Playing With Fire Overseas

Earlier today, I had my own little experience with the global economy when my Internet connection vanished. After trying to dodge Cox Communication’s automated helper who drives me nuts, I finally got to talk to a real person who suggested that Cox wasn’t the problem.

“Must be your router,” the Cox technician concluded. As it turns out, she was right. I amazingly had saved my old router box and called the company. A customer service rep in India assured me that someone could fix the problem for $69.95. Being a technology luddite, I felt I had no other choice so I pulled out my credit card.

A few minutes later, an Indian technician pinpointed the problem. The plug to my router wasn’t pushed all the way into the socket. I wonder how much money Net Gear is generating thanks to stupid people like me.

I mention this as a back ended way of looking at a dangerous investing habit that’s alive and well. Last year, investors were ga-ga over emerging market stocks. Some of the hottest plays were in China and India. Personal finance magazines and all sorts of stock experts were urging people to invest in anything Chinese or Indian. Investors, for example, were falling all over each other to invest iShares FTSE/Xinhua China 25 Index (FXI).

Investing overseas is a good thing and just about anybody with a long-term horizon should be invested in both developed and emerging markets. But investors should not try to time when they sink money overseas. They should have money parked in foreign funds — preferably index funds or exchange-traded funds — at all times, not just when these markets are smoking.

What inevitably happens to people who chase hot returns is their account balances get scorched. That’s what happened to anyone, who only got excited about foreign stocks last year. Here are a couple of the casualties:

The MSCI Emerging Markets India Index dropped 27.1% in the first quarter of 2008.

During the same time period, the MSCI Emerging Market China Index plummeted 23.1%.

Frankly, investing in individual countries is far too perilous. You should stick with broadly based index funds. Here are two that I invest in:

Vanguard Emerging Markets Index Fund and Vanguard Total International Index Fund.

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