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On any given day, you could talk on a
Samsung cell phone, watch a Sony
television, take a Bayer aspirin and eat
a Nestle Crunch Bar. What do all these
products have in common? They are all
manufactured by companies based outside
the United States. In fact, many of the
goods and services you use are
internationally based, which gives you
an idea of how many investment
possibilities there are in the wide
world. Are you taking advantage of these
opportunities?
If not, maybe now is the
time to expand your investment horizons.
After all, about half of the world's
stock market is made up of non-U.S.
companies. If your portfolio lacks
foreign companies, you are likely
keeping out many industry leaders in a
variety of market segments. Many foreign
companies are among the 10 largest
within their respective industries,
which include airlines, automobiles,
banks, life and health insurance, and
food and commercial products.
Furthermore, international
investing can help you diversify your
portfolio. If we enter a recession, many
American companies may go through some
rough times. which might show up in
their stock prices. You might be able to
blunt the effects of an economic
downturn by adding some international
stocks to your holdings. Keep in mind
that not all markets move together. For
example, when the U.S. market is down,
the Pacific Rim countries may be up. In
fact, foreign markets have outperformed
U.S. stocks about half the time over the
past 25 years.
A word of caution, however:
Do not be fooled into thinking that any
one area of the world will be
particularly hot, from an investment
point of view, at any given time. The
fact is that any one geographical area
may lead the investment world one year,
only to fall far down the list the next.
And it is almost impossible to predict
which country will be up and which will
be down. Consequently, you'll want to
spread your international investment
dollars among a variety of companies,
industries and countries.
Special risks to consider.
International investing has some
benefits but it carries some special
risks as well. Political or economic
instability, along with changes in
foreign currencies and interest rates,
can affect the performance of global
investments. Also, foreign market
practices and accounting standards can
vary widely, and it may be difficult to
trade or to obtain relevant information.
That is why investments in foreign
securities generally have higher
expenses than domestic investments.
Limit your holdings and
get some help. It is almost
certainly a good idea to limit your
foreign holdings to no more than 10 to
20 percent of your portfolio's total
value. The exact percentage will depend
on a variety of factors, including your
risk tolerance, your time horizon and
your long-term goals.
Before you buy any foreign
stocks, get some help. Most people do
not have the time or expertise to really
understand all the factors that go into
picking foreign investments. A qualified
investment professional can help you
make the choices that are appropriate
for your individual needs.
You may get to visit many
different countries in the future, but
your investment dollars can start
traveling today. With luck, they will
send you back more than a postcard.
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