Why do people include the stocks and bonds of foreign companies in their portfolio?

Question

Please give me as many reasons as possible to the previous question.
Would you recommend that these investments be made in foriegn currencies or should the currency risk be hedged?

Answer 1

International debt and equity is part of a diversified portfolio for a number of reasons.

First, to spread risk. If the US economy flattens out, other countries may not.

Second, to take advantage of international growth. As the largest economy on the planet, it's harder for big US companies to grow as fast as their counterparts in less developed markets. US companies already take advantage of the amazing infrastructure we have here. Imagine the growth spurt a telecom company in a 3rd world country would undergo as that country gets "wired up" (or as wireless tech gets better) and more of the population become potential customers

Third, I suppose currency diversification is important to some degree, but there are better ways to get it than foreign stocks and bonds

Fourth, higher returns on a lot of international debt than US debt

How's that -- for a start, at least.

Answer 2

A lot of foreign investments are priced better than American firms. The American market is priced very high at this moment. Any sense of value as a discounting of cash flows implies that owners of the S&P 500 will see very little return for their money. This isn't true everywhere and so money flows overseas.

You should only hedge currency risk if it a material issue to your goals. Hedging must reduce return because you are insuring a segment of your portfolio.

There is an exception to this of course, and that is if you already receive foreign earned income.

Answer 3

If you are really into "investing" and you have a large enough portfolio one of the things you want to have is diversity of your investment [not all your eggs in one basket]. An "investor" [again if you have a large portfolio] is actually spreading its risk by not having a concentration of investment in a particular company, industry or for that matter country. This requires a degree of sophistication and continue monitoring. One way of having this type of investment and at the same time having a lower risk is by buying into a mutual [or like] fund that carries in its portfolio investment in foreign companies....if you do that you would not have to hedge....It would seem that with so many industries, and excellent companies in the US any investment "overseas" must be carefully thought.....

Answer 4

In addition to the 1st responder who gave you an excellent and very comprehensive answer, many foreign areas are growing much more rapidly than the U S. China and India in particular. Does it not make some sense to take advantage of the opportunity to invest where there is better opportunities.

Answer 5

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Answer 6

I suggest foreign currencies (As long as those are British Pounds and Euros)

Answer 7

Bonds of foreign companies often have much higher yields here is a low cost internet provided of global bonds: http://bond-yields.com

Answer 8

Diversity. But I always buy mutual funds, not stocks, in foreign countries.