or to underweight, due to high debt and deficit and low economic freedom.
David Marotta discusses avoiding countries with high debt and deficit.
Americans seem to be divided on the importance of raising the U.S. debt ceiling. Regardless of your personal politics, avoid investing in countries that cavalierly allow their debt and deficit to balloon.
Finding countries where you can plant your investments in fertile soil may be one of the most important asset allocation decisions you make for the next several years.
Hong Kong has an incredibly low tax rate. Individuals are taxed at the lower of a progressive tax maxing at 17% of adjusted gross income or a flat tax of 15% of gross.
A few months ago Bill Gross, co-founder of PIMCO and the country’s most prominent bond expert, singled out those countries heaping significant deficits on their mountain of debt and called them “The Ring of Fire.” We recommend that you reduce your investments in these countries.
America is officially no longer free.
Countries with the most economic freedom generally do better than the international index.
Eastern European countries have been struggling out of the darkness of communist rule into the light of free markets.
Free markets thrive when a country guarantees property rights and the rule of law. China possesses neither of these.
“The fence itself grazed through the field.”
Russia never really tried free markets. Rated at just below 50% free, Russia is considered repressed.
One area where Brazil has excelled is making headway toward energy independence.
The benefits of investing in the countries with the most economic freedom.
You can both diversify for safety and boost your returns by adding international investments to your portfolio.
Countries must allow all of their populations to participate as fully as possible.
On average, international stocks appreciate more than US stocks. What’s more, companies located in countries with the most economic freedom typically appreciate more than the broader international average.
Investing isn’t about finding a four-leaf clover or the pot of gold at the end of the rainbow.
Australia’s five-year annualized return was 24.10% compared to 14.98% for the MSCI EAFE and 6.19% for the S&P 500.
On average, international stocks appreciate more than US stocks, and stocks in countries with the most economic freedom appreciate more than the international average.
“A wise and frugal government shall not take from the mouth of labor the bread it has earned.” – Jefferson
Canada is the one major country that is not included in the EAFE (Europe, Australia, and Far East) foreign index. Not only are they good neighbors but a good investment.
French labor laws have made doing business in France with French employees very unattractive.
Although the French gave us the word ‘entrepreneur,’ it’s a wonder the term isn’t obsolete in French.
Reunification of the country has put a drag on economic growth.
The value of salt in ancient time was enormous.
Hayek wrote, “More harm and misery have been caused by men determined to use coercion to stamp out a moral evil than by men intent on doing evil.”
Italy reminds us that governmental solutions can be worse than private sector problems.
Hard work can’t always overcome Italian bureaucracy.
During 2002-2004, iShares of the ten economically freest countries outperformed the index by 5.43% each year.
Baring a real people’s revolution, it will take until 2050 for China to complete their slow march to free markets.
We find the Heritage study useful, both to refute other presidential candidate’s claims that governmental coercion will make us richer economically, and also to help us find those countries where investment actually would make us richer.