Despite the developing global economy, some investors still believe that owning U.S. securities is sufficient — that international securities would just duplicate their efforts. But a closer look at economic and market trends reveals numerous reasons for continuing to diversify with investments from around the world.
Unique economic environments — There are still significant differences between countries’ markets and economic sectors. For example, the financial services and energy sectors represent a much larger percentage of international market capitalization than U.S. market capitalization. On the other hand, the technology and health care sectors represent a larger percentage of U.S. market capitalization.
Valuation variations — When international stocks are less expensive than U.S. stocks, value-oriented investors and investors looking to diversify growth-oriented portfolios may find attractive opportunities in foreign markets.
Currency considerations — During the 1990s, the rising value of the U.S. dollar curtailed the returns of foreign investments. More recently, however, the dollar has weakened versus the euro, a trend that some analysts believe could be sustainable. A weaker dollar could enhance the dollar-based returns of foreign investments.
Finally, keep in mind that many of the world’s top companies are headquartered overseas. If you decide to tap into that wider universe of investment opportunity, consider the potential advantages of an international stock mutual fund. Be aware that foreign investments entail special risks, including currency fluctuations and differences in regulations and accounting practices.
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If you’d like to learn more, please contact Michael Shafai at 719-577-6324.
Mike Shafai is Vice President, Financial Advisor with The Pikes Peak Group of Morgan Stanley Smith Barney in Colorado Springs. He can be reached 719-577-6324 or toll free at 800-225-1163, or you can email him at Michael.C.Shafai@morganstanleysmithbarney.com.
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of MorganStanley Smith Barney LLC, Member SIPC, or its affiliates.