The World of International Investing

International investing is and should be considered an integral part of any asset allocation strategy. With that said, all investors, regardless of asset allocation model (from aggressive to conservative) must at a minimum consider investing internationally. Every professional money manager or financial advisor is an advocate of investing internationally to some degree. In my personal experience, investing internationally has offered another method of diversification and can be very easily done through mutual funds.

Simply put, the world is getting smaller. By this I mean our society is becoming more interdependent with an increasing exposure to global markets in both business and trading arenas. International investing is no longer left to the professionals or considered an exotic investing strategy as it once was. It has become a common part of all asset allocations, and with clear reason. If you are an investor simply investing in domestic equities, you are literally bypassing half the world's market opportunities. For example, some of the biggest and most profitable auto-manufacturers, banks, pharmaceutical companies and technology companies are not located in the U.S..

With some of the fastest growing economies outside of the United States, the investment opportunities among both developed and emerging markets present an attractive investing opportunity. So for those prudent investors, I think it is a desirable investing tactic to consider an overseas portfolio addition. There are many reason to consider international investing other than simply following the crowd; where a whole new world of opportunities presents itself. By diversifying your portfolio internationally, you will have an increased opportunity to experience the growth potential of the world markets. You already know how much diversification can impact a portfolio; diversifying across international economies offers diversification on a greater, global level.

With an international stock component added to a portfolio, volatility of that portfolio is reduced overall which also can increase performance. Intuitively we know that different markets are driven by differing forces and can often move without relation with each other. By this we can conclude that increases in international markets can then offset decreases in domestic markets.

Further, U.S. economies will not exactly mimic foreign economies- when U.S. markets might be down, international markets can be up. Surprisingly, there is somewhat of a opposite correlation between our U.S markets and international markets. Interestingly enough, it appears that historically when international markets have done well, U.S. markets have performed less satisfactorily. There have been periods of global recession, however internationally investing still presents great opportunity if you can remember that all markets, foreign and domestic all have one thing in common- volatility.

Another, mostly overlooked up-side to international investing is the possibility of experiencing the potential growth of foreign companies. Many investors are often surprised when they hear that foreign companies can often grow much quicker than U.S. counterparts. Surprisingly, as most U.S. markets have performed well in recent years, most foreign markets have performed much better. As you can now see, investing in these foreign markets can greatly improve the performance of any portfolio.


Related Articles
Choosing a Stock That Beats The Street
Pick a quality investment by following these tips.
Tune Into the Markets and Become a Well Rounded Investor
A guide to investigating new opportunities.