As global economic barriers diminish, investing internationally has become increasingly popular. Foreign markets now account for more than half of the worlds market capitalization and are expected to continue to grow relative to domestic markets. Global markets can offer increased investment opportunities as well as potential risk reduction by providing additional diversification.
Investors in international securities, however, may face additional risks, such as higher taxation, less liquidity, political problems, and currency fluctuation that do not affect domestic investors. It is important to keep in mind that a U.S. investors foreign-investment return depends on both the local currencys exchange value against the U.S. dollar and the stock price in the local currency.
An easy way for individuals to invest internationally is to buy shares of global or international mutual funds, which can be broadly diversified or target particular regions or countries. Or, you can invest in stocks of U.S. companies, such as Coca-Cola or McDonalds, that derive a large portion of their annual revenue from overseas markets. You can also buy stocks of foreign companies through American Depositary Receipts (ADRs) -- traded on the New York Stock Exchange.
There are special risk considerations associated with international investing related to market, currency, economic, political, and other factors.