If you want to spread your portfolio outside national boundaries, international mutual funds are one idea to consider. By investing in companies outside the United States, international mutual funds offer a way for you to diversify not only across industry sectors and securities but across countries as well.
Fluctuations in the exchange rate between foreign currencies and the dollar add an extra layer of risk, as well as possible upside potential. A weak dollar may make shares denominated in a foreign currency more expensive; but when you sell the shares, a weak dollar could strengthen your return.
When you move money into foreign markets, it is important to consider a variety of factors, such as how foreign markets are valued compared with U.S. investments and how the financial and political climate of the region can affect your investments. Civil unrest, elections, terrorist attacks, and even the threat of such events can be enough to affect stock prices.
Mutual fund shares fluctuate with market conditions and, when redeemed, may be worth more or less than their original cost. Diversification does not guarantee against loss; it is a method used to help manage investment risk.
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