Investing is no longer confined to domestic markets and those investors looking to take advantage of attractive opportunities have popularized global investing. In recent years, international investing has become both the norm and the necessity for a truly diversified portfolio that can help reduce overall portfolio risk. An increasing number of individual and institutional investors have been increasing their global markets exposure to pursue their investment goals.

In the past several decades there has been a shift from investments in U.S. markets to foreign markets. In 1970, foreign markets represented 34% of the world's investment opportunities and by 2008 foreign markets represented 56% of the world's investment opportunities. It is estimated that by 2030, the U.S. market will only account for 25% of the world market and investments in global markets will increase substantially.

Diversification and Higher Returns The two main driving factors that can explain the shift toward international investing are the investor's quest for diversification, reduced risk, and higher returns. Initially, when U.S. investors began opening up to foreign equities, it was primarily to increase diversification in their portfolios. Because international markets don't necessarily move in tandem with each other - some may go up while others go down - global diversification may potentially offset the effects of a downturn in the U.S. market. Needless to say, with the benefits investors are still aware that global diversification can bring about additional risks stemming from foreign countries such as political conflicts, currency fluctuations, less liquidity and so on. But despite these risks, the potential for higher returns and reduced overall portfolio risk makes foreign markets extremely attractive to investors.

As investors explore and pursue global investment opportunities, they find that the global markets offer competitive returns. Morgan Stanley's Capital International's Europe, Australia, Far East (EAFE) Index, which tracks the major world markets posted 9.4% average annualized return for the past several decades compared with the 11% average annual return of the S & P 500 Index.

The minor difference in returns can be attributed to many economic and market factors in countries around the world. But as a diversified bunch, the overall risk of any individual international market is reduced. For instance, throughout the 1990s, the Japanese market experienced a market recession. Subsequently, Japanese stocks became heavily undervalued, providing investors with attractive opportunities. Several years after, the Japanese market bounced back producing gains north of 60%.

How to Invest in Foreign Equities One way to increase international exposure into your portfolio can involve simply a plain investment in an U.S. company that gets most of their revenue from foreign markets. In fact, most of the companies on the S & P 500 Index derive most of their revenues from overseas operations.

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