Investment Enhancement Paper December 22nd, 2008 Introduction In order for an investor to experience strong returns from their portfolio they must be willing to look at many different investment vehicles for their investment capital.
The use of international investments in a portfolio can really diversify their risk and add to the portfolio’s return. Additionally, the use of derivative securities can further diversify risk and add to the returns of the portfolio. Alternative investments add options for a portfolio manager outside the normal vehicles like stocks, bonds and money market instruments. The more options one has in a market like this the better the performance of their portfolio is likely to be. International Investments An addition of an international investment portion to a portfolio can add risk to a portfolio but can also bring attractive returns. Investing in foreign nations carries two specific types of risks above and beyond the risks inherent in domestic investments. These risks are the exchange rate and the country specific risk. According to Investopedia.com, “Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.” Exchange rate risk is the risk that the foreign nation in which one is investing will have its currency devalued comparatively to the investor’s home nation. Any devaluation would hurt the investors return on investment upon converting the currency back to the investor’s home currency. This works both ways and an investor can also make greater returns if the currency appreciates
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