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Is It Smart To Invest In Foreign Stocks? Nine Experts Weigh In

Expert Panel
POST WRITTEN BY
Forbes Finance Council
This article is more than 6 years old.

While foreign equity accounts for roughly half of the global equity market according to leading investment company Vanguard, many American investors remain skeptical about exposure to international markets and prefer to put their money in domestic stock.

Financial organizations and authorities such as the Securities and Exchange Commission generally consider international investments beneficial, in terms of diversification of portfolio, reduced volatility and growth potential. However, buying foreign stocks is not free of risks, and any potential investor should carefully consider issues such as the costs of investing abroad, accessibility of information, exchange rate risks and even political instability.

Nine Forbes Finance Council members explain below whether foreign stock investments are a smart financial move and detail the possible advantages and disadvantages of international investing.

All photos courtesy of Forbes Finance Council members.

1. Foreign Stocks Can Be Incredibly Beneficial

By ignoring investment opportunities outside of the U.S., you’re missing out on approximately half of the investable developed stock market opportunities in the world. International equities can provide an additional layer of diversification for investors' profiles and can reduce risk while providing similar or greater returns. While U.S. equities are up, international ones can be down, and vice versa. - Elle Kaplan, LexION Capital

2. Diversification Always Pays Off

Don't put all your eggs in one basket. The U.S. market (stocks, bonds, currencies, and all) is one basket, and it is sound portfolio management to spread out the risk. In a domestic boom cycle, you may question this decision, but what goes up must come down. Eventually, the U.S. market will correct more than international ones, and that is when the diversification will pay off. - Atish Davda, EquityZen

3. Returns May Not Outweigh Investment Benefits 

U.S. investors will probably do just fine limiting themselves to only investing in U.S. stocks. Adding foreign stocks to their portfolio may have some benefits in terms of diversification and, perhaps, lower volatility, but over the long run, I would be surprised if other major developed economies will grow faster than the United States. That is bound to translate into higher returns eventually. - Gabriel Grego, Quintessential Capital

4. Foreign Stocks Bring Exposure To Even Smaller Investors 

The majority of U.S. investors do not have sizable enough portfolios to include a particular foreign stock in their strategy. I do, however, believe in advising clients on the diversification benefits of foreign index funds. Index funds offer excellent diversified foreign exposure to even smaller investors. I would also suggest looking at both developed and emerging foreign market indexes. - Rob Gabridge, Tarfis Wealth Management

5. Overseas Exposure Leads To Increased Revenues 

U.S. investors are actually invested in overseas markets already. If you take a look at the revenues derived from the overseas operations of large multinational corporations, such as those included in the Standard & Poor's 500 Index, most have significant portions attributed to these areas. Of course, relative currency valuations play a large role in whether U.S. corporations benefit from these overseas exposures. - Ivan Illán, Aligne Wealth Preservation & Insurance Services LLC

6. Foreign Stocks Can Be High Risk, High Return 

What’s your tolerance for risk? What is your investment plan? What kind of portfolio are you building? Without knowing what your strategy is, it’s hard to answer this question. Generally, foreign stocks are going to be a high-risk, high-return type situation. Is that what you’re looking for? - Ismael Wrixen, FE International

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7. A Well-Balanced Portfolio Is Key 

There's such a run up in the U.S. markets now that the international markets are lagging behind. Despite that, I personally believe a well-balanced portfolio includes both domestic and international equities. It makes sense to invest a portion of your portfolio internationally so that when they do start to rise, you'll get a good return, especially when the U.S. markets start deflating. - Justin Goodbread, Heritage Investors

8. Reduced Correlation Helps Reduce Risk 

Investors everywhere should consider foreign stocks. America’s stock market is the most mature, diversified and self-stoking in the world but investing abroad helps reduce correlation, which in turn reduces risk. Also, many foreign markets are cheaper. But global diversification is not as important today, in part because most S&P 500 companies have major international operations and/or sales. - Seth Allen, Pinkowski-Allen Financial Group

9. Foreign Stocks Help Investors Take Advantage Of Global Economy

U.S. investors should have some exposure to foreign stocks in order to take advantage of the global economy. A balanced and diversified portfolio will have some foreign stock exposure but that is not to say that foreign stocks should be the majority of a portfolio any more than a specific sector, such as precious metals or energy, should be the majority. - Jacob Alphin, Rillhurst Capital