It is a simple thought experiment. Would you rather invest in South Korea, “a world leader in electronics, telecommunications, automobile production, and shipbuilding,” or in North Korea, where “corruption is endemic at every level of the state and economy”? The obvious choice is South Korea. Making the choice to favor the free countries of the world over their more repressed counterparts is freedom investing.
For over a decade, we’ve been advocating freedom investing, the idea that investing in countries rated high in economic freedom should produce better returns than investing in countries with more controlled or repressed economies.
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 use this ranking and efficient frontier analysis to craft our Foreign Stock investment strategy that we call “Freedom Investing.”
Here in America, that means many investors have a strong bias towards investing in only the United States. Although indiscriminate foreign investing may under perform the United States, diversification among the other free countries provides a more consistent return than investing only in the United States.
Historical returns seem to favor the countries in Heritage’s free category.