Are You Diversified In International Investments?
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One of the important aspects of investing is diversification. Most people think of diversification as something that happens across asset classes. This is true, but you should also remember that diversification also means participating in international investments. Considering foreign stocks is an important of your investment planning and decision making. While there is always the chance of loss, foreign investments can help your portfolio. CNN Money reports on the advantages of adding international investments to your portfolio:
Now, it’s possible that globalization is tightening the links between global markets. But most investment pros believe — as I do — that the returns of U.S and foreign shares still diverge enough in regular market conditions so that owning both types of stocks rather than just one can give you a portfolio that’s less jumpy over long periods.
As a result, investors who add foreign shares to their U.S. stock holdings should be able to earn the same return as an all-domestic portfolio with less volatility. Or, to put it another way, adding foreign shares should allow you to earn higher returns at a given level of risk.
This doesn’t mean that you should buy into foreign equities willy-nilly. Like any other investment this requires thought. While you can add individual stocks and other investments to your portfolio, I personally like the idea of using index funds or ETFs. There are plenty of funds based on groups of foreign investments and indexes.
You should also realize that different foreign investments carry different risks. While emerging markets might be poised for growth, they are much riskier than investments in more established markets in Western Europe and Japan. So choose your asset allocation in international investments carefully.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
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August 29th, 2009 at 9:35 am
[…] by adding them to your portfolio. You can even look into emerging market bonds if you want a little international diversity in your bond portfolio. However, it is important to realize that you take on additional risks. […]