Investors Without Borders

Although the U.S. economy is the largest and one of the most stable in the world, it’s projected that the U.S. share of the global economy will shrink in the future (see chart). As foreign markets step up to take their places on the international stage, investors content to stay at home may miss out on some opportunities. In 14 of the past 30 years, foreign stocks outperformed domestic stocks, bonds, and cash equivalents.¹ Of course, past performance is no guarantee of future results.

If you want to spread your portfolio outside national boundaries, international mutual funds are one idea to consider. By investing in companies outside the United States, international mutual funds offer a way for you to diversify not only across industry sectors and securities but across countries as well.

Yet juxtaposed to the opportunities afforded by international investing, there are risks associated with investing on a worldwide basis.

Currency Concerns

Fluctuations in the exchange rate between foreign currencies and the dollar add an extra layer of risk, as well as possible upside potential. A weak dollar may make shares denominated in a foreign currency more expensive; but when you sell the shares, a weak dollar could strengthen your return.

Stability Stress

When you move money into foreign markets, it is important to consider a variety of factors, such as how foreign markets are valued compared with U.S. investments and how the financial and political climate of the region can affect your investments. Civil unrest, elections, terrorist attacks, and even the threat of such events can be enough to affect stock prices.

Mutual fund shares fluctuate with market conditions and, when redeemed, may be worth more or less than their original cost. Diversification does not guarantee against loss; it is a method used to help manage investment risk.

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1) Thomson Financial, 2008, for the period 1/1/1978 to 12/31/2007. Cash equivalents are represented by the T-Bill 3-Month Yield Index, bonds are represented by the Citigroup Corporate Bond Composite Index, stocks are represented by the S&P 500 Composite Index, and foreign stocks are represented by the Morgan Stanley Europe, Australasia, and Far East (MSCI EAFE) Index. These are unmanaged indexes that reflect the performance of these individual asset classes. Investors cannot invest directly in any index.

This material was written and prepared by Emerald Publications.
© 2009 Emerald Publications