The idea of investing in international markets can be daunting for many investors. Many believe international equities don’t align with a conservative, long-term strategy, while others are simply overwhelmed by the plethora of international stock options. The idea of investing in international markets can be daunting for many investors. Many believe international equities don’t align with a conservative, long-term strategy, while others are simply overwhelmed by the plethora of international stock options.
With so many options, investors may find it difficult to know where and when to invest. Further, many investors don’t have the time or the tools necessary to do the extensive research required to select viable stocks outside of the United States.
Yet, with over three-fourths of the global economy resting in international equities , investors who are exclusively invested in the United States are missing out on a large piece of the global pie.
Diversified portfolios are key
At WealthJar, we believe that even the most conservative strategy should include at least a five percent allocation in international equities to achieve adequate diversification.
While a stand-alone investment in international stocks would generally increase an investor’s exposure to risk, the use of this asset class as a diversifying element can reduce exposure to correlating equities in the United States.
- International equities tend to respond differently than domestic stocks to market cycles and events – producing uncorrelated returns to diversify a portfolio’s performance .
- International equities can also provide investors with opportunities for growth. This is in part due to the availability of a natural resources, the strength of exports, population growth, and trends toward free-market economic policies that exist in foreign markets.
Balanced but aggressive approach to emerging markets
While our most conservative approach to international equities consists of a five percent allocation to equities in developed markets, we also recommend allocations to equities in emerging markets in our balanced growth, and aggressive strategies.
- Emerging markets, which are defined as developing countries that are seeing increased industrialization and high growth rates, give our clients greater potential for growth, while also giving them the potential to decrease risk by adding an extra layer of diversification.
- Emerging markets can provide added diversification since they tend to perform differently than developed markets in the international equity sphere.
Investing in foreign markets can be beneficial for many investors, but becoming adequately diversified in this sphere can be cost prohibitive. This can be especially true for investors who are just starting out.
This is why we employ the use of ETFs or Exchange Traded Funds. ETFs incorporate affordability, diversity, and ease of use characteristics that benefit investors in a variety of ways. In the case of international equities, ETFS have the potential to offer an investor broad exposure to a specific sector in the foreign sphere.
Here at Wealthjar, the funds we use combine low fees, strong tradability, broad coverage and a healthy assets base to give investors a cost efficient way of gaining exposure to a basket of large and mid cap equities.
(add time requirement for our ETF picks)