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What are Global and International Funds?

Money Manager | Monday, December 6th, 2010

Global and international funds are mutual funds that focus on investments in other countries. These funds can offer more diversity than those which focus only on the investment opportunities in one’s own country. However, along with the additional opportunities, there is also additional risk in the form of economic instability, political issues, and fluctuations in currency. There is often some confusion about the differences between a global and an international fund. Basically, an international fund does not include investments from the investor’s own country, while a global fund does.

Understanding Global Funds

Global funds include investments such as stocks or bonds from throughout the world. These include investments from the investor’s own country. Many investors feel that these funds provide more opportunity for returns, since they can provide an additional level of diversity to a portfolio. However, before investing in a global fund, it is important to understand the additional volatility that these funds can be subject to, because of changes in the economic, political and social climates within any of the countries represented in the fund. The commonly held belief that a global fund is inherently riskier than a domestic fund in every circumstance is not true. Risks exist in any investment, so when choosing a global fund, it’s important to look for one with a reasonable level of risk. However, this is also the case with domestic funds. If you are looking for a fund that provides a good mix of investment opportunities, including those from your own country, a carefully selected global fund could be a good addition to your portfolio.

Understanding International Funds

The term “international fund” is used to describe mutual funds that do not include investments from the investor’s own country. These funds invest in a variety of companies from throughout the world. However, in the case of an investor located in the United States, there would not be any United States companies in the mix. An international fund is a good way of getting some investment exposure to the global market. If your portfolio focuses only on investments from your own country, an international fund can provide some beneficial diversity. However, there are other factors to take into consideration when choosing international funds, such as the economic, social and political situation other countries. Additionally, not all countries have the same level of control standards and supervision as the United States does. As a result, some people feel that it is more difficult to choose good investments in other countries as compared to their own. However, international funds are a good opportunity to invest in emerging markets in developing economies, which can offer significant opportunities for growth.

Currency Risk

Currency risk can be of particular concern, because companies usually pay capital gains and dividends in their own local currency. If a foreign currency is stronger than the investor’s home currency, the investor will benefit. However, if the home currency is stronger than the foreign currency, the investor’s returns will be negatively impacted. For this reason, it’s important to take the currency exchange rates into consideration when choosing international funds.

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