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International Mutual Funds for Your Investment Portfolio

In order to provide for a higher level of diversification and to insure against heavy shocks in the US markets many investors enrich their portfolios by purchasing stocks of international mutual funds. Generally, international mutual funds incur higher costs due to such expenses as currency conversions and commissions to analysts that are qualified to understand foreign accounting rules. The fees paid for verification of trust for the foreign investments represent another cost that the expense ratio of an international fund. Despite this, the expense ratio of international funds usually does not exceed 2%. The reason so many investors include international mutual funds in their investment portfolios, besides diversification, is that even the fund that is outside the US may suffer market downturns, it will not affect the rest of the investments.

When considering embarking on foreign market investment, you should not be too reckless in your choice and overlook the levels of potential risk. Thus, choose a mutual fund that operates within the boundaries of stable markets such as Great Britain, Brazil, Japan or other countries that are characterized by steady market developments.

The other choices that you face are emerging markets. But they incorporate great political and economic risks. Even though Congo may provide great economic opportunities for gold mining, you are not guaranteed in any whatsoever way that after finding the treasure the guerrilla armies will not take the fruits of your work.

A potential drawback of international mutual funds is their susceptibility to currency fluctuations. This means that most of them are unhedged. For example, if you have invested in Japan and you experience a growth of 30%, a decrease in the value of the dollar with 40% will leave you with a loss of 10%. If you embark on predicting the movement of the currencies under consideration, you will plunge into pure speculation, the results of which are generally not beneficial to the speculators.

International mutual funds can return you great profits, but only if you manage to successfully choose the right foreign market in which to invest. Therefore, a careful preliminary examination of the available opportunities is required.

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