Which foreign countries should you invest in? Since 2004, we’ve been advocating for a strategy we call Freedom Investing where we invest primarily in countries with high economic freedom scores according to The Heritage Foundation’s Index of Economic Freedom.

The new 2024 Index of Economic Freedom scores came out this February 2024. Last year, the global average economic freedom score fell to the lowest it has been over the past two decades, and this year it fell further.

As for the composite ranking, we also saw an overall decline in scores. The average 4-year composite went down from 80.03 in 2023 to 78.75 in 2024.

You can see the 2024 developed country rankings below.

Composite Rank	Country	4-Year Average Composite (2021-2024)	4-Year Average Overall Score (2021-2024)	2024 Overall Score
1	Denmark	88.03	77.80	77.80
2	Singapore	86.52	85.38	83.50
3	Switzerland	86.15	83.23	83.00
4	Sweden	86.04	76.90	77.50
5	Finland	85.45	76.95	76.30
6	Norway	85.37	76.18	77.50
7	New Zealand	84.59	80.30	77.80
8	Netherlands	83.90	77.90	77.30
9	Ireland	83.28	82.00	82.60
10	Austria	81.26	71.80	68.40
11	South Korea	79.68	73.85	73.10
12	Germany	79.53	73.60	72.10
12	Average	78.75	73.87	72.42
13	Australia	78.24	77.78	76.20
14	Japan	76.33	70.20	67.50
15	Canada	75.88	75.15	72.40
16	Portugal	75.49	69.13	68.70
17	Belgium	74.96	68.10	65.60
18	United Kingdom	74.65	72.40	68.60
19	Israel	72.23	70.20	70.10
20	United States	71.90	71.90	70.10
21	France	71.34	64.43	62.50
22	Poland	70.33	68.03	66.00
23	Spain	69.46	66.60	63.30
24	Italy	69.36	63.18	60.10

 

Overall Notes

Last year, eleven countries made our cut-off. This year, twelve do. Those countries are Denmark , Singapore , Switzerland , Sweden , Finland , Norway , New Zealand , Netherlands , Ireland , Austria , South Korea , and Germany .

Denmark, Singapore, and Switzerland repeat again this year as the top three countries. However, New Zealand has dropped from 4th with a 2023 composite score of 87.37 to 7th with a 2024 composite score of 84.59.

While nearly every country saw declines in their 4-year composite ranking, the noteworthy exceptions are Sweden and Norway. Sweden saw an increase in its composite score from 85.50 in 2023 to 86.04 in 2024, boosting it from 6th up to 4th. Norway also saw improvement from 84.18 in 2023 to 85.37 in 2024, rising from 8th to 6th.

Thanks to these increases, Sweden and Norway will see slightly larger sector allocations in our Freedom Investing Strategy over this next year.

Australia

Australia	4-Year Average	2024	2023	2022	2021	2020	2019
Composite	78.2	74.8	73.6	79.0	85.6	86.2	83.1
Property Rights (x2)	88.7	91.0	90.7	91.7	81.5	82.8	79.1
Government Integrity	86.3	85.2	83.2	87.0	89.8	89.3	79.9
Fiscal Health	51.4	39.9	24.8	52.0	88.7	91.8	86.2
Labor Freedom	69.6	65.4	64.7	64.2	84.1	84.0	84.1
Monetary Freedom (x2)	81.5	75.6	80.5	83.2	86.7	86.2	86.6

 

Australia has been a part of our Freedom Investing strategy for decades. Once the third most-free nation of the world with scores well into the 80s, Australia has now fallen to the “mostly free” category. In 2024, the country is ranked 13th with an overall score of 76.2. Meanwhile, its composite score has fallen from 2020 to 2023. While 2024 sees a mild recovery, it is insufficient to pull up the overall scoring.

Over the past five years, Australia ‘s Fiscal Health score has fallen from 91.8 to a mere 39.9. In the most recent 2024 index, Heritage reports that Australia’s three-year budget balance averages a deficit of 5.9% of GDP. While this may not seem like much to us Americans, that is only because our baseline perception is a country which received a Fiscal Health score of 0 .

Labor Freedom is another area where Australia has seen troubles. Labor Freedom took a steep 19.9 point dip between 2021 and 2022, falling from 84.1 to 64.2. Since then, the country has recovered 5.7 points, posting a Labor Freedom score of 69.6 in 2024.

