Much like international bond investing, equity investing is very common in today’s international markets. Also like bonds, investors who choose to invest equity internationally are looking to diversify their portfolio. “The international equity investment strategy seeks long term returns, primarily through capital appreciation” (TIAA-CREF) In fact as of late the world has shifted dramatically to investing outside its own borders. “Steady development of foreign economies has been reflected by the distribution of world market capitalization, which shifted from 66% U.S./34% rest of World (R.O.W.) in 1970 to 48% U.S./52% R.O.W. in 2002.” (Thronberg investment management) One can minimize risk and hope for a better return than investing in equity purely domestically. There are many firms and corporations with a lot of potential that are outside the U.S. parameters. Investors who are willing to research these potential investments usually reap the rewards.

There are also drawbacks from investing equity internationally. One still has the risk of currency risk and the potential for things to go poorly. Investors can once again, hedge against that currency to minimize risk. Many firms hedge foreign exposure on the corporate level. That tends to leave investors with a smaller currency exposure. One must research what countries that a firm does business in and how efficiently it operates. Just because it’s headquartered in a particular country it doesn’t mean that it does all its business there. Another drawback is somewhat of a temporary drawback. That is that international equity investing is considered by most to be a long term investment. In fact, many investors state that the investor will actually expect to lose value at some points, but stick with it through the long haul. The investment will pay handsome returns in the long run, despite the drawback periods. This is said to be a natural occurrence, due to cyclical reasons and changing economies.

An individual who wants to invest long term in capital should consider international investment. In this world economy the chances of one’s equity appreciating over time is very likely and worth the risk, however this is based on the assumption that the investor is in it for long term benefits and not a quick payoff. International equity investing a new way of investing the past quarter century and has proven to a great potential investment to add to ones domestic portfolio.

References:

· http://www.thornburginvestments.com/research/articles/modern_rationale.asp

· https://global.vanguard.com/international/common/pdf/international_developed_052004EN.pdf

· http://www.thornburginvestments.com/research/articles/pdfs/TH394_ModernRationale.pdf