Here’s Why The FTSE 100 And US Markets Are The Best

Why would you invest in risky foreign markets when the FTSE 100 (INDEXFTSE: UKX) offers so much less risk?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In the years I’ve been investing, I’ve encountered a lot of people looking for the next big thing and keen to stash their money in faraway lands and trust it to foreign stockmarkets, rather than sticking with the good old FTSE 100.

With the FTSE in one of its worst periods of stagnation for some years, and still below 2007’s pre-banking-crash peak, I can see the attraction — and I’ve even done it myself in my younger days, doing not very well at all investing in emerging market funds and the like. But I reckon it’s almost always a bad idea to invest in markets outside of the UK, with the exception of America’s NYSE and NASDAQ.

China my China

China was the latest darling, and sure enough the Shanghai Composite index more than doubled from a year ago to June’s peak. But it was a manipulated boom, with Chinese state organisations obliged to buy shares and the government talking it up at every opportunity. And trusting Chinese private investors, sadly, piled in without really understanding valuations, often with seriously high gearing.

The crash since then has wiped 40% off the index’s value, all apparently due to foreign forces intentionally unsettling the market if you believe the Chinese authorities, and not down to the bumbling incompetents who thought they could buck the market.

No, if you’re going to invest in a stock market, it really needs to be a free-market one. And for me, the Chinese tale also rules out all the other emerging markets in the world — few are as openly political as China’s, but oversight and regulation is usually woeful at best (and corrupt at worst) compared to the developed markets of the world.

Eurotrash

What about the bourses of the eurozone? Well, the big problem with those (and I’ve already provided the clue) is that they’re in the eurozone. By its very nature, its business environment cannot match the free market ones of the world. The eurozone is run for political ends and not economic ends, and its economic levers cannot possibly be adjusted correctly for business across the zone.

I still reckon it’s doomed in the long run, but while the eurozone lives, it’s fated to underperform the world’s free markets.

Other than an important exception, the UK and US markets are the freest and best regulated in the world, and they’re home to the only indexes I’d ever directly invest on today — the FTSE, the NYSE and the NASDAQ. The exception? That’s AIM, whose history is a litany of failing to enforce even its own woefully inadequate regulation and allowing fraudulent companies to rip off investors for years — and the LSE’s courting of Chinese companies and trying to get them to list on AIM is shameful.

Home sweet home

If you want serious overseas exposure (and you really know what you’re doing), there are surely enough Investment Trusts and ETFs listed on the FTSE to cover most requirements, though most emerging situations would still be in bargepole territory for me. Other than that, the companies listed on the FTSE 100 provide all the foreign risk a long-term Fool would ever want, don’t they?

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »