Financial Focus: International investing is still a journey to consider (column)
October 12, 2017
Why should you consider investing internationally? The chief reason is diversification. If you only invest in U.S. companies, then you might do well when the U.S. markets are soaring, as has happened in recent years. But when the inevitable downturn happens, and you're totally concentrated in U.S. stocks, your portfolio will probably take a hit.
At the same time, however, other regions of the world might be doing considerably better than the U.S. markets, and if you had put some of your investment holdings in these regions, then you might at least blunt some of the effects of the down market here.
Of course, it's also a good idea to diversify among different asset classes, so in addition to investing in U.S. and international stocks, you'll want to own bonds, government securities and other investment vehicles. Keep in mind, though, that while diversification can help reduce the effects of volatility, it can't guarantee a profit or protect against loss.
International investments, like all investments, will fluctuate in value. But they also have other characteristics and risks to consider, such as these:
• Currency fluctuations: The U.S. dollar rises and falls in relation to the currencies of other countries. Sometimes, these movements can work in your favor, but sometimes not. A strengthening dollar typically lowers returns from international investments because companies based overseas do business in a foreign currency, and the higher value of the U.S. dollar reduces the prices, measured in dollars, of individual shares of these companies' stocks. The opposite has happened in 2017, when the weaker dollar has helped increase returns from international investments.
• Political risks: When you invest internationally, you're not just investing in foreign companies; you're also essentially investing in the legal and economic systems of countries in which those companies do business. Political instability or changes in laws and regulations can create additional risks, but may also provide potentially positive returns for investors.
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• Social and economic risks: It is not always easy for investors to understand all the economic and social factors that influence markets in the United States, and it's even more challenging with foreign markets.
U.S. markets are now worth less than half of the total world markets, and growth in the rest of the world is likely to keep expanding the number of global opportunities. You can take advantage of that global growth by putting part of your portfolio into international investments, including developed and emerging markets.
In any case, given the more complex nature of international investing, you'll want to consult with a financial professional before taking action. If it turns out that international investments are appropriate for your needs, then you should certainly consider going global.
This article was written for use by local Edward Jones financial advisors. Edward Jones and its associates and financial advisors do not provide tax or legal advice. Chuck Smallwood, Kevin Brubeck, Tina DeWitt, Charlie Wick and Bret Hooper are financial advisors with Edward Jones Investments and can be reached in Edwards at 970-926-1728, in Eagle at 970-328-4959 or in Avon at 970-688-5420.