The Benefits and Pitfalls of International Diversification Most portfolio managers whether they work for an institution or for personal gain have heard of the benefits of International Diversification. Now more than ever, the application and understanding of international diversification is relevant. The basic premise of such diversification is that by doing so you will achieve a better risk-return trade-off. Investing internationally should conceivably lead to higher return with the same or even less risk than investing in purely domestic companies. Those who invest internationally often times see better return overseas (Shapiro, 385). One caveat of such diversification is that it may have more risk than a domestic investment vehicle. Another variable that should be considered is that currency fluctuations can affect real return for better or worse. It is increasingly important to diversify across nations which are not in the same financial cycle as the U.S. Risk that would normally be systematic in terms of the U.S. economy becomes unsystematic if a portfolio is diversified on a global scale. One of the reasons that these benefits can be realized is because inflation and unemployment differ from country to country. (Shapiro 388-391) For small investors, international or even global mutual funds normally present an easier way to enjoy quick diversification. More than half of the investment opportunities in the world lie outside the U.S. With increasing globalization, national economies are now becoming more closely correlated. A recent report by the Pepperdine University School of Business Management explains that this has been due to the increase in capital flowing from countries and international trade. With the rise of Multinational Companies (MNC) and the deregulation of many more foreign financial markets, we are seeing more and more correlation between market fluctuations. (Yavas, 2007) In such cases, the positive affects that International Diversification brings to a portfolio such as decreasing risk and reducing systematic risk are diminished.     Works Cited Yavas, Burhan F. Graziadio Business Report, Benefits of International Portfolio Diversification (2007 Volume 10 Issue 2) http://gbr.pepperdine.edu/072/diversification.html Shapiro, Alan C., and Sarin, Atulya Foundations of Multinational Financial Management, “International Diversification” (2009) pgs.385-399