International Investing-IP3 Essay Example | Topics and Well Written Essays - 1250 words

International Investing-IP3 - Essay ExampleOne way to diversify is to buy financial securities of the very(prenominal) asset class, but in various industry sectors that are directly affected by a unlike kind of variables (Yahoo, 2011). For example one can invest in stocks from the energy sector, trance simultaneously investing in stocks of the computer technology related stocks. Since economic and market factors affect different industries differently, by investing in a conformation of sectors, there is always a good chance of having one or more of your enthronisations outperforming the market average. Diversification also focuses on investing in different classes of assets. For example since bonds historically have a tendency to perform better when stock performance is declining it serves well for a savvy investor to allocate a theatrical role of their investment portfolio in the bond market depending on the investors level of risk aversion. 2) As many investors already know t he market value of a security measure is determined by a variety of financial, market and socio-political factors. The volatility of the market value of investments is a risk all investors have to accept and plan for. Since the land economies are becoming more interconnected and correlated changes in one market can spread like wildfire to other financial markets. Some reason that for U.S. investors the benefits of investing internationally might be less compared with other countries out-of-pocket to the wide variety of highly diversified multinational corporation stocks available to U.S. investors though local markets as a well developed and diversified economy. There is still a lot of room for the savvy investor to allocate part of its investment portfolio in the international markets especially in emergent markets or underdeveloped economies. Even when due to their degree of correlation, international markets and domestic markets move in the same direction the degree of respo nse to the same situation might be completely different. There are more opportunities for above average returns between emerging economies and industrialized nations since the level of correlation between them is much less. Therefore opportunities abound for extraordinary returns in international markets, albeit at the expense of an increased level of boilersuit investment risks and potential losses. 3) There are many reasons to invest in international markets Maximum portfolio performance - many investors shy away from investing internationally since they view it as too risky or complex. As a matter of fact although most U.S. investors tend to focus their portfolio domestically, more than 75% of the world(prenominal) economic and over 50% of the total worlds equity market capitalization comes from the international markets (Ishares, 2011). As a matter of fact, international initial offerings now outnumber domestic IPOs and while international investments are typically more volatil e than their U.S. counterparts. They are forecasted to have high rates of growth than their domestic counterparts. Lower portfolio volatility-By investing in international securities investors can lower portfolio volatility and maximize their return on investment. The use of a single type of investment instrument increases the risk associated with the investment alternative. When investors invest in both the domestic and international markets they are opening the doors of opportunity due to the fact that the investor has the