It is known that stock market investing in general is risky; therefore, it is recommend holding a well-diversified portfolio to reduce risk. Many investors think diversifying their equity portfolio means buying large- and small-cap stocks; however, they might want to broaden their investing outlook, by looking over the horizon and investing internationally. So, why invest outside the U.S.? After all, U.S. markets are stable and have shown historically strong returns over the long term. Today, the globalization of the world economy is starting to change the picture. Many big domestic companies in the U.S. are already engaged in worldwide trade, or have plans to do so. And many have major subsidiary operations in countries around the globe. Corporations are looking outside U.S. borders to achieve the same things as an investor: diversification and growth. These are the two primary reasons why international investments are the potential to enhance returns through a larger universe and to reduce risk. The broader the diversification, the more stable the returns and the more diffuse the risk. Another benefit from diversification is risk-return tradeoff, which is even greater when investing internationally. Another potential benefit to investing internationally is the added diversification layer of currency. You not only get exposure to a company operating in another country—with potentially unique products and customer sets—but also to the other currencies. For example, a declining dollar will boost your international investments' performance in U.S. dollars, since your investments are held in foreign currencies. The reverse would be true as well in a strong dollar environment. Basically, investing internationally offers more opportunities than a purely domestic portfolio. There are attractive investments overseas, and diversification benefits positively impact the efficient frontier, which represents the most efficient combinations of portfolios of all possible risky assets. Any investment entails risk, but by exposing your portfolio to investments diversified around the world today, you can spread your risk and increase your opportunities for the future. REFERENCE 1. Shapiro, Alan C. and Sarin, Atulya. Foundations of Multinational Financial Management. New Jersey: John Wiley & Sons, Inc. 2009.2. Chapter 13 Power Point Slides3. http://gbr.pepperdine.edu/072/diversification.html