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Employees who contribute to their 401k and other retirement plans are missing the boat when it comes to worldwide investment diversification, says OppenheimerFunds. Its recent survey of 1,000 investors found a distinct “home market” bias among employees investing for retirement. It says employees routinely misunderstood the risks and rewards of investing overseas in international stocks and bonds.
Many thought the U.S. stock market had consistently been among the world’s top performers. For instance, the survey found that “96 percent of them did not know that Peruvian equities outperformed U.S. equities in 2010,” OppenheimerFunds said. Others did not understand how to best diversify among investment choices. Many did not know that “global” investment funds usually include significant U.S.stock holdings. By combining a global fund with a U.S.stock fund they were not getting the degree of international diversification they may have desired.
OppenheimerFunds says future retirees will be faced with high medical inflation, generally rising prices, and reduced yields on U.S. bonds. That means it is critical for them to seek the highest returns possible. “Exposure to global equities could potentially mean the difference between accumulating enough assets for retirement or falling short,” it said. “Likewise, we believe that investments in global fixed income could help make the difference between generating sufficient income during retirement or not.” It says foreign countries now account for almost two-thirds of world gross domestic product, while two-thirds of the largest publicly-traded companies are located outside the United States. Emerging economies are “poised to grow four times faster than developed economies over the next 20 years,” it said.