Going Global for Growth

Whether your financial goals are five or 50 years down the road, saving alone probably isn’t enough to achieve them. That’s why growth is such a critical component of most portfolios.

Not that long ago, U.S. stocks were the go-to investments for investors seeking aggressive growth. While U.S. stocks are still the bedrock of many portfolios, investors are now looking outside our borders for additional growth opportunities.

There are a lot of reasons for this transition, including the current slow growth rate of the U.S. economy. In 2012, for example, the economy of the United States grew at a modest 2.2 percent.1

Emerging markets, on the other hand, have experienced impressive growth over the long term. This growth will likely continue. In fact, according to predictions by the International Monetary Fund, the total growth of emerging economies could overtake growth of developed markets as soon as next year.2

The rapid expansion of the global middle class is one of the main drivers of this growth. Take China, for instance. The current middle class population in China is more than 300 million.3 That’s more than the entire U.S. population. By 2030, this number is predicted to mushroom to 1.4 billion.2 And in India, the middle class is predicted to grow by 732 percent, going from 70 million4 today to 583 million by 2025.5

Fortunately, this growth doesn’t just benefit emerging economies. It also benefits the U.S. economy.

Just like U.S. consumers, the global middle class wants to achieve “the good life” and all the material things that go along with it. As a result, U.S. brands, including large companies such as General Motors, Nike, and Pizza Hut,6 and smaller businesses like Napa Valley wineries, are in big demand overseas. It’s no surprise, then, that in 2012 large U.S. companies earned a record $1.9 trillion in offshore earnings.7

Talk to your financial professional about investing outside the U.S. It may give you the potential for even greater growth — on a global scale.

International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. These risks are magnified in emerging markets.

1 Economic Policy Institute
2 Forbes.com
3 CNN.com
4 Center for Global Development
5 McKinsey Global Institute as cited in The New York Times
6 For illustration purposes only. Does not represent an offer to buy, sell or hold any security.
7 Reuters, May 2013

Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.

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