NOTE: Investing in today’s markets
Just as diversifying your investment portfolio among different U.S. stocks in different sectors helps to reduce risk, diversification among stocks from different countries or regions may have the same effect.
One reason is that the world’s stock markets often do not move in tandem.
For example, when the U.S. market is up, the German market may be down and vice versa.
Foreign stock markets have often outperformed those in the United States.
In fact, between 1982 and 1992, the U.S. stock market has been among the top five performers only three times.
While other single markets may or may not outperform those in the United States in any given year, a portfolio diversified among markets may enhance your ability to take advantage of different market opportunities.
Fluctuations in the prices of foreign stocks may be caused by a wide variety of factors, including: * Interest rate or currency fluctuations.
* Political events.
* General economic conditions in a market.
* Or events that impact an industry or sector.
While they provide attractive growth potential, foreign stocks tend to be more volatile than their U.S. counterparts.
For these reasons, when investing in foreign stocks, it is particularly important to have a long-term investment horizon – at least 5 to 7 years.
That way, you will have the ability to ride out down markets or periods of short-term volatility.
Along with the potential for above-average, long-term gains, you should be aware that investing in foreign stocks involves special risks that do not affect U.S. investments.
Those risk include: foreign currency risk; political, social and economic instability; stock market regulations and reporting requirements; and liquidity risk.
Whether you are a conservative or an aggressive investor, it is probably a safe bet that at least a small amount of foreign investment exposure would improve your long-term portfolio return.
Contact your personal financial advisor to see if global investing is right for you.
Andrew C. Blease is a representative at The Prudential in Tucson. He is a Life Underwriter Training Council Fellow.
Investing in today’s markets appears every Monday in the Tucson Citizen. It is written by a different local investment adviser each week.
If you have any topics you would like to see covered or financial questions you would like to have answered, contact Jennifer Boice, P.O. Box 26767, 85726, or call 573-4608. Fax: 573-4569.
Qualified investment advisers who would like to participate can also phone or write to Jennifer Boice.