For the modern investor it is necessary to diversify risk with bonds, cash, stocks, and other forms of investments. This does not mean putting all your eggs in one area of the world. There are opportunities for expansion and great reward in other markets besides your national one. It decreases risk because one area might be struggling with higher inflation and the other country is booming. Now when investing it is still prudent and wise to go ahead and research everything you can about the foreign firm and how the market operates. Due diligence is a must. It is still your money and information is out there about these firms. Just because it is in a different local does not suddenly make it a fountain if wealth or even the exact opposite of what is happening at home.
Foreign companies can be valued differently. A company in the US has average price to earnings of maybe 18-20 while in Eastern Europe it might be closer to 4 or 5 because of the known corruption that will take place. So because it might look like a bargain with American eyes an investor has to put on the correct lenses to value and understand the company.
The investor should also not put more than 25% in foreign stocks and bonds. You want to be well diversified but the home turf is still the better place to invest. It saves transactions costs and the possibility of losing the money with a sudden change. The Ukraine recently had a revolution and those old bond investors might not have a claim to money anymore. Things can happen rapidly and too much abroad might hinder your overall return.
That being said lower risk with probability of higher profits is always a good thing. Investing in foreign markets is an easy way to diversify risk and boost return. Happy investing and start researching those new firms.
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