Happy Chinese New Year! Here’s how I’d invest internationally

On January 25, hundreds of millions of people celebrated the Chinese New Year, the festival that marks the beginning of the year according to the traditional Chinese calendar. 2020 is the Year of the Rat, an animal that symbolises wealth and the beginning of a new day. 

Therefore today I’d like to take the occasion to discuss how average investors can indeed become wealthy over time and how UK-based investors can buy into global shares. Greater international exposure could help many investors reduce the home bias risk that could be likely due to political or economic developments in our country.

Reaching £1 million by retirement

Saving for retirement is a concern for many people. Most of us may regard £1,000,000 as a good benchmark to have for retirement.

Let’s assume that you’re 25 years-old with only £100 in savings and that you plan to retire at age 65. You invest that £100 and earn an 8% annual return. Then you make an additional £3,600 of contributions annually at the start of each year.

You have 40 years to invest. The annual return is 8%, compounded once a year. At the end of 40 years, the total amount saved becomes £1,009,384.

On the other hand, if you wait to start investing until you’re 30, you will have ‘only’ £671,446. The difference is due to the power of compound interest. 

Global shares

The FTSE 100 seems to be the initial index Britons mostly consider when they first start investing. Most FTSE 100 companies are also multinational conglomerates and up to three-quarters of their revenue comes from overseas. In fact, the index also has quite a number of companies that are listed additionally in the US and on other stock exchanges.

Therefore, investing in a FTSE 100 tracker would indeed give reasonable global exposure. In addition, the average dividend yield for the FTSE 100 is about 4.5% a year.

You could also consider an exchange-traded fund (ETF), such as the FTSE All-World ETF. It tracks the performance of a large number of stocks worldwide. 

Nowadays investors can easily choose specialist active or passive funds that may also offer robust dividends too. Several funds you can do due diligence on would include the Fidelity Special Values Fund, Legal & General International Index Trust, Brunner Investment Trust or Vanguard FTSE Developed World ex-U.K. Equity Index Fund.

Another way to increase your portfolio’s exposure to other countries would be to invest directly in high-quality global shares. You can check with your UK-based brokerage firm if its platform lets you buy overseas stocks. 

Investing in China

After the US, China is the world’s second largest economy. So markets pay attention to any news headlines that may have a China component.

Early January saw the signing of phase one of the trade deal between China and the US. As trade relations between the two countries have gradually improved, risk appetite for Chinese stocks has also increased.

There are several China ETFs listed on the London Stock Exchange, such as the HSBC MSCI China A Inclusion UCITS ETF or Franklin FTSE China UCITS ETF. The LSE has a comprehensive online guide titled A guide to China ETFs that provides further information.

Finally, a FTSE 100 company to consider would be HSBC Holdings whose roots are deeply in China. As a global bank, about three-quarters of the group’s profit comes from mostly corporate clients in Asia.