Should i invest internationally

For example, the price of oil will exert a significant influence on both the U. However, owning both companies in a portfolio can still provide diversification benefits due to currency, political difference, and overall economic cycle variances between the United States and the United Kingdom. Some countries are very similar to the U.

Developed-market countries such as England, France, Germany, and Japan are widely industrialized with established and stable economies, governments, and infrastructure systems. The term emerging markets refers to markets in countries such as Brazil, Russia, India, and China, economies that are characterized by rapid growth and industrialization, the emergence of industries and regulation, and a growing middle class. Most economic growth today comes from emerging markets, and the United Nations projects that the population in many developed countries will decline.

In addition, whereas many developed nations have aging populations which burden health care and pension systems , many emerging market countries have very young populations. Youth generates faster economic growth. Although investors take some degree of risk when investing in any stock or security, international investing involves special risks, including.

Because of the higher political, economic, and financial risks in emerging markets, equities in these markets have historically exhibited greater downside risk than those in developed markets. However, because individual emerging markets can be relatively uncorrelated across countries, the risk of investing in all countries is lower than investing in any single country. Owning a variety of companies in different emerging markets may the risk that can arise in any single country, such as the political and economic turmoil in Argentina and Turkey.

The unique development patterns of emerging markets help investors diversify the returns of developed and international markets. Emerging markets have also generally delivered higher average returns, albeit with higher volatility, than those of developed markets.

This combination of higher expected returns, higher expected volatility, and moderate correlations between emerging and developed markets suggests that most portfolios would benefit from some degree of allocation to emerging markets.

Investing overseas has long been a prudent strategy to increase diversification and alpha potential within an overall equity allocation. In recent years, non-U.

But no investment category—not even one as broad and deep as U. All categories cycle eventually and irregularly, and equity markets are particularly adept for catching investors off guard. While the list is long, here we highlight four reasons investing internationally remains a sound investment strategy, and why investors should assess their equity allocations today to ensure they are properly diversified and well positioned for the next 10 years—and beyond.

By investing only in U. Over the past 20 years, the number of investable U. At the same time, the number of investment opportunities outside the U. Developed and emerging markets worldwide have experienced significant economic progress over the past two decades, with new industries and businesses emerging.

Consider the Chinese internet industry, which was in its infancy in Today, it is the largest e-commerce company in the world. Chinese social media company TikTok launched its wildly popular app in and now has more than 2. While the Chinese tech industry might be one of the most dramatic growth stories, similar progress has occurred in global industries such as travel, 5G adoption, autos, luxury goods, manufacturing and health care, to name a few.

More than ever before, businesses are competing on a global scale. Researching a company for potential investment requires a deep look into its industry and competitors, regardless of location. Additionally, businesses are earning revenue from all parts of the globe. The question for investors today is, why limit where you invest based on geography, especially if your goal is to find the opportunities with the most long-term potential? Over the past decade, allocations to U.

But, is investing abroad a good decision? As always, the decision to invest in foreign countries depends largely on your investment objectives, but this article will take a look at some of the pros and cons.

The primary rule of investing is to seek the highest risk-adjusted return for their capital also called "alpha". Basically, you want to maximize profit made beyond the amount of risk taken in any given investment. One of the best ways to accomplish this is through diversification, which has been mathematically proven to enhance risk-adjusted returns.

An effectively diversified portfolio holds at least 8 to 10 uncorrelated assets or, assets that do not move in relation to each other spread across various industries and geographies, which ensures that an adverse event in one market will not negatively affect the entire portfolio. As a result, investing in foreign countries geographical diversification is an important way to enhance risk-adjusted returns through diversification.

Many domestic stocks and funds have a much higher correlation that reduces diversification. The U. Likewise, foreign countries often fit into their own categories of investments, ranging from commodities to growth stocks. As a result, investors seeking these types of investments may want to look at using foreign stocks to fill the void to enhance diversification.

These countries have experienced significant levels of economic growth, which has helped many companies within prosper. However, as with any developing nation, there are increased risks associated with the ability to successfully manage growth long-term. Other countries are known for their specific areas of focus.

For example, Nigeria is known for its risky offshore oil industry; Chile is famous for its rare minerals; Canada is known for its gold and oil sands; the Middle East is popular for its oil and gas opportunities. Each foreign country has its own areas of economic focus and risk-to-reward profile for international investors. There are risks to investing in any country or market—including the United States—which is why creating a diversified portfolio is so important.

For example, if the U. However, there are several risks specifically associated with foreign versus domestic investing.