Why the U.S. Is Not the World’s Best Investment Opportunity

There are six countries that are better investments than the U.S., despite its strong stock market now. Why? We have too many regulations and taxes that limit America’s economic, hence stock market, growth.

Over the past decade as of mid-2014, Hong Kong has averaged 11.44 percent, Singapore 12.57 percent, Australia 12.82 percent, Switzerland 10.84 percent, New Zealand 9.11 percent, and Canada 11.26 percent. This year, they are the only six countries to receive the designation “free” from the Heritage Foundation, having earned a score of 80 percent or higher. The United States ranked 12th this year with the designation of “mostly free” and had an annualized return of 7.78 percent over the past decade.

Since 1994, the Heritage Foundation Index of Economic Freedom has used a systematic empirical measurement of economic freedom to evaluate countries worldwide. Their conclusions clearly show that economic freedom and higher rates of long-term economic growth go together. Investors can use the study to select countries for their foreign stock allocations.

It is remarkable that more investors don’t use economic freedom to help them decide which countries to overweight. That South Korea offers a better prospect for investment than North Korea should not be in doubt. That Northern Europe is better than the PIIGS (Portugal, Ireland, Italy, Greece and Spain) is only slightly less obvious.

Historical returns certainly seem to favor the countries in Heritage’s free category. Investments outside the United States are commonly compared with the MSCI EAFE Index of developed countries. EAFE stands for Europe, Australia and the Far East. The EAFE Index has had an annualized return for the past decade of 7.42 percent. On average, the economically free countries have an annualized return of 11.34 percent, 3.92 percentage points more than the EAFE Index.