June 19, 2024

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Exploring the Benefits of International Investing

3 min read

International investing can help your portfolio diversify by providing exposure to expanding economies and earning higher returns. Investment options may include stocks or bonds from foreign securities markets.

International markets do not tend to experience similar rises and falls as domestic ones, reducing correlation and helping smooth out volatility. But investing overseas carries its own set of risks that you should keep in mind.

Diversification

Although the benefits of diversification depend on your risk appetite and goals, its primary goal is to lower market volatility by spreading your wealth across various asset classes. Diversification becomes particularly useful when investing internationally: foreign markets typically offer greater diversification because returns don’t correlate perfectly between investments; losses in one may be partially offset by gains elsewhere.

International diversification offers advantages beyond stocks and bonds; its effects extend far beyond this realm, as the economic climate of each nation has a direct effect on companies operating there. Many S&P 500 and FTSE 100 index-listed firms – particularly those listed as part of these indexes – derive half or more of their revenue from overseas operations, thus becoming less vulnerable to domestic economic and political influences than domestic peers.

Investors can further diversify their portfolio by allocating to international small cap and value stocks, which tend to offer lower return-to-risk ratios than the broader market. Studies have also demonstrated how these investments improve diversification by decreasing correlation with US stocks market returns and thus increasing their ability to withstand negative domestic returns.

Keep in mind that no investment can completely mitigate risk, and even the most well-diversified portfolio can experience losses. A global recession could affect all countries and industries equally despite diversification efforts; therefore it is vitally important to include cash as part of any portfolio alongside stocks, bonds and other forms of investing.

ETFs offer an easy and cost-effective way to gain exposure to international markets, providing your portfolio with greater diversification. Just ensure you do your research properly to select funds with competitive costs.

Higher Returns

Investors willing to put forth extra effort learning about international investments can increase their returns with international stocks. Investors could invest in developed markets like Europe or Japan or in emerging ones like China or India — these markets often experience faster economic growth as well as benefiting from demographic tailwinds; however, these markets may also be more volatile.

Investors should always carefully assess the risk-reward ratio when considering any investment decision, but history has demonstrated that international stocks tend to outshine domestic ones when the U.S. dollar has been weak.

Combine lower volatility with potentially higher returns, and international investing offers many advantages that may help you meet your investment goals and grow wealth even when domestic economies slow down.

Consideration must also be given to currency fluctuations when investing in foreign markets; though this could potentially be seen as negative, it can work in your favor depending on how it compares with the U.S. dollar.

Since global economic growth has outshone US economic growth over recent years, it would seem reasonable to expect that international markets will outperform domestic ones in future and offer greater returns. Exploring international investments offers many advantages that may fit with your financial goals, so it is worthwhile to evaluate if they would suit. To get started, seek the guidance of an expert who can explain all your available options and assist in making informed decisions. Learning more about international investing options can be advantageous, and various means exist for accessing them, including mutual funds or American depositary receipts (ADRs). To get more advice, schedule an appointment with an advisor.

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