Global diversification and dollar cost averaging.

• Author: Lizzio, Joseph P.
• Position: Making Money

GLOBAL INVESTING is one of the strongest trends in the financial marketplace. Record amounts of money are pouring into the global markets as people seek to profit from some of the world's fastest-growing economies. In 1970, world market capitalization figures were an estimated $929,000,000,000, of which 66% belonged to the U.S. Over the last two decades, however, the roles have been reversed dramatically. Today, global stock markets outside the U.S. comprise nearly 62% of the world's $10.8 trillion market capitalization. While America remains an economic powerhouse, investing in global equities no longer is a foreign concept.

Over 60% of all equities now are found overseas, and more than half of the world's corporate and government bonds are issued outside the U.S. Over the past decade, various foreign securities have delivered higher total returns than U.S. investments, as measured by the Standard & Poor's 500. Foreign markets, such as those in Latin America and the Pacific Rim nations, benefit from a highly skilled, hard-working, low-cost labor force. They have an abundance of natural resources and a high personal savings rate, which have translated into ready sources of cash for ongoing investments. Moreover, the European Union of 12 countries now encompasses 350,000,000 consumers. This market is expected to create many opportunities for existing companies in Europe as impediments to trade are reduced. At the same time, investors should benefit from opportunities in both Eastern and Western Europe as governments step up efforts to privatize state-owned companies.

By allocating a percentage of your investments globally, you can benefit from the potential offered by the world markets and add a level of diversification to your portfolio. Since the cycles that drive enterprise and investment occur in different countries at different times, foreign markets seldom move in line with each other or with those in the U.S., so losses in one market may be offset by gains in another.

As a result of the rapid increase in international investing, many insurance companies and financial managers have developed strategies to help investors benefit. The variable annuity is one such vehicle, combining global diversification, investment potential, flexibility, and tax advantages.

During the past decade, variable annuities have become increasingly popular for those saving for retirement. In 1986, industry sales in variable annuities were estimated at...