Buy
the World:
Investing in International Stocks
The United States was the first country to make it easy for
the average person to invest in stocks. But while the U.S. still has the largest
investment market in the world, the rest of the world has been catching up. It has become
easier and more enticing for investors everywhere to put money in foreign stock markets,
too.
From 1983 to 1997, the U.S. share of the world's
investments shrank by more than 15%. As of 1997, U.S. stocks accounted for about half of
the world stock market.
Fortunately, that change reflected high growth abroad
rather than a declining market at home. During the same period, American stocks offered a
quite healthy average return of 17.5%.
As told, international stocks offer some intriguing
possibilities. Recent changes in the global economy give investors many reasons to invest
overseas. However, as the economic crisis in Asia and Russia have shown, international
investing can be very risky and should be approached with caution. It would be a good idea
to know something about the countries you are investing in.
International Advantages and Risks
Many economies outside the U.S. are just beginning to
modernize and as a result they offer much higher potential growth. A fully diversified
portfolio can offer higher efficiency and more potential return with an exposure to
international stocks. The trend toward globalization of economies makes this exposure much
easier to get.
However, there are some substantial risks involved in
international investing. As with traveling abroad, international investing exposes you to
the laws and turmoils of countries you're probably not familiar with. And there is
considerable risk that you could lose money when your dollars are changed into foreign
currency, and then back into dollars (exchange rate risk).
How to Get There: International and
Global Funds
"Global" and "International" funds are
the two leading ways to invest overseas. Pay attention to the difference in the titles.
Global funds can include securities from any country, including the U.S. (in fact, some
global funds invest the majority of their assets in the U.S.). International funds invest
only outside the U.S.
There are also many varieties of specific overseas
investment vehicles specializing in certain countries or regions for you to choose from.
Other Investment Options
There are some other ways to invest overseas. Many
country-specific closed-end funds (funds that sell a fixed number of shares and then
"close" to new investors) exist for the adventurous investor. Early in 1996,
Deutsche Bank and Morgan Stanley introduced some interesting hybrid mutual funds that
follow stock indexes for specific countries. Investments such as these really require
expert knowledge, however, so if you do not have such knowledge we suggest that you
consider choosing broad-based international or global funds.
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