Two of the chief reasons why people invest internationally are:

Diversification -- spreading your investment risk among foreign companies and markets.

Growth -- taking advantage of the potential for growth in some foreign economies, particularly in emerging markets.

By including exposure to both domestic and foreign stocks in your portfolio, you'll reduce the risk that you'll lose money and your portfolio's overall investment returns will have a smoother ride. That’s because international investment returns sometimes move in a different direction than U.S. market returns. Even when international and U.S. investments move in the same direction the degree of change may be very different. When you compare the returns from emerging international markets with U.S. market returns you may see even wider swings in value.

Of course, you have to balance these considerations against the possibility of higher costs, sudden changes in value, and the special risks of international investing.

Although you take risks when you invest in any stock, international investing has some special risks:

Changes in currency exchange rates.

When the exchange rate between the foreign currency of an international investment and the U.S. dollar changes, it can increase or reduce your investment return. How does this work? Foreign companies trade and pay dividends in the currency of their local market. When you receive dividends or sell your international investment, you will need to convert the cash you receive into U.S. dollars. During a period when the foreign currency is strong compared to the U.S. dollar, this strength increases your investment return because your foreign earnings translate into more dollars. If the foreign currency weakens compared to the U.S. dollar, this weakness reduces your investment return because your earnings translate into fewer dollars. In addition to exchange rates, you should be aware that some countries may impose foreign currency controls that restrict or delay you from moving currency out of a country.

Dramatic changes in market value.

Foreign markets, like all markets, can experience dramatic changes in market value. One way to reduce the impact of these price changes is to invest for the long term and try to ride out sharp upswings and downturns in the market. Individual investors frequently lose money when they try to "time" the market in the United States and are even less likely to succeed in a foreign market. When you “time” the market you have to make two astute decisions -- deciding when to get out before prices fall and when to get back in before prices rise again.

Political, economic and social events.

It is difficult for investors to understand all the political, economic, and social factors that influence foreign markets. These factors provide diversification, but they also contribute to the risk of international investing.

Lack of liquidity.

Foreign markets may have lower trading volumes and fewer listed companies. They may only be open a few hours a day. Some countries restrict the amount or type of stocks that foreign investors may purchase. You may have to pay premium prices to buy a foreign security and have difficulty finding a buyer when you want to sell.

Less information.

Many foreign companies do not provide investors with the same type of information as U.S. public companies. It may be difficult to locate up-to-date information, and the information the company publishes my not be in English.

Reliance on foreign legal remedies.

If you have a problem with your investment, you may not be able to sue the company in the United States. Even if you sue successfully in a U.S. court, you may not be able to collect on a U.S. judgment against a foreign company. You may have to rely on whatever legal remedies are available in the company's home country.

Different market operations.

Foreign markets often operate differently from the major U.S. trading markets. For example, there may be different periods for clearance and settlement of securities transactions. Some foreign markets may not report stock trades as quickly as U.S. markets. Rules providing for the safekeeping of shares held by custodian banks or depositories may not be as well developed in some foreign markets, with the risk that your shares may not be protected if the custodian has credit problems or fails.

Like any other investment, you should learn as much as you can about a company before you invest. Try to learn about the political, economic, and social conditions in the company’s home country, so you will understand better the factors that affect the company’s financial results and stock price. If you invest internationally through mutual funds, make sure you know the

countries where the fund invests and understand the kinds of investments it makes.

Here are some sources of information:

SEC reports. Many foreign companies file reports with the SEC. The SEC requires foreign companies to file electronically, so their reports usually are available through the SEC’s web site at no charge. You can get paper copies for a fee from the SEC’s Public Reference Branch

International Regulators. You might be able to learn more about a particular company by contacting the securities regulator that oversees the markets in which that company’s securities trade. Many international securities regulators post issuer information on their websites, including audited financial statements. You’ll find a list of international securities regulators on the website of the International Organization of Securities Commissions (IOSCO).

