The advantages of investing outside the U.S. go beyond diversification. Foreign economies provide more options to consider, when you’re looking for the best investments. Just as you might be excited by the profit prospects of a certain company, so you may be optimistic about the growth potential of a given country or region of the world. If you invest only in the U.S. you limit yourself and stand to miss out on some
great companies.
In some ways, the question is not whether you’ll invest in foreign economies but how you’ll invest. If you invest in Coke or Boeing or almost any major American corporation you have a stake in foreign business because these companies sell outside the U.S. Indeed, you may well have some international exposure if you invest through mutual funds. For a conservative approach to international investing, you might put half of your foreign money in European funds, specifically those that favor Germany, the United Kingdom, France, the Netherlands, Switzerland, and Scandinavia rather than those that invest in Russia or Eastern Europe.
The other half might go to Asia, emphasizing those markets where accounting principles are acceptable and there’s adequate disclosure of corporate finances–Japan, Hong Kong, and Singapore are in that category. As always, you should look at a fund’s record and whether the manager who achieved that record is still in place.
