Visiting a foreign country can be overwhelming and confusing at first but exhilarating and rewarding in the long run. As an investor, you may feel the same way about investing in foreign markets. However, investing internationally1 presents some good potential opportunities — along with a few additional risks.
Adding foreign securities to your investment portfolio offers exposure to different markets and economies and may help increase your portfolio’s diversification.2 Because foreign economic conditions may vary, overseas markets often perform differently than U.S. markets. Including international investments in your portfolio may help bolster your returns when domestic markets aren’t performing well.
What’s in There Now?
When deciding how much of your portfolio to allocate to foreign investments, first evaluate the assets you presently own. Since many U.S.-based companies have overseas holdings, you should determine your existing exposure to international markets before adding foreign investments to your portfolio.
Understand the Risks
Investing internationally can present unique risks. Political and economic uncertainty overseas could impact the value of foreign securities. Company- or industry-specific problems or market declines in a particular country or region could cause poor performance. And changes in the value of the U.S. dollar overseas can affect the value of foreign investments when converted into U.S. currency.
The amount of risk you’re comfortable with should help you determine how much of your portfolio to devote to overseas investments. While emerging markets can provide for rapid growth, they can be vulnerable to additional risk. Investing in more mature foreign economies may help if you’re uneasy with potentially high levels of volatility.
A Choice of Funds
One simple approach to international investing is to buy shares of mutual funds3 that hold foreign securities. You can choose from stock or bond funds in various categories:
- Global/World funds hold both foreign securities and U.S. stocks or bonds.
- International/Overseas funds invest in stock or bond markets in countries outside of the U.S.
- Regional funds invest in the markets of countries in a specific geographic region, such as the Pacific Rim or Latin America.
- Country funds hold investments in a single nation.
- International index funds track the performance of a particular foreign index.
Your Security National Bank financial professional can help you determine whether including international investments in your portfolio is right for your particular situation.
1 The risks of investing internationally include changes in currency rates, foreign taxation, differences in auditing and financial standards, and other risks.
2 Diversification does not ensure a profit or protect against loss in a declining market.
3 You should consider the fund’s investment objectives, charges, expenses, and risks carefully before you invest. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.Back to Articles