Why might a diversified portfolio include international exposure?

• A. To spread risk across economies and potentially access different growth opportunities.
• B. To avoid taxes entirely.
• C. To guarantee higher returns in all market conditions.
• D. To reduce liquidity.

Answer: (A)

Diversification across international assets spreads risk by tapping into different economies, growth cycles, and policy environments. When a domestic market faces a downturn, other countries may be expanding, so a global mix helps smooth overall performance rather than being tied to one country’s fate. It also broadens the set of growth opportunities, giving access to industries or regions that aren’t as developed domestically.

Keep in mind that diversification doesn’t guarantee higher returns or protect against losses, and international investing introduces currency and political risks that you’d manage rather than assume. It also doesn’t inherently ensure lower taxes or always improve liquidity.