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Diversifying Your Portfolio With International Investments

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For some of us, the idea of investing internationally can seem overly risky. You might ask, "If the United States is one of the major market powers in the world, why would I invest overseas? Isn't my money better off invested at home?" While keeping a good part of your investments at home is a good idea, it is also a good idea to invest some of your assets abroad. Here are some reasons why.

Diversification

While the United States stock market has traditionally done very well, there are sometimes down times. And one of the rules of investing is that when you have one set of assets doing badly, you want to also be invested in a different category of assets that may have a chance to do well. International investments perform this function very well, because assets invested internationally are farther from the conditions that may be causing your domestic investments to do poorly. And sometimes, being farther away can not only protect an international investment from being as negatively affected as those at home, but it may also strengthen the investment due to market forces that are inversely related to domestic forces.

Emerging Markets

There are other reasons to invest internationally beyond a simple diversification strategy. The so-called emerging markets are doing quite well in terms of economic growth. Part of this is because emerging markets like Brazil, many Asian countries, and some African countries have room to grow. Residents of these countries typically have lower household incomes as well as lower debt, and therefore if the economy is strengthening as they have capacity to earn more and consume more. Unlike the United States or European markets, emerging markets are at an earlier stage in their growth cycle and thus have the potential to make up vast gains in a short time if conditions are right. As an investor, you want to be there to capture those gains when they are at their highest growth rate. Therefore, it is a good idea to keep some investments in emerging markets.

How to Invest in Foreign Markets

How you invest in foreign markets depends a lot on where you invest. Some countries (Cambodia, for example) are experiencing huge growth in real estate investing. Other types of investments include commodities, manufacturing and tourism development. You can also purchase index funds that focus on international emerging markets. But no matter how you choose to invest, you can strengthen your chances of participating in ongoing global economic growth.

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