The idea of investing in foreign markets may seem overwhelming and intimidating especially for new investors who are at the testing phase.
One way to diversify your portfolio is to put some of your money in overseas investments. Foreign markets may respond differently to economic conditions than U.S. markets. That means strong performance abroad may help to offset weak performance at home.
Investing In Mutual Funds
The best way to invest in foreign markets is foreign investments through a mutual fund. A simple way to invest internationally is through a mutual fund that holds foreign securities. You get the benefit of professional management and the option to choose from stock, bond or money market funds in several categories.
International or overseas funds invest in stock or bond markets only in countries outside of the United States. They buy securities in both mature, stable economies and in the more volatile economies of emerging countries.
Global or world funds are different because their portfolios hold U.S. stocks or bonds as well as securities from foreign countries. Fund managers buy and sell assets based on which markets are performing well at any given time.
Country funds hold investments in a single foreign country. The fund may be in a country with a well-established economy or one that focuses on an emerging country with the potential for rapid economic growth. Emerging-country funds can be particularly vulnerable to political or economic upheaval.
Regional funds invest in a specific geographical area. Because this investment spans several different countries, the fund may be able to offset one country’s lackluster economy with another country’s thriving economy.
Risks of Investing in Foreign Markets:
Investing internationally carries the same risk associated with all investing – market conditions can change, causing your investments to lose value. There are added risks of political and economic instability as well as changes in value of the U.S. dollar abroad.
- Political risk – Changes to government and political systems can wreak havoc on a nation’s investment markets.
- Currency risk – Exchange-rate fluctuations can boost or limit investment returns. A rise in security prices can be offset by a decline in the value of the currency.
- Market risk – Many overseas markets are characterized by wide price swings.
Be sure to talk to your investment professional about Nationwide products that could help you meet your long-term goals.More than half of the world’s market capitalization lies outside the U.S., there are good reasons to believe that, over the long haul, international stocks have at least as much potential, and probably more, as their U.S. counterparts.
Investors who venture beyond the U.S. borders should be aware that an equity portfolio made up of 50% in international stocks will often have returns that are quite different from those of the U.S. markets, particularly the S&P 500.Sometimes this will seem like a blessing and sometimes like a curse. If you take this route, you should not expect returns that closely follow those of U.S. asset classes.