Investing in foreign markets can help diversify portfolio
Investing in foreign markets. Sounds intriguing, doesn’t it?
One way to diversify your portfolio is to put some of your money in overseas investments.
Foreign markets may respond differently to economic conditions than U.S. markets – so strong performance abroad may help to offset weak performance at home.
Foreign investments through a mutual fund
A simple way to invest internationally is through a mutual fund that holds foreign securities. You get the benefit of professional management and the option to choose from stock, bond or money market funds in several categories.
International or overseas funds
International funds invest in stock or bond markets only in countries outside of the United States.
They buy securities in both mature, stable economies and in the more volatile economies of emerging countries. Investing throughout the world may help balance risk.
Global or world funds
Global funds are different from international funds because their portfolios hold U.S. stocks or bonds as well as securities from foreign countries.
Fund managers buy and sell assets based on which markets are performing well at any given time. So, the percentage of U.S. securities held by the fund may be high under some circumstances.
Country funds hold investments in a single foreign country. You can choose a fund that invests in a country with a well-established economy or a fund that focuses on an emerging country with the potential for rapid economic growth. Emerging-country funds can be particularly vulnerable to political or economic upheaval.
Regional funds invest in a specific geographical area, such as Latin America or the Pacific Rim. Because this investment spans several different countries, the fund may be able to offset one country's lackluster economy with another country’s thriving economy.
Risks of investing internationally
Investing internationally carries the same risk associated with all investing – market conditions can change, causing your investments to lose value.
There are added risks of political and economic instability as well as changes in value of the U.S. dollar abroad.
- Political Risk – Changes to government and political systems can wreak havoc on a nation's investment markets.
- Currency Risk – Exchange-rate fluctuations can boost or limit investment returns. A rise in security prices can be offset by a decline in the value of the currency.
- Market Risk – Many overseas markets are characterized by wide price swings
Be sure to talk to your investment professional about Nationwide products that could help you meet your long-term goals.