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courTeSy of: jodie a cohen, financial adviSor, morgan STanley SmiTh Barney F


oreign investments can play an important role in helping to diver- sify a domestic equity portfolio. But before plunging into interna- tional waters, it’s important to understand the differences between developed and emerging markets and the risks inherent to each. Emerging Trends Once upon a time, the United States was considered an emerg-


ing market. In the late 1800s, British financiers, noting America’s growth potential, invested in the companies that were building the nation’s in- frastructure, particularly the early railroad companies. In doing so, they were accepting more risk than they would have with investments in their own market. The United States, after all, was still maturing, and political and social change, as well as many other factors, could have made it a volatile investment market The same risk/reward characteristics apply to today’s emerg-


ing markets, which are found in every corner of the globe. Because they are still maturing, they may have more room for growth than long-es- tablished markets, such as the United States. But because the road to maturity is not always a smooth one, there may be bumps along the way. In general, emerging markets have three characteristics: • • •


Low or moderate personal incomes.


Economies that are in the process of being industrialized. Financial infrastructures, including stock markets, that are still


being developed. A developing infrastructure is what may give an emerging


market its growth potential. For example, in an emerging market an in- dustry such as banking might be just beginning to establish itself and therefore have above-average growth potential Of course, you need to keep in mind that emerging market in-


vestments are generally appropriate for patient investors with long-term time horizons. Emerging market stock prices can take dramatic swings, and it is essential that you have the time to ride them out or in a worse case scenario, the ability to lose some or all of your initial investment. Ongoing Opportunity Developed markets typically have higher average incomes


than emerging markets, well-established financial institutions and mar- kets and modern infrastructures. Of course, they may still offer investors the potential for continued growth. By the same token, like emerging markets, developed foreign


markets may be subject to greater risks than domestic investments. For- eign markets may be less efficient, less liquid and more volatile than those in the United States. They are also subject to the effects of foreign currency fluctuations and differing regulations. If you decide to build an international element into your in-


vestment portfolio, mutual funds and separately managed account strat- egies that focus on international investing may be ideas to consider. Professional portfolio managers often have access to information that’s not widely available, not to mention the time and experience required to track events in a variety of markets. Before expanding your portfolio beyond U.S. borders, contact a qualified financial professional who can help you prepare for this investment journey. If you’d like to learn more, please contact Jodie Cohen, 800- 247-2265, jodie.a.cohenpotter@mssb.com


The author(s) and/or publication are neither employees of nor affiliated with Morgan Stanley Smith Barney LLC (“MSSB”). By providing this third party publication, we are not implying an affiliation, sponsorship, en- dorsement, approval, investigation, verification or monitoring by MSSB of any information contained in the publication.


The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB. The information and data in the article or publication has been obtained from sources outside of MSSB and MSSB makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MSSB. Neither the information provided nor any opinion expressed constitutes a solicitation by MSSB with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.


Investments in foreign securities involve risks associated with interest-rate and currency-exchange-rate changes as well as by market, economic, and political conditions of the countries where investments are made. There may be greater returns but also greater risks than with U.S. investments. International stocks fluctuate in value and may be worth more or less than original cost.


Article written by McGraw Hill and provided courtesy of Morgan Stanley Smith Barney Financial Advisor Jodie Cohen


Morgan Stanley Smith Barney LLC. Member SIPC.


A portion of fire-related jewelry profits donated to the Widows, Or phans and Disabled Firemen’s Fund.


June 2012 • 31


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