Guys, if you’re worried about your investment future you’re not alone. I’m right there with you. My portfolio took a hit like many others’ did at the height of the economic downturn. I was down, but I wasn’t out, though. I stayed afloat and recovered from the economic slump through diversification and staying informed and you can too. Below are a few tips to helping your portfolio survive and even thrive in a tough economy.
Diversification is Key
When you consider that the US stock hares only make up roughly 30 percent of the entire global market, if makes sense to diversify your stock portfolio with international interests. There are dozens of stock exchanges worldwide, such as the Tokyo Stock Exchange, the London Stock Exchange, the Australian Securities Exchange and the Egyptian Exchange, just to name a few. Adding international stocks to your portfolio will offer true diversification, you will be able to invest in companies in practically any industry known to man, and you will be able to better invest areas of the economy that are the most profitable such as energy, consumer appliances and electronics, since many of the larger companies who produce these products exist outside the United States.
Another positive to international diversification is that investing internationally offers a sort of balance for your portfolio. In many instances, when a US stock takes a hit, stocks on other world markets will remain unaffected. Diversification helps to balance out the overall value of the portfolio. Of course, there are cases where stocks worldwide move in the same direction, but generally speaking, each exchange and the companies on it are independent of other exchanges.
We all know there is risk involved when buying stock from non-US companies – or any stock, for that matter. The value of the stock is based on the value of the country’s money and not on the US dollar. So, if you purchase stock in a German company and the Euro’s value rises against the dollar between when you bought and sold the stock, you will make a profit. However, if the Euro’s value falls, you will lose money on the investment regardless of how the company itself is actually doing.
Another risk is the country’s stability. Countries that show political or civil unrest do not make the best candidates for your portfolio, no matter how successful the company. Political unrest can lead to a change in leadership, and that can directly affect how a business can conduct itself. Civil unrest means the business could be in jeopardy or fall victim to sabotage. Before investing in an overseas company, it is wise to examine not only the company’s stability, but the country’s location as well. Consider the use of a country risk report to assist you in determining the overall risk an investment poses. If the investment has been stable for a good amount of time, the company could be a wise investment.