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

International Investing-IP3 - Essay ExampleOne g all overnment agency to diversify is to buy financial securities of the same asset class, but in different industry sectors that are directly affected by a different kind of variables (Yahoo, 2011). For example one can endow in stocks from the energy sector, succession simultaneously adorning in stocks of the computer technology related stocks. Since frugal and mart factors affect different industries differently, by investing in a variety of sectors, there is always a good chance of having one or more of your investments outperforming the merchandise average. Diversification also focuses on investing in different classes of assets. For example since bonds historically have a tendency to perform get around when stock performance is declining it serves well for a grind investor to allocate a percentage of their investment portfolio in the bond market depending on the investors level of risk aversion. 2) As many investors alrea dy know the market value of a security 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 world economies are seemly more interconnected and correlated changes in one market can spread like wildfire to early(a) financial markets. Some argue that for U.S. investors the benefits of investing internationally might be less compared with other countries receivable 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 emerging markets or develop economies. Even when due to their horizontal surface of correlation, international markets and domestic markets move in the same direction the degree of r esponse to the same situation might be completely different. There are more opportunities for higher up average ripostes between emerging economies and industrialized nations since the level of correlation between them is much less. Therefore opportunities bristle for extraordinary returns in international markets, albeit at the expense of an increased level of overall investment risks and effectiveness losses. 3) There are many reasons to invest in international markets Maximum portfolio performance - many investors timid 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 global economic and over 50% of the total worlds equity market capitalization comes from the international markets (Ishares, 2011). As a matter of fact, international IPOs now outnumber domestic IPOs and while international investments are typically more volatile than t heir U.S. counterparts. They are forecasted to have higher rates of produce 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