Will America Still be No. 1?

The recent economic times have caused some to question whether America will continue to be the economic superpower it has been in the past. The World Economic Forum recently ranked the United States number two behind Switzerland amongst the world's most competitive economies. While I'm a strong believer in a free-market economy and the uniqueness of America rooted in the ideals of our founding fathers, no one can say how the American economy will compare to other world economies several generations into the future.

As an investor, what should you do to adjust to this potential new reality? It really comes back to one of the basic principles of investing - diversification. Any well-designed investment portfolio should take a world view and include more than just U.S. stocks and bonds. Developed and emerging international markets should also be considered. European and other developed economies, along with emerging markets like China and India, can diversify the risk of a portfolio while potentially increasing the return.

Which countries should be invested in and in what ratio? More emphasis should be put on developed economies because of a longer track record and stronger government regulation and controls. Emerging markets offer enticing potential returns, but they bring increased volatility and the added risk of unstable governments or unethical practices. Limited emerging market investments are appropriate for most investors. The world economic landscape is always changing, but these changes create opportunities to adjust a portfolio to capitalize on the new economic realities.