Investment Basics: Exploring the Investment World
December 26, 2017
By Colin OShea
Looking for a new adventure? Consider investing in international investments.* Foreign investments add another level of diversification** to your portfolio. Overseas markets often perform differently than U.S. markets due to varying economic conditions. Including international investments in your asset mix may help cushion your portfolio when domestic securities are weak.
A fairly simple way to invest internationally is to invest in mutual funds*** that hold foreign investments. Some funds hold securities from a variety of countries, while others hold investments from a specific region or country.
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The international funds you choose should depend on your investment goals and risk tolerance. Your options may include:
Global funds — Also known as world funds, these investments hold both foreign securities and U.S. stocks or bonds.
International funds — Also known as overseas funds, these funds invest in stock or bond markets in countries outside of the U.S.
Regional funds — These funds invest in markets in countries in a specific geographic region, such as Europe or the Pacific Rim.
Country funds — These hold investments in a specific country.
All investing involves risk. Investing internationally involves a number of risks, including:
Market risk — Foreign financial markets tend to be smaller and less developed than U.S. markets. Foreign markets, especially emerging markets, are vulnerable to political and economic uncertainties and the possibility that investors may overreact to unexpected events. In addition, foreign markets may not be subject to the regulatory oversight that governs U.S. markets and companies.
Currency risk — The value of the U.S. dollar abroad can affect the value of your foreign investments. If the U.S. dollar rises compared to a foreign currency, the return on an investment in that country’s stock market is reduced when it’s converted back into U.S. dollars.
Political risk — Government changes and civil unrest could have a negative impact on a country’s investment market.
Keep in mind that the domestic mutual funds you already invest in may include overseas investments. Check your existing exposure to foreign markets before adding any new international investments to your portfolio. Your Security National Bank Wealth Management advisor can help you decide whether adding international investments to your portfolio makes sense for your particular situation.
* The risks of investing internationally include changes in currency rates, foreign taxation, differences in auditing and financial standards, and other risks.
** Diversification does not ensure a profit or protect against loss in a declining market.
*** 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.