If you’re interested in getting a few more stamps on your passport without ever leaving the country, investing in overseas markets might appeal to you.
At last check, United States stock market capitalization accounted for just more than 40% of the world’s total in 2022. That means that international markets may have opportunity for an investor who is willing to let their money travel.1
When we create a portfolio, we consider a broad range of investment choices based on your time horizon, risk tolerance, and goals. If you have an interest in overseas investing, please let us know. There are many factors to consider when evaluating these investments, and we can help you better understand your choices from the wide range of opportunities available to you.
What to Consider
One of the most important factors to know about international investments is that foreign markets carry additional risks, such as differences in financial reporting standards, currency exchange rates, political risks unique to specific countries, and foreign taxes and regulations. This is true for both stock and bond investments. As a result, markets may have greater share price volatility from time to time.2
“Plans fail for lack of counsel, but with many advisers they succeed.” Proverbs 15:22
Types of International Markets
International markets are generally divided into two broad categories.3
Developed markets are located in countries that have more established infrastructure and industries. They also have economies that are considered secure and promote a sound standard of living. France, Germany, and the United Kingdom would be considered developed markets in Europe. Closer to home, Canada would fall into this category. Japan and Australia also are considered developed markets.
Emerging markets are countries that have less stable economies, which can lead to less developed capital markets. Examples of emerging markets include China, India, Egypt, and Mexico. It’s important to remember that as emerging economies transition to developed markets, they may experience periods of rapid growth.
Types of International Investments
There are several ways to participate in foreign markets, but in general, overseas investments fall into two broad categories.3
International mutual funds are structured to invest only in markets outside the United States.
Global mutual funds can invest in foreign markets, but they also can have exposure to the United States.
International and global mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
Decisions, Decisions
With a global fund, it may be difficult from time to time to determine what proportion of the fund’s assets are allocated to the United States. With international funds, that’s not a concern since they are not permitted to invest in domestic securities.
Remember, both asset allocation and diversification are approaches to help manage risk in a portfolio. They do not guarantee against investment loss.
Please let us know if you are interested in learning more about overseas investment opportunities. We may have some illustrations that can show you the pros and cons of overseas investments.
- Reuters.com, February 7, 2023
- Investing involves risks. The value of stock investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. The market value of bonds will fluctuate with changes in interest rates. As rates fall, the value of existing bonds typically rises. If you sell a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, you will receive the interest payments due plus your original principal, barring default by the issuer.
- Vanguard.com, 2023
