Frequently Asked Questions: International Investing

You may have heard economic buzz about the value of investing in international stocks. For two consecutive years, international stocks have provided returns higher than U.S. markets. Recently, this performance may have been amplified because of declines in the value of the U.S. dollar. But before you buy global stocks, you may be asking several key questions. Here are some of the answers:

Is now the right time to invest outside the U.S.?
Trying to choose the "right time" to invest outside the U.S. is flawed for several reasons — it doesn't take your personal strategy and comfort with risk into account and it could involve chasing after returns.

It's not a good idea to chase international funds simply because they're "hot". But if you choose to regularly hold a diverse group of global investments, you might be able to benefit when certain currencies shift in value and offset the effects of decline from one type of currency (like the U.S. dollar).

Your personal retirement strategies — based on your age, existing amounts saved, and comfort with risk — should be the key factors that determine which investments you choose. Chasing returns is dangerous because it doesn't factor in the importance of your individual needs. In addition, chasing after returns could cause you to buy investments when they've already peaked, essentially buying high and selling low.

What are some of the reasons why people invest in international funds?
Investing in both U.S. and non-U.S. stocks can provide long-term diversification for investors. Historically, non-US stocks have moved up and down in a pattern different from U.S. stocks. By including several types of assets in your portfolio (i.e. U.S. stocks, non-U.S. stocks, bonds and real estate), you could help to balance out some of the risks involved with investing in a single country, fund or type of investment.

Investing in international stocks can also give investors the opportunity to share in the success of international companies. Today, more than half of the world's investment opportunities lie abroad. Many leading companies — like Nestle', Toyota and Nokia — are based outside the U.S.

How is international investing different from U.S. investing?
International investments have several risks in common with U.S. investments. Each stock market rises and falls depending on the performance of the stocks that compose it. Like U.S. stocks, international stocks can sometimes have disappointing returns.

In addition to these risks, non-U.S. investments can also present currency risk (the sharp decline in value of local currency) and political risks caused by local political issues or instability.

How do declines in the value of the U.S. dollar impact international stock returns?
When the U.S. dollar is valued less than a foreign currency, a U.S. investor could see a gain in value by investing in foreign stocks. As an example, let's imagine that you buy an Apple iPod for $200. If the iPod is priced at 200 British pounds (and the pound equals two U.S. dollars), a British shopper would essentially pay $400 for the product you bought for $200 — essentially, you would get more bang for your buck.

However, the values of currencies shift frequently and any investment gains based on currency values would likely be short-term. Over the long-term, Russell believes that selecting quality international securities is usually what impacts returns most.

I don't think that my employer's Plan includes an international fund, but I'd like to invest in international securities. What can I do?
First, take another look at your Plan. It may include international funds as part of balanced or lifecycle funds. You may also want to closely examine the stock and bond funds in the Plan — they could already offer mixtures of U.S. and non-U.S. securities.

If none of the funds in your Plan offer international securities, you may want to consider investing in international securities outside of the Plan. An investment professional may help you determine which investment choices are right for you.

How much should I invest in international stocks?
It depends on your personal retirement strategy and tolerance for investment risk. Generally, it's recommended that more conservative investors invest 0-10% of their assets in international stocks, 10-20% for moderate investors, and 20-25% for more aggressive investors. To determine whether or not international investing is right for you, consider meeting with a financial planner or investment professional.

Copyright© Russell Investments 1998 - 2009. All rights reserved.

This is a publication of Russell Investments. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

¹ According to final one year performance ending 12/31/03 and 12/31/04 for the Russell 3000® Index and MSCI EAFE Index.

Strategic asset allocation and diversification do not assure profit or protect against loss in declining markets.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Bond investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Greater risk is inherent in portfolios that invest primarily in high yield bonds. They are subject to additional risks, such as limited liquidity and increased volatility.

Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US and longer-established non-US markets. If applicable, please see the Prospectus for further detail.

Non-US markets entail different risks than those typically associated with US markets, including currency fluctuations, political and economic instability, accounting changes, and foreign taxation. Securities may be less liquid and more volatile. If applicable, please see a Prospectus for further detail.

Specific sector investing such as real estate can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes and tax laws and interest rates all present potential risks to real estate investments.

MSCI EAFE Index: An index, with dividends reinvested, representative of the securities markets of twenty developed market countries in Europe, Australasia, and the Far East.

Russell 3000® Index: Measures the performance of the 3,000 largest U.S. securities based on total market capitalization.

Date of first use: January 2005 USI RC: 444

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