In 2009 and 2010, investors who were willing to stick their necks out after the terrifying credit crisis and Great Recession in 2008, were rewarded greatly for venturing into foreign stock, especially emerging markets (e.g. China, India and Brazil), at that time. Now, considering the immense uncertainty surrounding the European debt crisis and China's economy looking more and more like recession, foreign investing carries greater potential market risk when compared to US (domestic) stock investing.
There are three basic strategic routes mutual fund investors can take with foreign stock investing in 2012:
Choose Geographic Regions: This strategy carries the greatest potential market risk because even a knowledgeable and skilled investor can make large mistakes by concentrating significant amounts of a portfolio into just a few select countries or regions of the world. However, the investor choosing to concentrate in certain countries or regions is likely to be an aggressive investor willing to take such risk for the prospects of being rewarded with higher returns. For example, if an investor believes the European debt crisis will be contained in 2012, they could select a mutual fund or Exchange Traded Fund (ETF) that invests primarily in Europe. This investor will want to look at the mutual fund or ETF category called Europe Stock. Similarly, an investor could choose the Pacific Rim region, which includes China, Japan and Australia, or Emerging Markets, which includes China, India and Brazil.
For Europe Stock funds, an investor can consider T. Rowe Price European Stock (PRESX) or Vanguard European Stock Index (VEURX) and for Emerging Markets an investor can consider T. Rowe Price Emerging Markets (PRMSX) or Vanguard Emerging Markets Stock Index (VEIEX).
Choose a High Quality Actively-Managed Fund: Rather than spend the time and energy researching, an investor can simply pick a good actively-managed foreign stock fund and let an experienced fund manager select which areas are best to invest. Be sure to choose among the category called Foreign Stock. This assures the fund will invest mostly outside of the US but not concentrate on specific regions -- it is diversified.
A few good actively-managed foreign stock funds are Harbor International Inv (HIINX) and Dodge & Cox International Stock (DODFX).
Choose Diverse Index Fund or ETF: This strategy for investing, in the opinion of your humble Mutual Funds Guide, is likely the best for both beginners and experienced investors. The health of world economies and the particular regions that will do best in 2012 is as uncertain now as it has been in the past several years. Because of this uncertainty, and because Foreign Stock still plays an important role in diversification, a good foreign stock index fund or Exchange Traded Fund (ETF) is an excellent choice for 2012.
A good diversified foreign index fund is Vanguard International Total Stock Index Inv (VGTSX) and a good diversified foreign ETF for 2012 is SPDR MSCI ACWI ex US (CWI). Source mutualfunds.about.com
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