Steel, cement, machine tools, and automobile stocks are considered cyclical stocks. The performance of these stocks fluctuates with the seasons. For example, retail companies' sales and profits often increase at Christmas and the opening of the school year. If one of your financial objectives is to reduce the fluctuations of the returns earned by your equity portfolio, you may want to consider diversifying your investments between different securities - and different countries. As long as the business cycle between countries varies, international diversification may reduce volatility in portfolio returns.
Many investors use U.S.-based equities as an integral part of their investment portfolios.
However, the U.S. equity markets represent only about one-third of the total world markets. To be truly diversified, you should consider international equity investments. But remember international equity investments are not without additional risks. Market volatility, reduced liquidity, social, political and currency risks and lack of public information are all inherent to international investments. Fixed-income investments are securities that pay a fixed rate of return, which means that they can provide regularly scheduled income payments until the bond's maturity.