by Ken Stelts
Did you ever stop to consider where the everyday products you use come from? Whether you’re watching television, talking on a cell phone, making coffee, driving a car, or performing dozens of other activities, you may be using goods that are manufactured outside the United States. As a consumer you may find this mildly interesting. But as an investor, you’ve definitely got something to think about.
Although the fates and fortunes of U.S. companies dominate the business news, many foreign companies are good investment possibilities. But how do you find them? And is there anything special you need to know about buying shares of international stocks?
Actually, investing in foreign companies isn’t really that difficult, as long as you keep a few things in mind:
Know the risks involved. You can find solid investment opportunities in strong foreign companies, but you also have to be aware of some special risks. A variety of factors – including political instability, currency fluctuations, economic climate, foreign taxes and differences in financial reporting standards – can affect your stock holdings. While you may not be able to predict these events, you can at least factor them in when making you investment decisions.
Diversify. When you own U.S. stock, you need to diversify – and diversification is no less important when you invest internationally. That’s why you may want to consider investing in mutual funds that own a variety of foreign stocks. You can choose a global stock fund, which invests in stocks of companies located around the world, including the U.S., or you can pick an international stock fund, which invests in securities of companies located in developing markets outside the U.S., such as Japan, Western Europe, South America, etc. When it’s time to choose a particular global or international mutual fund, don’t just settle for the first one you come across. Before you invest, compare a fund’s management experience, investment philosophy and total expenses with other global or international funds.
Focus on a company’s fundamentals. When you invest in any stock – U.S. or foreign – you need to take a close look at the company’s fundamentals. Is its management stable? Is the company well positioned within its industry? Is the industry itself growing? When you can answer these types of questions, you’ll be in good position to make an informed investment decision.
Don’t overweight your portfolio with foreign investments. Foreign investments can be a valuable part of your diversified investment portfolio – but they shouldn’t make up too heavy a percentage of your overall holdings. Even if you’ve done your research on foreign stocks, they will always represent more of an “unknown” than U.S. stocks – and, in the investment world, the element of mystery is rarely a good thing.
Finally, get help from an experienced investment professional. He or she can help guide you through the international investment scene – hopefully make your journey a pleasant one.
Investment Representative Ken Stelts can be reached at 949-496-0623.