Chet Osterhoudt: Should you be a global investor?

Investment opportunities don’t stop at the U.S. border. But what should you know about investing internationally?

To begin with, what is an international investment? Essentially, it’s an investment in companies based outside the United States. Investors can purchase individual foreign stocks, but many people choose international mutual funds or international exchange-traded funds, which can be traded like stocks and track a specific market index. It’s also possible to invest in bonds issued by foreign governments or entities. However, investors should typically focus on diversified funds and exchange-traded funds for international exposure in their portfolios.

When you invest internationally, you can receive at least two key benefits. First, international investments can help diversify your portfolio. When you spread your investment dollars among a variety of investments, you can help reduce the impact of market volatility that might affect one type of asset particularly hard. For example, if you only owned stocks and the market went through one of its inevitable downturns, your portfolio would likely take a bigger hit than if you also owned bonds, government securities, certificates of deposit and other investments. And when you invest internationally, you’re adding still another layer of diversification — because in any given year, U.S. stocks may be down while those from other regions of the world could be up. Keep in mind, though, that while diversification can help protect you somewhat from market movements, it can’t guarantee profits or prevent all losses.

Another advantage of international investing is that it can give you more opportunities for growth. You can benefit from taking part in emerging markets that may offer significant growth potential, fueled by rising consumer spending and rapid advances in technology. Of course, you can certainly find many growth-oriented investments in the U.S., but by broadening your outlook to include the whole world, you also widen the playing field for growth possibilities.

International investing does carry some special considerations, including currency risk, political risk and liquidity risk. And because it’s more challenging to understand the global investment picture, you may want to work with a financial professional.

Still, it’s a big world out there — and as an investor, you may want to explore it.