International investments: Bite the bullet?
William Reichenstein, CFA, Ph.D.
Chair in Investment Management
The market for international investments has been turned upside down by troubles in the eurozone. Those thinking about investing internationally for better asset allocation are left wondering if global markets are even worth the time. There's speculation on both sides of the issue, leaving individual investors short-changed for advice.
In order to get a better grasp on the risk and reward of international investments in a wishy-washy market, we asked William Reichenstein, CFA, Ph.D., to provide us with his insight. Reichenstein holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University. He is the author of "In the Presence of Taxes: Applications of After-Tax Asset Valuations," and he co-authored "Integrated Investments & the Tax Code" with William Jennings.
What are the pros and cons of including international investments in an investor's portfolio?
The pros: It allows a more efficient asset allocation. That is, the investor can get a higher expected return for the same level of portfolio risk or a lower risk for the same level of expected return. International securities do not move in lock step with U.S. securities. So, mixing the two provides diversification.