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Don’t Make Me Say I Told You So 115

overseas, including some risks that don’t apply to U.S. stocks.
Currency risk also affects American companies that sell abroad.

Currency risk arises from the change in price of one currency

against another. For example, if you are a U.S. investor who
holds Japanese stocks, your return is affected by both the
change in the price of the stocks and the change in the value

of the Japanese yen against the U.S. dollar. If your Japanese
Currency risk also affects American companies that sell abroad.
stock portfolio increased in value by 20%, but the yen rose 20%
against the dollar, your total return would be zero. Many portfolio
managers try to minimize currency risk by hedging against it.

Political risk is the chance of losing money because of events
that occur in a country’s government or regulatory environment.

These include, but are not limited to, a change in leadership,

terrorism, war, or the confiscation of assets by the government.
All of these things can have a dramatically negative effect on a
nation’s economic and investment markets.

Liquidity risk is another type of risk that comes with investing

in foreign markets. There is the danger that investors will be
unable to sell stocks or other investments in a timely fashion

after they’ve placed an order to make the sale. This risk can
be substantially higher in emerging markets. When making an

investment in a foreign market, investors need to pay attention

Chapter 3: You Must Have Growth In Your Portfolio