International Investing

The wide range of investment products available in the United States can be overwhelming to new investors. But at some point, in building a portfolio, every investor’s eyes start to wander to other financial markets all over the world.

One of the main reasons that people invest internationally is that it spreads out their investments across different markets, increasing their diversification. This makes it less likely that a financial catastrophe in one market will ripple through your entire portfolio. But another reason international markets are attractive is because some have room to grow, which could mean a higher potential return.

Of course, the higher potential return is never without risk in the investment world. For this reason, it is important to consider that the entire range of asset classes are available in outside markets. All of the same investment strategies and diversification principles still apply, which means you must carefully consider asset allocation and your overall investment strategy.

Investment Options in International Markets

  • International Equity (Stock)

Companies in the United States use equity to raise money and innovate or grow their business. There are companies all over the world looking to do the same which might add value to your portfolio. Expanding equity investments beyond our borders can help you find the right companies to invest in, no matter where they are located in the world.

  • International Government Debt (Bonds)

Governments raise money through bonds and other notes. Developed economies like the United States tend to offer more stable bonds. But emerging and frontier markets need time to grow and develop, making them potentially more volatile. That is where third-party credit rating agencies come into play. Just as bonds are given credit ratings that give investors an idea of how stable the investment is, countries earn ratings as well. It is important to pay attention to the credit worthiness of any country you are considering purchasing bonds in.

  • International Indexes (Funds)

Investing in international mutual funds may give your portfolio exposure to different markets and industries at the same time. Much like domestic mutual funds, the main advantage is broad market exposure.

Economic Development

No stable market is born overnight. Countries (and their markets) are classified as either developed, emerging, or frontier. A developed country like the United States has a mature economy, which is therefore may be easier to predict. The market is constantly in motion and influenced by countless factors, but all of the factors are in place.

In emerging and frontier markets, the economies are younger. The infrastructure to support mature economic growth might still be in the development stages, and the major players have not necessarily been established. These unpredictable markets should be carefully evaluated, but might appeal to investors looking to diversify their aggressive investments.