Before you invest in a foreign stock fund, here are some questions to ask:
Does the fund invest in emerging markets? You may feel more comfortable with a fund that invests solely in major markets such as Western Europe, Canada, and Japan. A fund that includes the developing nations of the world may offer higher returns and more diversification but may be more volatile.
Does the fund hedge currency risk? Some funds tie their investments to the U.S. dollar, eliminating the risk of owning a stock from a country with a weak currency. On the other hand, a fund that does not hedge currency risk gives you currency diversification, too. The yen or the euro might outperform the dollar, enhancing your return.
Does the fund hold stocks you already own? You should look upon your worldwide holdings as one portfolio and keep duplication to a minimum. If your domestic stock funds hold foreign companies such as Nokia and Sony, choose a foreign fund that’s likely to hold different types of companies.
