The United States is often considered the investment capital of the world. We are home to some of the world’s most valuable corporations. Our stable legal and monetary systems make this country highly attractive to global capital.

It may be tempting to think that investing at home is enough, but this kind of thinking misses opportunities. In 14 out of the past 30 years, foreign stocks were the top–performing asset class, compared with domestic stocks, bonds, and cash equivalents (see table below). If you had ignored foreign investment opportunities during this period, you would have missed out on owning an asset class that outperformed the other three in almost one out of every two years since 1977.

It’s wise to spread your investment dollars over multiple asset classes, but this doesn’t mean that rushing out to buy a handful of foreign investments is the ticket to easy money. Foreign equities are subject to some risks not present with U.S. investments. They need to be understood before you invest.

Currency Fluctuations

Investments denominated in a foreign currency are influenced by the exchange rate with the U.S. dollar. For example, when a foreign currency is weak against the dollar, investors may get more for their money. On the other hand, if the foreign currency grows even weaker, the principal and any return may lose value when exchanged back into dollars.

Political and Economic Stability

We may take for granted the degree to which property rights are enforced in this country, but our protections are among the strongest in the world. Investing outside the United States requires an understanding of the political and economic forces at work in the nations that have promising investment potential. It also requires an ability to understand a country’s accounting standards in order to ensure accuracy in due diligence.

Foreign investments can play a role in most balanced portfolio strategies. If you are interested in learning more, we can help you determine whether investing abroad is appropriate for your portfolio.

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