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Diversification
& growth
Most investment experts suggest
that you allocate a portion of your investment portfolio
to international securities. There are two major reasons
for that advice: |
| To
diversify your portfolio and protect against market
risk |
| To
take advantage of growth opportunities in other
economies |
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Diversification
When the stock or bond market in one country is weak, the
comparable market in another country may be strong. Rising
prices in developed European markets, or in markets such
as Australia’s, for example, sometimes outpace growth
in the U.S.
If you own stock, stock mutual funds, or managed
accounts that invest in those markets, your overall
stock portfolio could show better results than if you had
invested exclusively in the U.S. The same is true of developing
markets, such as certain ones in Asia or South America.
While these markets may be more volatile than developed
markets, they can provide periods of rapid growth.
On the other hand, investing in some international markets
may expose you to risks of political instability that you
may not encounter with your domestic investments.
New opportunity
Developing markets may also offer opportunities to invest
in companies producing new products or services. While
it can be difficult for individual investors to identify
promising companies in other markets, a number of mutual
funds and managed accounts specialize in regional or country-specific
small-company growth.
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