Why invest internationally? | Vanguard (2024)

FAQs

Why invest internationally? | Vanguard? ›

Markets outside the United States don't always rise and fall at the same time as the domestic market, so owning pieces of both international and domestic securities can level out some of the volatility in your portfolio. This can spread out your portfolio's risk more than if you owned just domestic securities.

However, non-U.S. stocks may be attractive due to lower valuations, higher dividend yields and growth potential in select regions. Investors should consider such investments as an inexpensive way to hedge portfolios against a potential U.S. stock-market pullback.

International investing is an investment strategy that involves selecting global investment instruments as part of an investment portfolio. People often invest internationally to expand diversification and distribute investment risk between markets and global companies.

Understanding International Market Investing

Because of U.S. government restrictions and regulations, international investing offers various advantages that domestic stocks cannot provide. It can also help investors build diversified portfolios and prevent economic risks from compromising long-term growth and profit.

Start by allocating 15% to 20% of your equity portfolio to foreign stocks. That's the percentage I typically maintain in the Vanguard portfolios. It's meaningful enough to make a difference in your overall returns, but not so much that it will ruin your portfolio when foreign markets temporarily fall out of favor.

International investing means holding securities issued by companies or governments outside an investor's home country. Through global investment, portfolios are more diversified and may enhance returns and reduce portfolio risk.

In conclusion, foreign direct investment can benefit host nations greatly by fostering economic expansion, creating new jobs, and transferring knowledge. It also presents difficulties, such as the possibility of losing power, rivalry for resources, and susceptibility to global economic trends.

One of the major factors that influence international investment is the potential return on alternative investments in the home country or other foreign markets. financial term that refers to the cost you face when picking one investment instead of another that might be more profitable in the long run.

Developed Markets

Their economic systems are well developed. They are politically stable and the rule of law is well entrenched. Developed markets are usually considered the safest investment destinations, but their economic growth rates often trail those of countries in an earlier development stage.

The main reasons to invest internationally are to capture higher expected returns and to diversify portfolios across a broader array of asset classes. This can lower the overall volatility of a portfolio and increase the likelihood of benefiting from the return premiums associated with different risk factors.

Why can investing in international markets be a good strategy to hedge against this? ›

Benefits of International Investing

Diversification: Investing in international markets can reduce portfolio risk by spreading investments across different economic cycles, industries, and companies.

There are three basic benefits to a company using an international strategy. These benefits are: (1) larger market access, (2) economies of scale with additional learning opportunities, (3) strategic and lower cost location advantages such as labor and energy.