EAFE and Emerging Markets

While most of the mutual funds that you will get a chance to invest in will probably be based in the United States and on U.S.-based companies, there are other options. There are stock markets in many of the other nations around the world, and all of these stock markets involve the companies that usually trade there. If you are looking for a way to increase the diversity of your investment portfolio, then you should look into foreign funds.

Foreign funds are basically just mutual funds that trade entirely in companies’ stock and bonds that are outside of the U.S. Other than that, however, there are many different types of foreign funds, so you might find it difficult right at first to decide which one you would like to invest in.

If you are looking for a stable investment, then you should look at foreign funds that are focused around countries that have stable, developed economies. Some examples are countries in Western Europe, and Japan. However, if you’re looking for a riskier investment, you should look for companies in countries that have developing economies. These countries include India, Russia, Brazil, and other countries in east Asia and south America.

The thing that you should remember about developing economies is that there is a considerably larger risk that the companies you invest in will go bankrupt. Even if those companies do not go bankrupt, there is also the risk that the economy of that country will crash – for various social or political reasons. You should also make sure that you are paying attention to the exchange rates before you invest overseas. If the exchange rate changes drastically, you could find that the value of your investments decreases to nothing. (On the other hand, it is also possible that changing exchange rates will act to make your investment worth more than it was initially.)

The two different types of foreign index funds that you should keep in mind are EAFE and Emerging Markets. EAFE is the group of developed nations that was mentioned earlier, and Emerging Markets is exactly what it sounds like. These are the countries that still have developing stock markets.

If you are thinking about investing overseas and you do not have a lot of investment experience, then you should think about foreign funds first. It is a good idea to have a mutual fund manager watching over your investments.