Invest at Home or Go International?

NEW YORK – So, you've decided to add some foreign stocks to your portfolio. You may have noticed that foreign markets have taken off recently: the MSCI Latin America index was up 45% and the Europe, Australia and Far East (EAFE) index gained 11% last year versus only a 4.77% gain for the S&P 500 and 1.72% for the Dow Jones Industrial Average.

So, does it still make sense to invest overseas now? Jim Peterson, who analyzes mutual funds for Schwab Investment Research thinks prospects for short-term returns continue to be good. Despite the run-up, he says, foreign companies don't appear to be overpriced, and economists sense a weaker dollar in the future.

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But, he adds, long-term results and diversifying your portfolio are what you should really be looking for. So, what guidelines should you follow when choosing an international fund? See previous column for more on the overseas-stock climate.

Keep in mind that not all worldly-sounding funds are, in fact, international. So-called "global" funds invest in both U.S. and foreign companies. If you want overseas exposure, stick to funds that are truly international. Also, foreign funds generally have higher expenses than domestic ones, says Peterson, because they do more research and incur higher administrative costs. You can still find bargains, though. Look for funds whose expense ratios are below the average for their class.

If you don't have a lot of money to spread around, you can buy into a foreign large-cap blend fund, which will move into and out of different markets to get the best return. The point is, says Peterson, you want to diversify internationally just as you would at home.

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