Only some 9 per cent of companies in the world, by market value, are quoted on the London Stock Exchange. If you want to invest in companies such as Coca-Cola and Microsoft, which are quoted in the US, you will have to buy units in a fund investing in Wall Street.
Similarly, investors may find if they want to invest in a particular industry sector, they will have to invest overseas, says Ken Nicholson, marketing manager Europe at Templeton Investment Management: "If you want to invest in technology, forest products, pharmaceuticals or car manufacturing, you will need to invest overseas to get proper exposure to these sectors."
Investing in overseas stocks is best done though an investment fund. It is a lot cheaper than buying shares in foreign markets and less risky. There is no problem in speaking to a fund manager, who will watch all the factors that affect markets, such as currency and interest rate movements, something very difficult for a direct investor to do.
International investment also offers the chance to invest in economies growing faster than the UK. As well as the developed stock markets of the US and Europe, there is the chance to invest in developing countries in Asia, Latin America and Eastern Europe.
The easiest and cheapest way to invest in international markets is through a general international fund which invests over a wide geographical area, so if one market falls, the effect on your investment will be limited.
While it may not do as well as the top-performing regional funds, neither is there any danger of your money being invested in a single market that suddenly drops, as has happened recently in some of the South-east Asian tiger economies.
Investing internationally is not always a guarantee of making money. Japanese markets fell 32 per cent in the three years to October. But over the same period, the average North American specialist fund has grown 79 per cent, the UK equity growth sector is up 61 per cent and general European funds have risen 64 per cent.
When choosing a fund, Lee Gardhouse, investment manager at Hargreaves Lansdown, recommends using a large fund management house with good resources:"Managers with expertise in many geographical regions include Foreign & Colonial, Martin Currie and Mercury Asset Management."
Martha Catterall, senior planner at City Independent Financial Planning, agrees. She favours Perpetual International Growth, Perpetual Worldwide Recovery, Britannia International Special Situations, Prolific Technology and Fidelity Managed.
Investors looking for potentially higher rewards may want to look at regional specialists. If you pick the right region, you could do better than investing in a general international fund. But as Ms Catterall points out: "Diversity helps to avoid the impact of a particular region suffering either a short-term or long-term downturn."
Even more specialist still are emerging market and single-country funds. These are at the top end of the risk spectrum and investors can just as easily see their investment halved overnight as doubled.Reuse content