Take Europe, for instance. The continent on the other side of the Atlantic has been busy at work, with many nations there adopting a common currency this year. The result: European companies are expanding into new markets chock-full of new opportunities.
“The buzzword this year is convergence,” says Wayne Weddington, chief executive of Pennoyer Capital Management in New York. “This is a great time to be in some of the smaller European countries, which could reward investors handsomely in the upcoming year.”
The experts will tell you a little international flavor is good for your portfolio for a few other reasons. Start with diversification. We’ve all heard again and again how spreading your investments across different types of stocks, perhaps a few bonds and even holding some of your accumulated wealth in cash goes a long way toward protecting your savings. If one type of investment gets socked, chances are the others will be there to hold the fort or even counterbalance whatever is causing a problem.
The same goes for international investments. There are bound to be times when the U.S. market will take a breather. Think of overseas stocks or mutual funds as a way to cushion your portfolio from the ups and downs of a volatile domestic market.
JUST HOW MUCH?
Before you carve up a chunk of your portfolio to be invested overseas, you might wonder just how much of your savings belong outside the U.S. Some experts recommend that your portfolio mirror the world. That’s to say, since U.S. stocks make up 70%-75% of the overall worldwide investing pie, your portfolio should reflect that configuration. Others will tell you that by investing in U.S. companies, you gain quite a bit of exposure to the global economy. After all, they reason, U.S. firms market their goods and services to the four corners of the Earth.
For starters, though, we suggest you take the middle road. Perhaps start with 10% of your stock portfolio dedicated to overseas stocks and mutual funds. That way, you gain some new exposure to international economic growth without betting your entire portfolio on events away from home. Of course, like any other investment question, that 10% allotment needn’t be hard and fast; if you feel that the global economy is prepared to take off, then up that amount perhaps to as much as 20%.
WHAT TO INVEST IN?
The thought of putting some of your assets to work overseas might sound a bit exotic. Still, when you get down to it, you’ll find that the choices before you are quite similar to those you have when you invest here in the U.S.
By now, you’re probably familiar with mutual funds. When you invest in a fund, you own a slice of a portfolio of stocks and other investments that are monitored by a manager or team of investment experts. They keep on top of gains and losses and shuffle the portfolio when big changes occur or great opportunities arise.
International funds come in two varieties. First, of course, there are what