Investment Enhancement - Research Paper Example

This type of investment strategy might be attractive for a senior citizen investor who is looking to minimize or eliminate investment risks since he will be retiring within a few years and needs to lock in his retirement’s benefits. For the typical investor there is variety of benefits to utilizing international investments to improve financial portfolio performance On the other hand most investors are looking to maximize their return on investment therefore are willing to accept an increased level of risk in order to benefit from the possibility of much higher returns.

Although studies have shown that the benefits of direct international investments to achieve adequate international portfolio diversification are limited for U.S. investors partly due to the fact that U.S. investors can invest in domestic multinational corporations, country funds. Another reason is possibly because the U.S. both the economy and its stock market are much more developed and diversified than other countries. The benefits of international investments are more easily realized in underdeveloped countries than in developed countries.

Investing internationally makes sense to a lot of potential investors since for example foreign investment mutual funds provide the opportunity for individual investors which typically lack the necessary financial resources to buy a large number of stocks on their own to benefit from the expertise of a professionally administered international investment mutual fund. Recently national economies have become more closely linked due to globalization, growing international trade, and investment capital flows.

This might lead to realize that the benefits of international portfolio diversification might be overstated. Despite significant interdependencies between markets, there is still room for international diversification. A recent tendency has been for investors to look into emerging economies as good candidates for international diversification. Since ongoing research suggests that since emerging economies are not closely correlated to industrialized there are still considerable opportunities to benefit from international diversification.

There are various investment vehicles investors can use to build up a portfolio in the equity and money markets. The most popular form of investment is common stock. The price ticker investors’ track on Wall Street represents common stock investments. Common stocks are equity investment that represents a right of ownership. People that invest in common stock have voting rights over certain corporation decisions. There are different types of common stocks. Two types of common stocks are blue chip and penny stocks.

Blue chip stocks are stocks that are issued by a well-known company with an established record of making money and paying dividends (Teweles & Bradley & Teweles, 1992). An example of a blue chip stock company is Microsoft Corporation. Within the category of common stock blue chips are considered the safest type of investment. On the other side of the spectrum are penny stocks. Penny stocks are can be defined as stocks that trade at a relative low price and market capitalization typically outside the major marketplaces (Investopedia, 2011).

Penny stocks are very risky and on many occasion the stocks go into default as these penny stock companies run out of business. Another popular type of investment that is often