It's a scary time for Americans to take their money outside the country, not simply because the weak dollar has made travel more expensive...
NEW YORK — It’s a scary time for Americans to take their money outside the country, not simply because the weak dollar has made travel more expensive but because the volatility that has plagued Wall Street for nearly a year has touched many investments abroad.
Analysts say the key to investing abroad is to have a mix of investments and not put too much in any one market.
Vladimir Milev, an investment analyst at Metzler/Payden-Financial, looked at Europe and said investments from developed markets in Western Europe and those still developing in Eastern Europe would likely work best for many investors.
But investors should realize, he said, that differences can be stark even within one region. Growth seen in Poland and Russia, for example, is well ahead of that of markets in Estonia and Hungary.
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Just as in the U.S., investing abroad used to be an easier call. The magic markets that could juice a portfolio with double-digit returns are harder to come by.
A more careful approach is needed now that all markets are not simply going up, Milev said. “Know what you’re buying and why you’re buying it,” he said.
The pitfalls of investing in only one or two countries can be severe, said Bill Rocco, a senior analyst at investment research provider Morningstar, pointing to pullbacks in China and India this year.
“It’s a reminder that there’s no perfect market. Everything goes up and down.”
Rocco said it’s wise for investors to put money outside the U.S. because of all the opportunity.
“There are lot of great companies out there,” he said. “You want exposure to them and the way to do that is through international funds.”
But Rocco also noted that investing abroad isn’t an easy way to dodge the troubles at home.
“You shouldn’t expect your foreign funds to be in the black when your domestic ones are in the red,” he said, but added, “over time, I think you’ll get some diversification value.”
He suggested investors who want to build their foreign holdings look for a fund of foreign large-capitalization stocks.
While most companies will come from developed markets, foreign large-cap funds often draw about 10 percent of their holdings from emerging markets.
And balancing international investments doesn’t simply mean hopscotching from one country to the other — just as you shouldn’t bounce from one U.S. stock or sector to another.
“You want to be conscious of your geographic diversification but also your sector and style diversification,” Rocco said.