Mutual fund firms. You can get the prospectus for a particular mutual fund directly from the mutual fund firm. Many firms also have websites that provide helpful information about international investing.

The company. Foreign companies often prepare annual reports, and some companies also publish an English language version of their annual report. Ask your broker for copies of the company’s reports or check to see if they are available from the SEC. Some foreign companies post their annual reports and other financial information on their websites.

Broker-dealers. Your broker may have research reports on particular foreign companies, individual countries, or geographic regions. Ask whether updated reports are available on a regular basis. Your broker also may be able to get copies of SEC reports and other information for you.

Publications. Many financial publications and international business newspapers provide extensive news coverage of foreign companies and markets.

Internet Resources. Various government, commercial, and media websites offer information about foreign companies and markets. However, as with any investment opportunity, you should be extremely wary of “hot tips,” overblown statements, and information posted on the Internet from unfamiliar sources. For tips on how to spot and avoid Internet fraud.

Investor Tidbit: International Stock Scams

Whether it’s foreign currency trading, “prime European bank” securities or fictitious coconut plantations in Costa Rica, you should be skeptical about exotic-sounding international investment “opportunities” offering returns that sound too good to be true. They usually are. In the past, con artists have used the names of well-known European banks or the International Chamber of Commerce -- without their knowledge or permission -- to convince unsophisticated investors to part with their money.

Some promoters based in the United States try to make their investment schemes sound more enticing by giving them an international flavor. Other promoters actually operate from outside the United States and use the Internet to reach potential investors around the globe. Remember that when you invest abroad and something goes wrong, it's more difficult to find out what happened and locate your money. As with any investment opportunity that promises quick profits or a high rate of return, you should stop, ask questions, and investigate before you invest.

Tracking down information on international investments requires some extra effort, but it will make you a more informed investor. One of the most important things to remember is to read and understand the information before you invest.

Mutual funds. One way to invest internationally is through mutual funds. There are different kinds of funds that invest in foreign stocks.

Global funds invest primarily in foreign companies, but may also invest in U.S. companies.

International funds generally limit their investments to companies outside the United States.

Regional or country funds invest principally in companies located in a particular geographical region (such as Europe or Latin America) or in a single country. Some funds invest only in emerging markets, while others concentrate on more developed markets.

International index funds try to track the results of a particular foreign market index. Index funds differ from actively managed funds, whose managers pick stocks based on research about the companies.

International investing through mutual funds can reduce some of the risks mentioned earlier. Mutual funds provide more diversification than most investors could achieve on their own. The fund manager also should be familiar with international investing and have the resources to research foreign companies. The fund will handle currency conversions and pay any foreign taxes, and is likely to understand the different operations of foreign markets.

Like other international investments, mutual funds that invest internationally probably will have higher costs than funds that invest only in U.S. stocks. If you want to learn more about investing in mutual funds, information is available in our brochure, Invest Wisely – An Introduction to Mutual Funds.

Exchange-Traded Funds. An exchange-traded fund is a type of investment company whose investment objective is to achieve the same return as a particular market index. Increasingly popular with investors, ETFs are listed on stock exchanges and, like stocks (and in contrast to mutual funds), trade throughout the trading day. A share in an ETF that tracks an international index gives an exposure to the performance of the underlying stock or bond portfolio along with the ability to trade that share like any other security.

American Depositary Receipts. The stocks of most foreign companies that trade in the U.S. markets are traded as American Depositary Receipts (ADRs) issued by U.S. depositary banks.

Investor Tidbit: ADRs or ADSs? Sometimes the terms “ADR” and “ADS” (American Depositary Share) are used interchangeably. An ADR is actually the negotiable physical certificate that evidences ADSs (in much the same way a stock certificate evidences shares of stock), and an ADS is the security that represents an ownership interest in deposited securities (in much the same way a share of stock represents an ownership interest in the corporation). ADRs are the instruments actually traded in the market.