Together though, these two declines in freedom have pulled Australia out of Freedom Investing.

Germany

Germany	4-Year Average	2024	2023	2022	2021	2020	2019
Composite	79.5	77.1	80.7	83.2	77.0	77.6	77.4
Property Rights (x2)	91.2	95.3	94.8	95.7	78.8	80.5	79.9
Government Integrity	86.6	86.0	89.4	89.4	81.5	82.8	81.3
Fiscal Health	84.5	71.9	82.7	90.4	92.8	92.9	91.8
Labor Freedom	53.0	53.7	52.8	52.3	53.0	53.0	52.8
Monetary Freedom (x2)	75.2	68.8	75.3	79.5	77.2	76.7	77.9

 

While we have had Germany in our foreign investing strategy before, it has previously not earned a place in our core Freedom Investing strategy. The composite subscores have been relatively consistent from year to year. However, two improvements have pulled up its average composite. Over the last four years, Germany’s Government Integrity subscore has increased from 81.5 to 86.0 while its Property Rights score has increased from its all-time low of 78.8 to its new score of 95.3.

Together, these two increases in freedom have pulled Germany into Freedom Investing.

South Korea

South Korea	4-Year Average	2024	2023	2022	2021	2020	2019
Composite	79.7	78.5	79.8	81.6	78.8	78.5	75.3
Property Rights (x2)	87.0	88.3	88.5	90.5	80.7	82.5	79.3
Government Integrity	69.0	69.2	68.7	69.2	68.9	67.5	50.5
Fiscal Health	94.4	91.6	94.1	95.3	96.7	96.7	96.8
Labor Freedom	56.2	57.2	56.2	55.6	55.8	56.2	57.4
Monetary Freedom (x2)	82.1	77.3	81.4	85.2	84.4	82.1	82.0

 

Is South Korea a developed country or an emerging market country? It depends on who you ask.

There are two main index providers for benchmarks in foreign stock markets. Those are FTSE, informally pronounced “Footsie,” and MSCI. While FTSE and MSCI agree on the classifications of most countries, they do have some differences. One of those differences is the classification of South Korea.

Originally an emerging market in both indexes, FTSE upgraded South Korea to a developed market in 2009. In contrast, MSCI has kept South Korea an emerging market to this day.

FTSE describes their reasons for the promotion at length in their 2013 whitepaper “Classifying South Korea as a Developed Market .” Meanwhile, MSCI has not been very public about their decision on this topic. As reported by Korea Herald in 2021 , MSCI’s reasons for excluding South Korea “include the absence of offshore trading of the won, a lack of market information written in English, the complexity of identification-related regulations for foreign investors, and restrictions on short selling.”

While some countries, such as Poland, enjoy having a divided classification between MSCI and FTSE, South Korea regularly asks MSCI to consider reclassifying the country.

Vanguard, our primary provider for emerging market ETFs, used to use MSCI as their benchmark. During that season, their main emerging market ETF, VWO, had exposure to South Korea. However in 2013, Vanguard publicly changed their benchmarks from MSCI to FTSE . At that time, VWO lost its exposure to South Korea and investors who wanted to maintain South Korean exposure needed to add South Korea individually.

For this reason, we have previously included South Korea as a holding in our emerging market strategy. This year though, South Korea’s composite Freedom Investing score is high enough for inclusion in the developed side of our strategy.

For this reason, we have decided to promote South Korea to the full status of a developed country. This will increase its allocation in our foreign stock market strategy.

Concluding Thoughts

A high score in Heritage’s Index of Economic Freedom correlates to nearly every positive measure of a country.

The title of Heritage’s 2024 report is “Economic Freedom: The Key to Human Flourishing .” In it, they detail how increases in a country’s economic freedom are correlated to increases for important fundamental metrics of wealth in the country.

The Heritage authors conclude their piece with a simple summary:

In the long run, the proven way to revitalize the economic life of societies in the most broad-based, meaningful way is by restoring what we know has worked best: economic freedom that has unambiguously made our societies strong, vibrant, and flourishing.

We are excited to see how the countries in Freedom Investing perform going forward.

Photo of Denmark by Kristijan Arsov on Unsplash. Image has been cropped.