7 Reasons To Invest in Global Mutual Funds
1. Increased Investment Exposure – Investing in global mutual funds will increase the exposure of the investor, and usually offers more benefits and advantages. Investors who stick solely with American stocks, bonds, and other investment choices could be missing out because of limited exposure in the portfolio. If the American economy reacts unpredictably or the entire market falls then investors who do not have foreign exposure could see much higher losses.
2. Diversification – A diverse portfolio is one that is best suited for market fluctuations, and it is important that diversification is performed across all sectors and classes. A portfolio which is heavy in domestic holdings but short on global holdings is not well diversified and this mean much higher risks. There are many international mutual funds and global investments that can fit in almost any portfolio and investing strategy. Each potential investment choice will have specific risks and possible rewards, and these should be examined closely.
3. Undervalued Stocks – A number of global mutual funds include stocks that are considered undervalued. Domestic stocks are no longer a sure bet because many analysts believe that the entire American market is currently overvalued and is due for a correction. This is not the case with foreign markets, which are often undervalued as a whole.
4. Higher Yields – Most of the time foreign investments and global funds offer higher yields, but a note of caution is in order. The higher yields are typically offered because there are higher risks involved in these choices as well. The comparison of risks versus the potential returns can help investors determine whether a fund falls into the acceptable risk range or not. A big mistake is simply investing because of the yield offered without doing the necessary research.
5. A Weakening Dollar – Global mutual funds can help protect investors against a weakening dollar. When the US dollar weakens foreign assets and investments usually benefit, but the reverse is also true. If the dollar strengthens then foreign investments may drop in value so this factor can work both ways. Carefully evaluating the current value of the dollar is important to determine whether or not these funds are the right choice in a specific situation.
6. Risk Hedging – Many investors use global investments as a form of hedging, to minimize the risks included in any investment portfolio. When some regions are up others are down, and limiting the regions covered in a portfolio will normally increase the risks involved. A well diversified portfolio will include quality investment choices from as many regions as possible to hedge against the risks taken with the capital.
7. Comparative Risks When Properly Researched – Investing in global mutual funds does not have to mean choosing high risk options. Today many foreign and international investment choices have comparative risks to domestic investments. There are investments that take high risks, some that are moderate, and some that are extremely conservative in almost every part of the world. A smart investor will look at potential choices according to risk level first, and then evaluate the other factors used to determine whether an investment is a smart move or a big mistake.