Is International Investing suitable for Me?
Foreign investments involve additional risks to those facing domestic
investments. The risks of loss from political turmoil and/or currency
exchange rates can wipe out any profits and produce losses
on foreign investments that were carefully selected using the most
up-to-date information available.
The difficulty in obtaining information about individual foreign
securities may prompt many American investors to use mutual
funds to make their foreign investments. Global and international
mutual funds minimize some of the business, financial, economic,
and political risks by investing in a broadly diversified portfolio of
investments around the world. An investment in the more specialized
regional and country funds has increased risks and rewards.
Investors need to weigh the risks against the potential returns.
Overseas stock markets have over various periods of time outperformed
the American stock markets. Thus, over long periods of
time, investors should be rewarded, assuming that increasing
worldwide growth and trade continue. By diversifying your investments
to cover many different economies, you are helping to even
out the fluctuations in your overall portfolio and participating in
the larger returns of the faster-growing foreign economies.
Investors who do not want to take the added risks of foreign
investments might consider diversifying their portfolios to include
the common stocks of U.S. multinational corporations. Corporations
such as PepsiCo, Coca-Cola, McDonald’s, ExxonMobil, and
Microsoft achieve a large percentage of their sales and earnings
outside the United States. If the American stock markets decline,
investors still may be able to obtain positive rates of return from
their foreign investments.
Investors who can tolerate the additional risks of foreign
investments should invest directly in foreign stocks or indirectly
through international mutual funds.
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