Investors should always look for different ways to diversify their portfolios. One of the common strategies they pursue is investing internationally. In many ways, doing so provides protection and reduces risk since you won’t be tied to a certain country’s economy. While many financial experts agree that investing internationally is a good strategy in most situations, there are mixed feelings about what the appropriate amount should be. A lot of the answer comes down to your specific portfolio management and risk tolerance, and we’ve provided you with a few ideas and guides to help make the right decision for your portfolio.
International Exposure Provides Portfolio Diversification
Diversification is one of the biggest reasons why investors invest internationally. Market volatility happens everywhere, so the risk is still present regardless of where you choose to diversify. However, investing strictly in markets in the United States or China, for example, exposes you to greater risks since your returns are tied directly to the stock market performance in that country. Instead, spread out your investments to multiple countries to take advantage of the benefits of each, while also reducing some risk. Just be sure not to spread your investments out too thin to the point where you lose out on potential advantages at the same time.
How To Diversify With International Investments
While investing internationally offers plenty of benefits, you may not want to put a significant amount of your money into the foreign stock market. A good number many financial experts agree on is 20% of your investments could go into the foreign market. This number is high enough to where you’ll see a difference in the performance of your investments, but won’t destroy your portfolio if foreign markets crash. The 20% may be too high or too low for some investors, so evaluate your risk tolerance to understand the number that’s right for you.
Invest Internationally Based On Your Risk Tolerance
Bouncing back-and-forth between having too much international exposure and not enough isn’t the ideal way to approach portfolio management. Instead, understand your risk tolerance, set a number, and stick with the strategy. You can also consider spreading out your investments across multiple countries, including emerging markets. Common strategies often include investing in global mutual funds and ETFs as they don’t present as much risk as purchasing individual stocks. Starting with low international exposure and watching the markets closely can help you determine what your international risk tolerance is, and can give you a better feel of how to approach international investments in the future.
Stock Investing Info believes international investing is one of the most ideal ways to diversify your portfolio. New investors often have mixed feelings about investing internationally, but the good news is you can always start slowly and eventually increase exposure over the years. Sometimes it’s easiest to determine your risk tolerance by watching the stock market in various countries over time to become more familiar with them. If you have any questions or concerns about international investing or would like more tips and advice on how to diversify your portfolio, contact us at any time.