Why should you invest in Foreign Stocks
There are several compelling reasons why investors should consider
adding foreign stocks to their portfolios. Foreign stocks as a group
have outperformed U.S. stocks during the period 2003 through 2006.
Moreover, there will always be some equity markets abroad that will
outperform U.S. stocks in any particular year. Because economic
cycles in different countries move separately from each other,
investors can take advantage of the different stock market situations.
This is indeed confirmed by the fact that the majority of the stocks
traded in the world originate outside the United States.
Investing in foreign stocks gives investors the opportunity to
diversify their portfolios, which reduces the overall risk and
volatility of the portfolio. If stocks in one country decline, there is a
good chance that stocks in another country will increase to even out
the variability in stock prices.
Investing in foreign stocks provides a hedge against a slump
in the U.S. stock market or any other economic woes, such as inflation
or rising interest rates. The same factors apply to foreign stock
prices as to American stock prices. The earnings and economic
health of the company are reflected in the stock price, as well as the
economic and political conditions of the country.
Foreign stock markets may not be as efficient as the U.S. markets
in pricing their stocks. The U.S. stock markets generally are
characterized by relatively fast flows of information on stocks, large
amounts of capital, and many traders, which make the pricing of
stocks relatively efficient. In smaller foreign markets, there may be
more opportunities to exploit pricing inconsistencies because there
are fewer traders, smaller amounts of capital chasing stocks, and
possibly slower information flows. Hence the potential gains to be
had in these markets may be larger than those in the U.S. markets.
This is certainly reflected in the growth of foreign stock markets.
The U.S. share of the total world’s market capitalization is expected
to decline as foreign stock markets become more accessible.
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All about Stocks
Encyclopedia about Stocks. That you should know about Stocks before starting
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