Mutual Funds: International Funds

International funds -- funds that focus their investments on overseas markets -- are a great way for investors to tap into global economic growth as well as diversify their holdings beyond just homegrown U.S. stocks.

Within the large umbrella of international mutual funds there exists just about every type of mutual fund offered: bond funds, index funds, sector funds, small-cap funds, and so on. Also, investors can choose an international fund that focuses on a single country, a region, or one that includes every foreign country under the sun. (That last category raises a distinction to keep in mind: Offerings known as global funds or worldwide funds typically include U.S. stocks or bonds in their portfolio.)

One of the great things about international funds is that they give small investors access to regional stocks that would be difficult or at least very expensive to buy on their own. Another sound reason to invest in international funds is diversification.

However, plunking down some money for an overseas fund doesn't ensure diversity. Investors need to examine what kind of investment aims a fund has: Does it favor high-octane, high-risk technology stocks? Is it focused on small-cap stocks, or familiar blue-chip multinational stocks? To illustrate the point, the spring 2000 swoon in technology stocks hammered U.S. shares, but it also reverberated among tech stocks around the globe. Having a U.S. fund that invested heavily in tech stocks and an international fund that had a similar sector weighting wouldn't have given an investor a diversified portfolio.

Baby, Baby, It's a Wild World

Thanks to international funds, the world can be your oyster, but if you're not careful you can get shelled. It's best to keep yourself abreast of the world of international funds, which TheStreet.com does for you in its Personal Finance section (and the International section covers global trends that may affect your holdings). For more on international investing, here's a sampling of stories on international funds to help ensure safe journey as a globetrotting investor.

Get Familiar With Foreign Stocks

Go Global With Funds

Over There: European Funds Shine

Latin American Funds: Getting Hot Down There