Investing in the S&P 500 is a common go-to strategy for young investors, since it offers the unparalleled benefits of diversification. That said, it only includes US-based companies - and the international economy is incredibly large!
Investing doesn’t have to be limited to your country of residence - investing in foreign markets can be a great way of diversifying your portfolio, and of participating in the growth of emerging economies. International investing can help you spread your risk across foreign companies & markets, while helping you stay educated on developments occurring in your countries of investment.
If you’re in the United States, there are multiple ways of investing in foreign markets or in international growth - listed in order of accessibility and ease:
Global Mutual Funds & Exchange-traded Funds (ETFs):
Multinational Corporations (MNCs)
American Depository Receipts (ADRs)
Global Depository Receipts (GDRs)
Foreign Direct Investing
Due to the inherent risk of investing in foreign companies, it is important to weight the investments in your portfolio according to your risk profile. For example, if you’re a conservative investor, it’s probably better to not have significant portions of your portfolio in foreign stocks.
Other drawbacks of investing in foreign markets include higher fees and greater tax inefficiencies. While it is possible to have a diverse and successful portfolio without investing in the international markets, doing so can allow investors to expose their portfolio to the potential upsides of international growth, and of diversifying away from US-specific downturns.