Is International Investing suitable for Me?

Foreign investments involve additional risks to those facing domestic investments. The risks of loss from political turmoil and/or currency exchange rates can wipe out any profits and produce losses on foreign investments that were carefully selected using the most up-to-date information available.

The difficulty in obtaining information about individual foreign securities may prompt many American investors to use mutual funds to make their foreign investments. Global and international mutual funds minimize some of the business, financial, economic, and political risks by investing in a broadly diversified portfolio of investments around the world. An investment in the more specialized regional and country funds has increased risks and rewards. Investors need to weigh the risks against the potential returns. Overseas stock markets have over various periods of time outperformed the American stock markets. Thus, over long periods of time, investors should be rewarded, assuming that increasing worldwide growth and trade continue. By diversifying your investments to cover many different economies, you are helping to even out the fluctuations in your overall portfolio and participating in the larger returns of the faster-growing foreign economies.

Investors who do not want to take the added risks of foreign investments might consider diversifying their portfolios to include the common stocks of U.S. multinational corporations. Corporations such as PepsiCo, Coca-Cola, McDonald’s, ExxonMobil, and Microsoft achieve a large percentage of their sales and earnings outside the United States. If the American stock markets decline, investors still may be able to obtain positive rates of return from their foreign investments.

Investors who can tolerate the additional risks of foreign investments should invest directly in foreign stocks or indirectly through international mutual funds.

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