In less than two weeks, United Nations Day will be celebrated.
It's an occasion to highlight and reflect on the work of the United Nations, whose mission is to promote understanding and cooperation among the world's countries.
Of course, in an era of instantaneous communications and speedy global travel, we are all connected much more closely than ever before. And thatís certainly true in the financial markets, too, because as an investor, you've got a world full of opportunities.
Many people, however, still think the U.S. totally dominates the investment scene. But the fact is that U.S. stock markets make up less than half of the total global stock market value, according to the Census Bureau.
And that should come as no surprise to you when you consider many of the products you use on a daily basis, from the Hyundai (South Korea) you drove to work to the Nestle Crunch bar (parent company in Switzerland) you snacked on at lunch to the Sony television (Japan) you watch at night.
Not only are many strong companies based in the developed countries, but some emerging markets - countries such as China, India, Brazil and Mexico that are characterized by younger, less mature economies - are growing rapidly, which may produce good investment opportunities.
Keep in mind, though, that emerging markets do involve investment risks different from those of more developed countries. Securities may be less liquid and more volatile because economic structures are generally less diverse and mature.
And by investing internationally, you can gain another key benefit - improved diversification. If you only invested domestically, and a downturn hits us, your portfolio will likely take a hit.
But, at any given time, international markets may perform quite differently than the U.S. market. Consequently, if you expanded your investment horizon beyond U.S. borders, your foreign investments could be doing relatively well, even if your American investments were lagging.
Keep in mind, though, that diversification, by itself, cannot guarantee profits or protect against loss, though it may be able to help reduce the effects of volatility.
While you can gain some benefits by investing internationally, you'll also need to consider the risks, such as political risk. For example, new governments can come in, nationalize companies, drastically change policies or rules affecting commerce, or take other actions that could have a big effect on your investments.
You can enhance your portfolio's diversification without investing a lot abroad. If you are considering international investments you may want to limit the foreign exposure to no more than 20 to 25 percent of your overall portfolio, with the exact amount depending on your individual risk tolerance, time horizon and long-term goals.
Warren Albrecht is a contributing columnist for The Nueces County Record Star. Readers may contact him at (361) 242-1013.