Along with spreading exposure across asset classes, sectors and individual companies, investors may also diversify across countries and regions. This can potentially reduce reliance on a single domestic market, although international markets can still fall together and diversification does not prevent losses.
Geographical diversification means spreading investments across different countries or regions to reduce reliance on any single market and broaden portfolio exposure. Essentially, instead of focusing solely on one country, investors allocate assets in multiple economies.
Markets often behave differently due to unique factors such as politics, economics, and local trends. So, a portfolio limited to one region remains vulnerable to those specific challenges. If markets respond differently to the same economic conditions, international exposure may reduce the effect of weakness in one country. However, it’s possible that several markets can decline at the same time.
International investing can also provide access to companies, sectors and economic trends that are less represented in the domestic market. Developed and emerging markets offer different exposures, but neither provides steady growth or guaranteed higher returns.
Geographical diversification may reduce dependence on a single economy, although its effectiveness depends on the holdings selected, market correlations, costs and currency movements.
International investing may broaden portfolio exposure, but the benefits depend on the markets, products, costs and currencies involved. Potential benefits include:
International investments can reduce reliance on a domestic market. If different regions respond differently to economic conditions, this may moderate the effect of a local downturn, although global markets can still decline together.
International investing can provide access to economies, companies and sectors that are less represented in the home market. Emerging economies may grow faster during some periods, but economic growth does not automatically translate into investment returns. Emerging markets can also carry greater currency, political and liquidity risks, while developed markets can experience prolonged weakness.
Foreign-currency exposure can increase or reduce returns when investments are converted back into the investor’s home currency. For example, a weaker euro may increase the euro value of unhedged US assets, while a stronger euro may reduce it. Currency exposure can therefore provide diversification in some circumstances, but it also introduces additional risk.
Some of the world's most innovative companies and industries may be based outside your home country. Investing can provide access to sectors and companies that may be less represented in the domestic market, such as renewable energy, technology or healthcare.
Concentrating investments in a single country exposes investors to localised risks such as political instability or economic downturns. Spreading investments across countries may reduce reliance on one political or economic environment, but it cannot always protect a portfolio from global shocks or correlated market declines.
International investments come with distinct risks that require careful consideration.
Exchange rate fluctuations affect returns. For example, when the euro appreciates against the US dollar, European investors may see reduced returns on USD-denominated investments. Currency-hedged investment options may reduce some exchange-rate effects, but hedging involves costs and may not remove currency risk completely.
Foreign markets often have unique trading hours, liquidity levels, and restrictions for international investors. Some countries impose limits on the types of securities non-residents can purchase, complicating access.
Investing in foreign markets could involve exposure to regional political and economic challenges. As a result, emerging markets may carry greater political, regulatory, liquidity and currency risks, although the level and type of risk vary widely by country and investment.
Global investments involve additional expenses, including transaction fees, currency conversion costs, and foreign tax liabilities. These costs should be compared before investing, while tax treatment depends on the investor’s country, account type and personal circumstances.
Regulatory systems in foreign markets may differ significantly, leaving investors with fewer protections or limited legal recourse. Understanding local rules, account protections and the regulations applying to each investment can help investors assess these risks, but it cannot remove them.
Investors have multiple ways to access international markets, each with unique advantages and considerations. Here are some common ones:
Mutual funds and exchange-traded funds (ETFs) simplify international investing, making them popular choices for both beginners and experienced investors. These funds can provide exposure to different countries, regions or industries, although some international funds are concentrated in a narrow market, sector or theme.
UCITS ETFs are widely available to many European investors, but their objectives, holdings, fees, currency exposure and risks vary. Broad-market funds may cover several developed or emerging markets, while regional or sector funds provide narrower exposure.
Buying foreign stocks directly allows investors to precisely target specific companies or industries. A reputable broker, like Saxo, can give European investors access to major international markets, including the US and Asia.
This route appeals to those who want control over their investment choices, such as purchasing shares of US technology leaders or Asian manufacturing giants.
However, direct stock investments require a deeper understanding of market dynamics, including trading hours, liquidity, and local regulations. Direct international share investing also involves company-specific risk and may require closer attention to trading hours, liquidity, taxation, currency conversion and local market rules.
Multinational corporations can provide indirect exposure to overseas revenues while remaining listed in the investor’s domestic market. However, their performance may still depend heavily on one company, sector or home listing. They also remain exposed to currency movements through their international revenues and costs, so they should not be treated as a substitute for a geographically diversified portfolio.
International real estate and alternative investments can provide exposure beyond traditional stocks and bonds, but they may introduce additional liquidity, leverage, valuation and regulatory risks. Global Real Estate Investment Trusts (REITs) allow investors to participate in international property markets without owning physical assets. For example, a global REIT might focus on commercial properties across Europe or Asia.
Additionally, emerging-market infrastructure may provide exposure to areas such as renewable energy or transport development. However, these investments can carry significant political, currency, project, liquidity and regulatory risks, and higher economic growth does not guarantee higher investment returns.
There is no universal percentage of international exposure that suits every investor. The appropriate level depends on the existing portfolio, financial objectives, time horizon, risk tolerance, capacity for loss, costs, tax treatment and currency exposure.
Key factors include:
The overall allocation should therefore be assessed by looking at how the international holdings interact with the rest of the portfolio rather than by applying a fixed percentage based only on a broad risk label.
Researching international investments involves considering objectives, products, costs, currencies and market-specific risks. A structured review may include:
Establish clear objectives for international investments. Decide if the focus is on long-term growth, generating income, or both. Align these goals with your willingness to handle risk. The role of developed and emerging markets depends on the investor’s objectives, time horizon, risk tolerance and capacity for loss. Both can experience significant declines.
Choose options that match your objectives:
Access to international markets requires a dependable trading platform. Saxo provides access to a range of international markets and investment products. Availability, fees, currency conversion costs, and investor protections vary by market and instrument.
Periodic reviews can help assess whether international exposure still matches the intended strategy. Rebalancing may restore the target allocation, but it can also create trading costs and tax consequences.
Economic trends, political events and regulatory changes can affect international investments. Staying informed may support decision-making, but it does not remove risk or reliably identify future opportunities.
Spreading investments across countries may reduce dependence on one domestic market and provide access to a wider range of companies, sectors and economies. The benefit depends on how the holdings interact. International markets can still decline together.
International exposure also introduces currency, political, regulatory and cost risks. Developed and emerging markets can both play a role in a diversified portfolio, but neither guarantees stability, higher returns or protection from losses.
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