One of the most popular things that investment websites like to talk about these days is the idea of investing in dividend paying securities. This is indeed a better investment strategy than investing in the fixed income class, in securities like bonds which will undeniably suffer from higher interest rates, but are dividend paying securities the right place to invest right now?
The common argument has been that it is, yet investors should really consider whether domestic, large cap securities that often pay lower dividends are indeed the best place to invest. Consider as well that all most people need to do is look out their front window every morning around 10:00am and see that many of their neighbors remain out of work. The US Government itself has pointed out that economy is not recovering the way it expected it to.
But there are countries where growth remains an aspect of everyday life. Places like India, China, Brazil (and some would even argue Russia with its big energy reserves and supplies). So while the domestic economy continues to struggle to get started, some of the emerging markets are already enjoying the benefits of recovery.
For the average investor who wants to participate in the growth that is actually happening elsewhere in the world, one of the safest bets is to invest in sectors and companies that are virtually guaranteed to return a profit, even during those times when the consumer is a little more “tight” with their spending. The obvious place is foreign banks.
Some of the best performing mutual funds have already seen growth in these areas. However, they also make smart sense because the financial systems in virtually every country will pay dividends to its shareholders, making them a “dividend” investment as well as a “growth” investment.
A lot of the mutual funds have already picked up on this fact, having stocked up foreign financial services firms. In fact, the average portfolio weighting held by the funds measured by Morningstar is a staggering 25%. That means that every dollar the fund brings in, $0.25 is invested in foreign financial systems.
For the average investor, investing in foreign banks could be difficult unless that security trades on the NYSE or other domestic stock exchange. And then it comes down to what firm is the best in which to invest. For investors who agree that financial firms and emerging markets can outperform domestic dividend securities, most emerging market mutual funds offer an easier to participate in such growth and income opportunities.
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Chris has more than 17 years of financial services experience. As well as writing about Growth Funds for the Mutual Fund Site, Chris enjoys spending time with his young family.