International Mutual Funds

More and more investors today are seeking investment opportunities outside the United States. This makes economic sense. Although the United States is still a dynamic, growing nation, it’s also a mature country, whose business, social, and economic structures are largely in place. By contrast, some other regions of the world have the potential of growing very quickly in the years ahead, as they try to rapidly catch up to the United States in terms of industry and consumer spending.
Investors seeking growth opportunities should consider putting at least part of their money into international or global mutual funds, which specialize in foreign investments. Naturally, international investing involves many complexities. Someone who invests in foreign stocks has to worry about foreign economies, interest rates, tax laws, political conditions, and business practices. But with an international mutual fund, the fund manager does all the research — and the worrying — for you. You gain exposure to overseas opportunities without the headaches.
One type of risk that is unique to international investing is currency risk. When you put $1,000 in an international fund, you are, in effect, buying foreign currency, because the fund has to change your dollars into German marks, Russian rubles, Indian rupees, or some other foreign money before it can be invested.
As you know, the exchange rate between U.S. currency and other currencies is constantly in flux, based mainly on changes in the world and local economies. One day, the U.S. dollar may be worth 110 Japanese yen; the next day, it may rise to 150 yen. When the U.S. dollar is up, the relative value of your foreign holdings will go down. On the other hand, when the dollar drops, your foreign currencies go up, which is an added benefit to your portfolio.
To minimize the dangers of currency risk, try to limit your international investing to long-term money — funds you won’t need to withdraw quickly. By exercising patience, you can wait for a favorable movement in currency values before you sell your shares. Also, try to diversify your international holdings. Pick funds that invest in several international economies rather than just one. Currency losses in one country can offset profits in another.
International funds include funds that invest in specific countries, such as England or Japan, as well as regional funds. The term global is generally used to describe funds that invest in U.S. companies as well as foreign ones.