Investing Classroom: Diversify with Foreign Stocks

Portfolio lesson 5.5: What role can international equities play in your portfolio?

Morningstar 25 March, 2010 | 5:46PM
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They're the Holy Trinity of your equity portfolio. Own a blend of large and small UK companies' stocks and a dose of foreign issues, and you'll improve the risk/return profile of your stock portfolio, say the academics and the financial pros. As a result, investors diligently sink pounds into international stocks and funds.

But what role can foreign stocks play in your portfolio?

Supporting the Diversification Theory
Investors may get more diversification from their foreign investments by steering clear of multinationals and large-company world funds, which may be more strongly correlated with domestic holdings, and focusing instead on more-esoteric--and riskier--choices. If you choose to gain exposure to these types of stocks, consider doing it through a fund that specialises in one of these areas. It's a less risky proposition.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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