Gerber, Lipton, Dr. Pepper, Bayer, Vaseline, Nestle, Frigidaire, Baby Ruth, & Burger King-these are just some of the brand-name products purchase by consumers in the United States every day. What they may not realize however is that all of these products are produced by companies located outside of the United States.
Today there are just as many, if not more, investment opportunities available outside the United States than within our borders. What this means is that investors who limit their horizons to just American securities are ignoring some of the largest participants in today's global economy. Investing internationally also provides another layer of diversification for an investor's portfolio. Because foreign and domestic markets often move in different directions, adding an international component may potentially reduce overall portfolio volatility by providing a buffer against the inevitable swing in any one market, including the U.S.
When considering investing internationally, there are a number of options investors have. Most experts agree that investing into a professionally managed portfolio of international securities is generally the best approach. These professionally managed portfolios generally fall into three categories.
International portfolios generally invest in securities of companies located outside of the United States.
Global portfolios invest primarily in securities of foreign companies, but may also contain securities of U.S. companies.
Emerging or Developing Market Portfolios
Emerging or developing market portfolios invest in companies with developing industrialized or free-market economies.
Whichever direction is chosen, it is important to be aware that investing internationally does not come without certain risks that could have potential impact on overall portfolio performance.
Political and Economic Risks
A change in political leadership, civil unrest, or a restrictive trade agreement are examples of events that could pose a risk to market returns. Emerging market portfolios invest in developing markets whose political and economic structures may not be as stable as other more established markets.
International investments are typically priced in their own currency. Currency risk is the possibility that changes in the exchange rate between the U.S. dollar and the foreign currency of the international investment may cause the portfolio value to change.
Finally, companies that trade on foreign markets typically are not required to provide the same type of detailed financial information as U.S. companies.
For these reasons, using a professional money manager familiar with the opportunities, as well as risks of investing internationally is a wise choice.
If you feel that you may wish to consider adding an international component to your present portfolio, or are interested in learning more about investing internationally, give your financial professional a call. They can discuss all of the issues related to investing internationally and can offer suggestions on professional money managers that specialize in this category.
Advisor is an independent financial planner based in Manchester, NH