Saturday, October 08, 2005

Why Invest in International Funds Now?

(MF) -- Though the U.S. economy led the world in the 1990s, the global economy has expanded with more regional balance since the 2001 recession. Today, financial experts say international markets remain full of potential, offering opportunity and protection for investors.

Developing economies like Brazil and China are growing faster than the U.S., while older economies like Japan and Germany are restructuring to become more productive.

"We think non-U.S. markets can outpace U.S. stocks in coming years," said Jerome Jacobs, managing director at Putnam Investments, which manages about $40 billion in international assets, as of May 31, 2005.

By investing some of your money abroad, you may benefit from diversification across markets. That’s a reason most company retirement plans include international mutual fund options, giving employees diverse choices for growth and managing risk.

Though U.S. stocks should form the core of your portfolio, experts say international stocks have a role to play because of attractive price and international markets’ lower interest rates, which help business growth and typically boost stock prices. Short-term interest rates in European Union countries like France and Germany are around 2 percent, and in Japan, around 0.1 percent. By contrast, U.S. rates reached 3.25 percent in June and appear to be headed higher.

"Looking outside the United States, stocks remain cheaper and earnings growth rates more impressive in many areas," Jacobs said.

Jacobs also sounds a cautionary note that international investing does involve certain risks, including currency fluctuations, economic instability and political developments.

Once you decide to add international investments to your portfolio, think about strategy. A financial advisor who understands the principles of investment diversification and has experience picking international mutual funds can be helpful in devising your plan.

Typically, advisors recommend putting a small portion of your portfolio abroad, usually 10 to 15 percent. Similar allocations are recommended when investing through a retirement plan such as a 401(k) plan or IRA.

Check to see whether your plan offers actively managed mutual funds that invest a portion of their money in international markets, while keeping most in the United States. Even a small percentage can add diversification and growth potential, whatever type of international fund you choose.

On the Net:
Putnam Investments site:


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