NEW YORK - There is a wide world beyond the U.S. border full of money-making companies, so why miss out? Investing overseas is an important way to diversify your portfolio and a means to earn some high returns too.
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Nobody expects you to read the stock tables for Tokyo, London and South America every morning in addition to following Wall Street. Instead, just a few mutual funds can help you capture the overseas market.
Jim Peterson, head of mutual fund research at Schwab Investment Research recommends investing a quarter of your stock money in foreign companies.
Of that 25 percent, he said, about two-thirds should be in large companies in "developed" markets, such as Europe and Japan. You can split the remaining money between smaller companies in developed markets and stocks in "emerging markets" such as China, Russia and Latin America.
If you've bought funds in those three areas, Peterson said, you've got the foreign markets covered. Why funds and not individual stocks? Unless you're savvy on a particular well-known and well- respected overseas company, mutual funds will spread your risk by buying a wide portfolio of companies.
Funds also can invest directly in foreign stocks whereas individual Americans usually have to make due with buying shares that have been "deposited" in the United States.
Investing in foreign companies comes with special risks that you don't get with domestic stocks such as currency fluctuations and, in the case of emerging markets, political instability.
Globalization has made investors more comfortable with far-flung regions of the world and while the changing value of the dollar can significantly affect your overseas investment, Peterson said investors should simply see that as a means to counter the currency risk you already have via your U.S. holdings.
