Foreign Stocks

Retirement savers have been plowing money into foreign stocks, but experts say many are failing to consider taxes and how the investments fit within their overall plan. Foreign stock mutual funds accounted for $722 billion in workplace retirement accounts, including 401(k) plans, and in individual retirement accounts last year, says the Investment Company Institute, a mutual fund trade group, a more than 80 percent increase in just two years. As investors pile on, however, many fail to realize their foreign dividends are subject to tax, even though their money is sitting in tax-deferred retirement accounts.

Starting out in investing right now might seem irrational, but many investment experts consider this an opportune time. Financial trauma produces long-term bargains, if you can cope with uncertainty. You'll move gradually into a market that has punished good companies along with the bad, which is the foundation of a value-oriented strategy. "These ... opportunities represent a great time if you are a long-term investor and fundamentally believe in our free-enterprise system," said Mark Brown, a certified financial planner with Brown & Tedstrom in Denver.

Albert H. Gordon took over Kidder, Peabody & Co. in 1931, turned it into an underwriting leader on Wall Street, and saw opportunities overseas before many rivals. He's still looking abroad at the age of 105. After eight decades as an executive and investor from the roaring 1920s to the age of terrorism, Gordon says he's "bearish" on U.S. stocks, partly because of the $8.41 trillion national debt. He prefers shares of foreign companies such as Canada's EnCana Corp., Wal-Mart de Mexico SA de CV and Petroleo Brasileiro SA. "At least three-quarters of whatever I own is foreign stocks," he says from his Manhattan apartment overlooking the East River.

Does it look like my good fortune with my H.J. Heinz Co. shares will continue? - F.C., via the Internet Frozen potatoes and soy sauce have never looked so good. The global producer and marketer of packaged foods, led by strong gains of those two popular products, turned in a 12 percent increase in net income in its fiscal first quarter, ended July 30. Sales rose at least 20 percent in every foreign region, producing double-digit earnings that compensated for a slump in sales to U.S. restaurants.

If David Herro is right, this is a great time to buy foreign stocks and currencies. "From a fundamental perspective, the dollar is overvalued vs. most currencies," says Herro, co-manager of Oakmark International. Herro cites purchasing power parities that indicate the dollar is "20 percent to 25 percent overvalued." Herro says he can't predict when the dollar will turn, but he says the move could be a sharp one. "It's like a bunch of kindling just waiting for a match." In extreme cases, Herro will hedge his exposure to foreign currency but now he feels "very good about buying foreign currencies."

NEW YORK -- For years, even while they were snapping up Japanese electronics and German automobiles, Americans remained downright jingoistic about their investments.Their money stayed close to home -- in U.S. stocks, bonds, certificates of deposit and other instruments.But government and private-industry data show that more capital is leaving the country for investment in foreign stocks and bonds. In the first three quarters of last year, U.S. investors poured $23 billion into foreign stocks and bonds, according to the government.

Does it look like my good fortune with my H.J. Heinz Co. shares will continue? - F.C., via the Internet Frozen potatoes and soy sauce have never looked so good. The global producer and marketer of packaged foods, led by strong gains of those two popular products, turned in a 12 percent increase in net income in its fiscal first quarter, ended July 30. Sales rose at least 20 percent in every foreign region, producing double-digit earnings that compensated for a slump in sales to U.S. restaurants.

Investors who overlook the stocks of overseas companies may be missing two-thirds of their opportunities.U.S. issues represent little more than one-third of the world's total market in stock issues, says Charles Brandes, president of Brandes Investment Management Inc.Mr. Brandes, who manages a $650 million portfolio, has put about two-thirds of that in foreign stocks. His main clients are large pension funds, but he says international opportunities are available to individual investors as well.

MANY PEOPLE think that when they retire they should sell their stocks and go into something safer. But is that the right strategy?Not according to Personal Finance. "Don't abruptly switch from stocks into bonds when you retire," it suggests. "Even though your parents and grandparents switched, life expectancies were much shorter then. You're likely to live 15 years longer than they did, and you'll need growth to keep ahead of inflation. Have a generous helping of common stocks."Sheldon Jacobs, editor of No-Load Fund Investor, says: "Asia is again a hot investment opportunity.

Q. I'm a fairly aggressive investor and own a few media stocks, including Time Warner Inc. What is the outlook for the company? - R.A., via the Internet A. There's always plenty going on at this media and entertainment giant, though not all of it has benefited shareholders. While Million Dollar Baby hasn't been the box-office smash that Lord of the Rings: The Return of the King was a year ago, the boxing film directed by Clint Eastwood did take home four major awards on Oscar night. The Aviator, another of the company's films, also was a big winner.

