The economies of lesser-developed foreign countries have significantly greater growth potential than a mature economy such as that of the United States and growth potential equals profit potential. At the same time, foreign stocks can serve as a hedge against a slump in the U.S. economy or in specific industries. In the global economy, one country's loss can be another's gain and economic trends affect different countries in different ways.

On the Other: The Rules Are Different.

Every country has its own rules. The financial reporting requirements and shareholder protections that exist in the United States don't necessarily apply in other countries; some have them, but many don't. This is especially true in "emerging markets," in which the potential return on investment is high--but so are the economic and political instabilities.

Bottom Line

Foreign stocks make a portfolio stronger and more resilient and it's smart to have international investments. But try to strike a balance between stable, well-regulated foreign markets--for example, Japan and Europe--and places where the rules are still being written. There may be great profits to be made on the Iraq Stock Exchange, but don't put your entire retirement nest egg in it.

Source:

The Motely Fool: Why You Must Own International Stocks

The Motley Fool: Foreign Stock Risks

More Information:

Iraq Stock Exchange