As an investor in 2023, you may be considering expanding into foreign and international stocks to diversify your portfolio and take advantage of potential growth opportunities abroad. With proper research and planning, investing overseas can provide exposure to emerging markets as well as established economies. In this article, you’ll receive top recommendations for investing in foreign and international stocks through 2024.
Learn strategies to mitigate risk, key factors to research per country, and types of companies poised for growth as the world economy evolves. You’ll also get suggestions on platforms and accounts providing efficient access to foreign stock exchanges. Arm yourself with the latest advice to make informed decisions as you venture into international equities in the next two years.
Research and Understand Foreign Markets Before Investing
Analyze Market Fundamentals
Before investing in foreign or international stocks, conduct thorough research on the fundamentals of potential target markets. Analyze macroeconomic indicators like GDP growth, inflation, interest rates, and currency strength or weakness. Study the overall health and stability of the economy and political system. Identify industries that are growing and thriving. These factors will determine the risks and opportunities in a given market.
Evaluate Individual Companies
Next, analyze specific companies within attractive industries. Compare financial metrics like revenue, profits, P/E ratios, and dividend yields to determine whether a company is undervalued or poised for growth. Examine business models, competitive positions, growth strategies, and risks. Look for companies with solid management teams, innovative products, and competitive advantages that can translate across borders.
Consider Currency Risks
When investing in foreign stocks, understand that currency fluctuations can impact your returns. If the value of the foreign currency declines relative to the U.S. dollar, it reduces the value of any profits or dividends paid out. You can hedge currency risk using currency-hedged ETFs and mutual funds, or you may choose to accept some currency volatility in hopes of higher long-term returns. The key is making this choice consciously based on your risk tolerance.
Diversify Across Countries and Regions
A well-diversified international portfolio should include stocks from both developed and emerging markets in Europe, Asia, Latin America, and other regions. Allocate more to faster-growing emerging markets for higher potential returns, but balance with more stable developed markets to manage risk. Within each market, choose a mix of small, medium and large companies in a variety of industries. Wide diversification is the best way to achieve strong risk-adjusted returns over time in foreign stocks.
In summary, taking the time to thoroughly research foreign markets and companies before investing can help ensure you achieve the best results when diversifying into international stocks. Analyzing fundamentals, growth opportunities, risks, and diversification strategies will lead to a well-balanced portfolio poised to generate solid long-term returns. With the global economy becoming increasingly interconnected, foreign stocks should play an important role in any investment plan.
Focus on Long-Term Growth When Investing in International Stocks
When investing in foreign and international stocks, it is prudent to maintain a long-term outlook. Short-term fluctuations in share prices are common due to global economic factors outside of any company’s control. However, over longer time horizons of 5-10 years or more, high-quality international companies with competitive advantages and strong growth prospects have the potential to generate solid returns.
Diversify Across Countries and Sectors
A well-diversified portfolio of international stocks helps mitigate country-specific and sector-specific risks. Invest in a range of developed and emerging markets, and in multiple sectors like technology, healthcare, consumer goods and finance. Geographic diversification provides exposure to faster-growing emerging economies as well as more stable developed markets. Sector diversification reduces the impact of industry downturns.
Focus on Fundamentals
Do thorough research to find high-quality companies with durable competitive advantages, strong balance sheets, and a track record of sales and earnings growth. Valuations also matter, so try to buy at reasonable prices. Monitor factors like GDP growth, currency values, and commodity prices to understand the macroeconomic backdrop, but invest for the long run based on company fundamentals.
Hedge Currency Risk (Optional)
For US investors, currency fluctuations can impact returns from international stocks. You may want to consider hedging this currency risk, for example by investing in currency-hedged ETFs or mutual funds. However, over long time periods currency movements tend to balance out, and a falling US dollar could actually boost returns from unhedged investments. Whether or not to hedge currency risk depends on your risk tolerance.
Investing in foreign and international stocks for the long term can provide excellent diversification and growth opportunities for your portfolio. By taking a patient, fundamentals-based approach and spreading risk across various countries and sectors, investors can tap into the potential benefits of global equity markets.
Diversify Across Countries and Regions
One of the key benefits of investing in foreign and international stocks is the diversification it provides for your portfolio. To maximize this benefit, focus on diversifying across different countries and regions. Do not concentrate all of your foreign stock investments in just one or two countries or regions.
Developed vs. Emerging Markets
Consider investing in both developed markets like Western Europe, Australia, and Japan, as well as emerging markets like China, India, Brazil, and parts of Southeast Asia. Developed markets typically offer more stability while emerging markets have higher growth potential. A mix of both provides balance.
Geographic Diversity For Investing in Foreign and International Stocks
Look for investment opportunities across the globe, from Europe to Latin America to Africa to Asia. Different geographic regions will face different economic conditions, risks, and opportunities. What underperforms in one region may outperform in another. Geographic diversity helps reduce risk.