Retirement savers have been plowing money into foreign stocks, but experts say many are failing to consider taxes and how the investments fit within their overall plan. Foreign stock mutual funds accounted for $722 billion in workplace retirement accounts, including 401(k) plans, and in individual retirement accounts last year, says the Investment Company Institute, a mutual fund trade group, a more than 80 percent increase in just two years. As investors pile on, however, many fail to realize their foreign dividends are subject to tax, even though their money is sitting in tax-deferred retirement accounts.

Assets owned by the Maryland State Retirement and Pension System gained 1.56 percent in value for the six months that ended Dec. 31, a report shows. That's not a bad result during a tumultuous period. Credit bonds and international stocks. The fund that finances retirement income for teachers, police and other public employees is more diversified than it used to be. Standard & Poor's index of 500 big U.S. stocks delivered a negative return of 2.7 percent for the period. Seven years ago, U.S. stocks made up 48 percent of the portfolio.

You have to love emerging market stocks. After all, they are up more than 36 percent for the year, an even more tantalizing return than the 31.6 percent average for each of the past five years. But should you love them and leave them? Analysts are starting to use the word bubble for emerging market stocks. Yet many are telling investors it's still not time to bolt. They urge investors to watch stock valuations and performance, along with the prospects for inflation or recession, to help determine where stocks are likely to be headed.

Albert H. Gordon took over Kidder, Peabody & Co. in 1931, turned it into an underwriting leader on Wall Street, and saw opportunities overseas before many rivals. He's still looking abroad at the age of 105. After eight decades as an executive and investor from the roaring 1920s to the age of terrorism, Gordon says he's "bearish" on U.S. stocks, partly because of the $8.41 trillion national debt. He prefers shares of foreign companies such as Canada's EnCana Corp., Wal-Mart de Mexico SA de CV and Petroleo Brasileiro SA. "At least three-quarters of whatever I own is foreign stocks," he says from his Manhattan apartment overlooking the East River.

Q. I'm a fairly aggressive investor and own a few media stocks, including Time Warner Inc. What is the outlook for the company? - R.A., via the Internet A. There's always plenty going on at this media and entertainment giant, though not all of it has benefited shareholders. While Million Dollar Baby hasn't been the box-office smash that Lord of the Rings: The Return of the King was a year ago, the boxing film directed by Clint Eastwood did take home four major awards on Oscar night. The Aviator, another of the company's films, also was a big winner.

If David Herro is right, this is a great time to buy foreign stocks and currencies. "From a fundamental perspective, the dollar is overvalued vs. most currencies," says Herro, co-manager of Oakmark International. Herro cites purchasing power parities that indicate the dollar is "20 percent to 25 percent overvalued." Herro says he can't predict when the dollar will turn, but he says the move could be a sharp one. "It's like a bunch of kindling just waiting for a match." In extreme cases, Herro will hedge his exposure to foreign currency but now he feels "very good about buying foreign currencies."

NEW YORK -- Foreign stocks threw a party last year and everybody came. All together, international mutual funds rose 39 percent in 1993, according to Lipper Analytical Services. By region, Japan funds gained an average of 20 percent, European funds 26 percent, Pacific funds (not counting Japan) a stupendous 63 percent and Latin American funds a superstupendous 65 percent. That compares with 12 percent for general U.S. equity funds.American money poured into these markets in huge amounts. In both October and November, 28 percent of net new stock-fund investment went abroad, according to the Investment Company Institute.

Assets owned by the Maryland State Retirement and Pension System gained 1.56 percent in value for the six months that ended Dec. 31, a report shows. That's not a bad result during a tumultuous period. Credit bonds and international stocks. The fund that finances retirement income for teachers, police and other public employees is more diversified than it used to be. Standard & Poor's index of 500 big U.S. stocks delivered a negative return of 2.7 percent for the period. Seven years ago, U.S. stocks made up 48 percent of the portfolio.

BOB MARKMAN is rocking the boat himself and trying to convince the rest of the world that there is a storm at sea. The Minneapolis-based fund manager has stirred up a lot of emotions by taking on established thinking on fund investing. In his new book, "Hazardous to Your Wealth: Extraordinary Popular Delusions and the Madness of Mutual Fund Experts," and in an article in the current Worth magazine (which you can see at www.worth.com), the manager of the Markman Multi-Funds rips conventional wisdom and the way most people invest.

MANY PEOPLE think that when they retire they should sell their stocks and go into something safer. But is that the right strategy?Not according to Personal Finance. "Don't abruptly switch from stocks into bonds when you retire," it suggests. "Even though your parents and grandparents switched, life expectancies were much shorter then. You're likely to live 15 years longer than they did, and you'll need growth to keep ahead of inflation. Have a generous helping of common stocks."Sheldon Jacobs, editor of No-Load Fund Investor, says: "Asia is again a hot investment opportunity.