The Benefits and Risks of International Investing

By Stock Research Pro • July 28th, 2009


International investing is about putting money into assets outside the United States. International markets can offer greater opportunities for return than U.S.-based investing, simply because these opportunities are less-widely recognized. Mutual funds, exchange-traded funds, U.S.-traded foreign stocks, and American Depositary Receipts are some of the vehicles investors may consider when looking at foreign investments. As with any type of investment, the choice you make in international investing should be driven by your financial objectives and risk-tolerance.

Some Reasons to Consider International Investing

Increased Diversification: Numerous studies have shown that a diverse mix of foreign stocks can reduce the volatility of a portfolio. Because foreign markets tend to negatively correlate to the performance of the U.S. market, including these can smooth out your returns.

Greater Returns: Investors who limit their prospects to just the U.S. often miss out on great opportunities in other areas of the world. Adding an international element to your portfolio can enable you to take advantage of the high growth rates of some developing countries.

Currency Impact: The returns from foreign market investing are greatly impacted by currency exchange and its impact on stock price and dividends. Any significant shift in the exchange rate can impact your return; savvy investors can may use this to their advantage.

The Costs Associated with International Investing

For U.S.-based investors, investing in international markets can be more expensive as there are often transaction fees and tax consequences in excess of what would be paid for U.S. investments. International and Global funds often have higher fees due to the extra expenses they incur through foreign market trading.

The Risks of International Investing

As with any type of investing, international investing can be risky. Given the volatility associated with some regions, international investing can carry risks over and above the level of risk associated with U.S. investing. Many international investors look to mutual funds as a way to balance those risks.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.


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