Sector Diversity
Choose foreign stocks across different industries and sectors like technology, finance, healthcare, consumer goods, industrials, and more. Some sectors may fare better during economic downturns while others thrive during upswings. Sector diversity creates stability.
Diversifying across countries, regions, and sectors is one of the best ways to manage risk when investing in foreign and international stocks. Do not put all of your eggs in one basket. Spread your investments around to have the best chance of strong, consistent returns over the long run, even when some parts of the global economy struggle. Review and rebalance your foreign stock portfolio regularly to maintain optimal geographic and sector diversity.
With the right diversification strategy, foreign and international stocks can be a valuable addition to your investment portfolio over the next two years and help you achieve your financial goals. But diversify you must to invest with confidence.
Be Mindful of Currency Risks
As you consider investing in foreign or international stocks over the next couple of years, you must remain aware of the inherent currency risks that accompany foreign investments. Currency risks refer to the potential for changes in currency exchange rates to reduce your returns or increase your losses from foreign investments.
Monitor Currency Exchange Rates
Closely monitor the exchange rates between the U.S. dollar and the currencies of the countries in which you invest. If the dollar strengthens compared to a foreign currency, your foreign investment returns could decline significantly once converted back to dollars. For example, if the value of the euro falls 10% against the dollar, your European stock returns would need to increase more than 10% just to break even after conversion.
Consider Currency Hedging
You may want to consider currency hedging strategies to mitigate some of the currency risks. Currency hedging involves taking offsetting positions to reduce the impact of currency fluctuations on your foreign investments. The most common hedging strategies are currency forwards, futures, and options. These strategies can be complex, so you may need to consult a financial advisor.
Focus on Strong Currencies
When selecting foreign stocks, focus on countries with strong, stable currencies that are less likely to decline substantially against the U.S. dollar. Countries like Canada, Australia, and New Zealand have historically stable currencies correlated with the U.S. dollar. In contrast, currencies of developing countries can be very volatile.
Diversify Across Currencies
Another way to manage currency risk is to diversify your foreign stock investments across various countries and currencies. Don’t concentrate your investments in any single foreign currency. Spread them across both developed and emerging market currencies to avoid overexposure to any one currency.
With prudent management of currency risks, foreign stock investments can be an excellent way to diversify your portfolio. But never lose sight of how currency fluctuations can impact your returns. Close monitoring and selective hedging of currency risks will serve you well as you invest overseas.
Use Low-Cost Index Funds for International Exposure
Diversify Your Portfolio
Investing in foreign and international stocks provides diversification that reduces risk. By allocating a portion of your portfolio to international equities, you reduce dependence on the U.S. market and economy. If the U.S. market declines, international stocks may hold steady or even increase in value. Over the long run, international stocks have achieved returns comparable to U.S. stocks.
Take Advantage of Economic Growth Overseas
Developed economies in Europe and Asia as well emerging markets offer opportunities for economic growth that may outpace the United States. Exposure to faster-growing foreign economies can boost the overall returns of your investment portfolio. Many large companies based overseas also have a global presence and are poised to benefit from increasing international trade and globalization.
Consider International Index Funds
For most investors, low-cost index funds are the simplest way to gain international stock exposure. International index funds track the overall performance of stock markets in developed and emerging economies outside the U.S. Top fund companies like Vanguard, Fidelity and Charles Schwab offer funds tracking major indexes like the MSCI EAFE (Europe, Australasia, Far East) and MSCI Emerging Markets. Fees for these funds are typically under 0.5% annually.
Determine Your Allocation
Most investment experts recommend allocating at least 20 to 30% of your stock portfolio to international equities for adequate diversification. You can choose a mix of developed market and emerging market funds based on your risk tolerance. An allocation closer to 70% U.S. and 30% international is suitable for average investors. More aggressive investors may opt for a 50-50 split or even favor international stocks. Review and rebalance your allocations at least once a year to ensure proper diversification.
In summary, for broad international stock exposure and the potential benefits of diversification and growth, low-cost index funds tracking major non-U.S. stock indexes are an excellent choice for many investors. An allocation of 20 to 50% of your total stock portfolio to international index funds can help reduce risk while providing opportunities for solid returns over the long run.
Conclusion
In closing, you now have several key recommendations to consider when investing in foreign and international stocks through 2024. By diversifying your holdings across global markets, balancing emerging and developed economies, and regularly rebalancing your portfolio, you can take advantage of growth opportunities abroad while minimizing risk.
Be sure to consult licensed financial advisors to determine the right asset mix and strategy tailored to your investment goals and risk tolerance. With prudent planning and disciplined execution, investing overseas can play an integral role in achieving your financial objectives in the years ahead. Stay focused on the long-term horizon and avoid reactionary moves to short-term market swings.