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Investing internationally, what to consider


Many investors, at one point or another, consider investing internationally. This can yield high returns and can have a number of advantages for your portfolio, including:

Diversity. By spreading your investment risks throughout foreign companies and markets outside of the United States, you can diversify your portfolio.
Outside growth. Emerging markets and other foreign markets have a high potential for growth, making foreign investing at the right time especially lucrative.

International investments can also be risky. If you are thinking about investing in foreign bonds or stocks, there are a few things you should consider.


Know the market
One thing you will want to take into account is the type of investment and the market it is coming from. There are a number of different types of investments, including stocks, bonds, and currencies. Each carries a certain amount of risk, some more than others.

In emerging markets, such as Jordan, Argentina, Brazil, or Mexico, the yields tend to be much higher because investors run a myriad of risks that are not present in developed countries, such as currency collapse to a government overthrow. Investments in developed countries such as Canada, Europe, Japan, and other countries where financial markets are relatively efficient and pose a lower risk. These bond yields are similar to yields in the US.

Regardless of the investment type you choose, keep in mind that any form of foreign currency is subject to currency risk. Currency risk is the risk of loss of value in an investment because the currency in which the investment is denominated depreciates against your home currency. Currency risk results from fluctuating worldwide exchange rates, inflation, and interest rates. If you invest in foreign stocks, or in a U.S. based mutual fund company that invests in overseas companies, you face a certain level of currency risk.

Know the company
You should always learn as much as possible about the company you are considering investing in before you actually put money in to it. In addition to learning about the actual company, you would be wise to go one step further and learn more about the political, economic, and social conditions in that company's country. These factors can have a dramatic impact on the outcome of your investments. Generally speaking, the more political and social unrest in a country, the higher the risks.

If you are investing in international mutual funds, you should also research as well. Things to consider include the countries where the fund invests and the types of investments it makes.
There are many places you can go to get this type of research that will be crucial to investing, including:

The company itself. Many companies will publish annual reports, some in the English language. These can be an excellent resource.
SEC reports. The US Securities and Exchange Commission requires that foreign companies to file reports electronically, allowing you to access information on SEC website.
Brokers. It is always wise to consult with your broker if you plan on investing internationally. He or she will have a lot of information regarding foreign markets.
The internet. The information superhighway is sure to have a wide range of information about investing in particular companies, bonds, and stocks.

Investing internationally can be a great way to diversify your portfolio and get a higher return. Taking all risks into consideration before investing is important for maximizing your investments.


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