Each ADR represents one or more shares of a foreign stock or a fraction of a share. If you own an ADR you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient to own the ADR. The price of an ADR corresponds to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares.

Owning ADRs has some advantages compared to owning foreign shares directly:

When you buy and sell ADRs you are trading in the U.S. market. Your trade will clear and settle in U.S. dollars.

The depositary bank will convert any dividends or other cash payments into U.S. dollars before sending them to you.

The depositary bank may arrange to vote your shares for you as you instruct.

On the other hand, there are some disadvantages:

It may take a long time for you to receive information from the company because it must pass through an extra pair of hands. You may receive information about shareholder meetings only a few days before the meeting, well past the time when you could vote your shares.

Depositary banks charge fees for their services and will deduct these fees from the dividends and other distributions on your shares. The depositary bank also will incur expenses, such as for converting foreign currency into U.S. dollars, and usually will pass those expenses on to you.

U.S. Traded Foreign Stocks.

Although most foreign stocks trade in the U.S. markets as ADRs, some foreign stocks trade here in the same form as in their local market. For example, Canadian stocks trade in the same form in the United States as they do in the Canadian markets, rather than as ADRs. You can purchase ADRs and other foreign stocks that trade in the United States through your broker. There are different trading markets in the United States, and the information available about an ADR or foreign stock will depend on where it trades.

Stocks Trading on Foreign Markets.

If you want to buy or sell stock in a company that only trades on a foreign stock market, your broker may be able to process your order for you. These foreign companies do not file reports with the SEC, however, so you will need to do additional research to get the information you need to make an investment decision. Always make sure any broker you deal with is registered with the SEC. It is against the law for unregistered foreign brokers to call you and solicit your investment.

Build a Portfolio That Helps You Achieve Your Goals.

You need to select investments that best satisfy your unique needs, objective advice and guidance that's always in your best interest.

• Stocks & Options
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The Key is to Create the Right Mix of Assets.

Feel confident that you have the right mix of assets for your situation by taking advantage of powerful research resources to help you analyze your current holdings, goals and risk tolerance and make smart investment decision.

Between 1982 and 1990 U.S. current account deficits—the amount by which imports of goods and services plus foreign aid exceeded U.S. exports of goods and services—totaled over $900 billion. The deficits were financed by net capital inflows—foreign investment in the United States less U.S. investment abroad. Although U.S. holdings of foreign assets rose, foreign holdings of U.S. assets rose by $900 billion more. U.S. assets abroad minus foreign assets in the United States went negative in 1985 for the first time since 1914.

These data, however, are based on historic cost, the cost at the time the investment was made. The proper measure of any investment is its current market value, not its historic cost. Recognizing this, the U.S. Commerce Department switched to market valuation in its June 1991 report. Measured by market values, the net foreign investment position of the United States remained positive until 1987, and reached minus $360.6 billion in 1990, about 40 percent smaller than the number computed on an historic cost basis.

At the end of 1990, about 16 percent of foreign assets in the United States were owned by foreign governments, while 84 percent were privately owned. (Similarly, 14 percent of foreign assets owned by the United States were official, and 86 percent were private.)

In contrast, as a share of total investment, U.S. direct investment abroad (comprising equity holdings of 10 percent or more of any firm) is substantially larger than foreign direct investment in the United States. U.S. direct investment abroad still exceeded foreign direct investment in the United States in 1990, and by a wider margin than in 1985—$184 billion versus $152 billion.

Despite the notoriety of Japanese investors, the British have the largest U.S. direct investment holding—with the Dutch not far behind—as has been the case since colonial times. In 1990 the United Kingdom held about 27 percent of foreign direct investment in the United States, significantly greater than Japan's 21 percent. The European Economic Community (EC) collectively holds about 57 percent. Moreover, according to research by Eric Rosengren, between 1978 and 1987, Japanese investors acquired only 94 U.S. companies, putting them fifth behind the British (640), Canadians (435), Germans (150), and French (113).

