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International Funds
There's a Whole World Out There!
By Chris Stallman

If you've combed through lists of mutual funds while looking for the right one to invest in, you've probably come across a couple international funds. Besides the usual stock and bond mutual funds that seem to stand out in the spotlight, there is another whole world of funds out there.

Although the United States is fairly large, there are still many more countries. And with each country, there is its own economy and often their own stock market. With all these extra economies and markets to invest in, international funds were created to allow investors a chance to get in on the growth of other economies.

These mutual funds are usually referred to as international funds but there are really four more specific categories: international funds, global funds, regional funds, and country funds.

International funds (also known as "overseas funds") are mutual funds that spread their assets throughout the world by investing in many different countries. By doing this, they are investing not only in slow-growing economies but they are also investing in booming economies. These funds are diversified because they actually own a small piece of the world by buying stocks or bonds from each country.

Global funds (also known as "world funds") own some US stocks or bonds in addition to stocks and bonds from other countries. The portfolio manager of these funds usually takes a less diversified approach to investing in other countries by shifting some assets from country to country depending on what he or she feels will do the best. Although they are considered "world funds", don't let the name confuse you because they usually invest 60-70% of their assets in the US economy.

Regional funds invest in more concentrated areas. Unlike global and international funds, they don't diversify by investing in many countries throughout the world. Instead they have certain regions to invest in and they buy stocks or bonds in the countries that make up that region. Some popular regions that investors invest in are Europe. the Pacific Rim, and Latin America.

Country funds concentrate even further than regional funds do. These mutual funds have a certain country that they invest in and all their assets are used to invest in that country. This is much like buying a regular equity fund because they usually just invest in the United States. These funds try to diversify their portfolio by buying many different stocks and bonds but they still have their risks and rewards.

Advantages

Disadvantages

  • Investing in emerging markets that are associated with many smaller countries often involve a lot of risk.

  • On average, international funds underperform the United States stock market because usually only a select few countries experience large growth

  • Currency fluctuations can greatly decrease your return. If the dollar is strong against the country's currency, the return may be drastically less than it appears to be. For example, if a mutual fund returns 10% and the dollar has strengthened 20% since the time of the investment, the investor can end up losing 10%.

    Investing in other countries can prove to be risky but a lot of investors choose to do so to diversify their portfolios. Although doing this may decrease your overall risk, new Buck investors should concentrate on the US stock market to avoid such worries as currency changes. Besides, the stock market can make any investor wealthy if they take a buckish approach by investing for the long-term.

    Chris is the publisher of TeenAnalyst.com, a site that helps teach and encourage young adults to start investing.

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