Are you traveling abroad this summer? If so, you won’t be alone. Increasingly, Americans seem to have gotten the “travel bug.” In fact, over one-third of the population now holds valid passports, according to the U.S. Department of State. Of course, seeing the world can help broaden our horizons in many aspects of life — including how we invest.
Investment prospects now exist in every part of the planet. However, you might wonder why you should invest globally. Aren’t there enough good opportunities right here in the United States?
The U.S. does indeed provide a wealth of investment choices. But you can still receive at least two key benefits from international investing. Let’s take a quick look at them:
• Growth potential. As you know, the United States is a highly developed economy. That doesn’t mean, of course, that we have no “upside” here — we do, and we always will. Nonetheless, you can also find growth opportunities in foreign markets. Which ones? There’s never any one “right” answer. Since it’s almost certainly futile to try to guess which areas will perform the best in any given year, you’re much better off looking for solid investment opportunities in all regions of the world.
• Diversification. By investing internationally, you can help diversify your portfolio. The world’s financial markets are connected to each other, but they don’t always move in unison. In any given year, the U.S. markets may be down, but international markets might be doing significantly better. Consequently, if, during that year, you had only invested in U.S. companies, your portfolio would have taken a hit, but if you had spread your investment dollars around the world, your year-end results might have looked considerably different. Keep in mind, though, that while diversification can help reduce the effects of volatility, it can’t guarantee profits or protect against all losses.
In any case, you probably won’t want international holdings to ever take up a majority of your portfolio. How much should you own? Again, there’s no right answer for everyone. Your investment mix should be based on your risk tolerance, time horizon and individual goals.
And, because of the complexities involved with foreign markets, you may well want to work with a financial professional — someone with the expertise and resources to evaluate the pros and cons of international investments.
• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Kim DeVoss, CFP. Reach her at (480) 785-4751 or Kim.DeVoss@edwardjones.com.