Outlays for New Investment in the United States
by Foreign Direct Investors, 1980-2008

Why Do Foreigners Invest in the United States?

With no restrictions on movements of labor or capital, each tends to flow to any host country where wages or returns are higher than at home. During the eighties laborers migrated to western Europe from eastern Europe, southern Europe, and Turkey, and to the Arab Gulf states from Africa and southern Asia because of higher wages. Capital migrated to the United States because of higher returns. The U.S. stock market's annual appreciation of over 15 percent (not counting dividends) was exceeded among the major Western industrial countries only by the Japanese stock market's rise of nearly 20 percent. In comparison, average stock market increases were 5 percent in Canada, about 11 percent in France, 12 percent in Germany, 14 percent in Italy, and 12 percent in the United Kingdom.

Tax differences also influence international capital flows. Both defenders and critics of the Reagan administration's 1981 tax cuts agree that they caused increased capital inflows during the eighties. Defenders argue that U.S. investments became more profitable after tax than non-U.S. investments, both to U.S. investors and to foreign investors, while critics argue that large federal deficits drew the capital inflows.

Foreign Investment In Uinited State

Consistent with the defenders' view, U.S. investors were selling off foreign assets in the early eighties to finance domestic investment. U.S. direct investment abroad, valued at historic cost, declined from 1981 to 1984; in market value it declined during 1983 and 1984. Correspondingly, U.S. nonresidential fixed investment rose substantially in 1983 and 1984 and peaked in 1985, following publication of the U.S. Treasury's tax reform proposals in the fall of 1984. In 1985 U.S. direct investment abroad began to rise again. Meanwhile, foreign investment in the United States grew somewhat faster in the early eighties than in the late eighties. Higher tax rates on capital gains became effective in 1986, and, from the end of 1985, the rise in U.S. foreign direct investment has exceeded that of foreign direct investment in the United States. Moreover, the pattern of the rise and fall of the U.S. dollar—appreciating between 1980 and 1985 and depreciating from 1985 to 1987—is also consistent with the defenders' view.

The United States attracts capital not only because of lower taxes, but also because of greater U.S. consumer wealth and labor productivity. At purchasing power parity—GDP adjusted for differences in exchange rates and prices—U.S. wealth (per capita GDP) was one-fourth greater than Japan's in 1990 and one-third greater than Germany's. Moreover, except for Japan the other main industrial countries did not narrow this margin between 1980 and 1990. On a production-per-employee basis, the message is the same: U.S. labor is the most productive in the world.

Competitive Advantages.
When a country has as much to offer as Canada , it’s impossible to pinpoint a single reason to invest in one of the most dynamic economies in the world. Canada boasts multiple advantages and unparalleled potential — a place where businesses can achieve excellence on a global scale.

People Advantage: Canada is a nation of intelligent, educated workers, ranking #1 in the OECD in higher education achievement.

Business Environment Advantage: The Economic Intelligence Unit has rated Canada the #1 place to do business in the G7 for the next five years.

Economic Advantage: Canada is better placed than many countries to weather the global financial turbulence and worldwide recession.

Tax Advantage: Canada offers businesses low tax rates, boasting the lowest payroll taxes among the G7 countries.

NAFTA Advantage: Canada ’s NAFTA advantage gives investorsaccess to more than 443 million consumers and a combined GDP of more than US$15.4 trillion.

The Asia-Pacific Gateway and Corridor Initiative (APGCI): Take advantage of Canada’sstrategic location as the crossroads between the North American marketplace and the booming economies of Asia.

Transportation Advantage: Canada has sophisticated infrastructure and a highly developed transportation network.

Life Style Advantage: World-class universities, a universally acclaimed health care system, clean, friendly cities and spectacular scenery make Canada a great place to invest, work, live and raise a family

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