What Is International Investing?
Let me explain international investing directly: it's when you buy securities issued by companies or governments outside your own country. As an investor, you might choose global instruments to build a diversified portfolio. I often see people turning to international options to spread their risk across foreign markets and companies, which can make your overall investments more resilient.
Key Takeaways
Here's what you need to know upfront. International investing means holding securities from foreign companies or governments. By going global, you diversify your portfolio, which might boost returns and lower risk. But remember, owning foreign assets brings unique challenges like exchange rate changes, foreign interest rates, and geopolitical events.
Understanding International Investing
When you dive into international investing, you're opening up a much larger universe for your portfolio choices. It broadens your diversification and can introduce new ways to generate returns. In some situations, it even helps offset risks tied to your home country's economy.
You have access to the same kinds of investments abroad as you do at home—stocks, bonds, mutual funds, and more. Plus, you can trade options and futures on international assets and currencies. Keep in mind, though economists and advisors push for international exposure, most portfolios still lean heavily on domestic securities.
International Investing Options
You'll find plenty of choices in international markets, starting with government debt and equity indexes as solid foundations.
International Government Debt
Governments around the world issue debt through notes and bonds to fund their budgets, with maturities and interest rates based on the investment term. Countries fall into developed, emerging, or frontier categories, which indicate their economic maturity and risk levels. Developed ones are the safest with advanced economies, while emerging and frontier markets offer growth potential as they build infrastructure over time.
To gauge the risk of these fixed-income investments, check credit ratings from agencies. These ratings are available online and give you a clear picture of a country's creditworthiness.
International Indexes
For equities, international indexes are key for planning your investments. If you want broad global exposure, consider world index funds that cover stocks from various countries, like the FTSE Global All Cap Index or the Vanguard Total World Stock Index Fund.
These markets break down into developed, emerging, and frontier categories too. Developed equities are the least risky due to mature infrastructures. Emerging markets attract a lot of interest because of their growth potential, even with higher risks. Frontier markets carry even more uncertainty but can reward long-term investors.
Providers like MSCI offer useful indexes, including the MSCI All Country World Index, MSCI EAFE Index, MSCI Emerging Markets Index, and MSCI Frontier Markets Index.
International Investing Risks
Every investment has risks, and international ones are no exception. You could face fluctuations in currency exchange rates, which is foreign exchange risk. Market values can shift, creating price risk. Foreign interest rates might change unexpectedly.
Then there are bigger factors like political, economic, or social events that can impact your holdings. Liquidity might be lower abroad, and you could have less access to crucial information. Market operations and regulations vary by jurisdiction, adding another layer of risk.
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