(MONEY Magazine) – You don't have to be Jules Verne to believe that travel would be broadening for your portfolio. While even optimists expect a gain of no more than 3.5% for the U.S. gross domestic product during President Clinton's first year, some foreign economies are forecast to boom by as much as 11%. Indeed, revved- up regions like the Pacific Rim -- Hong Kong, Malaysia, Singapore and other emerging Asian nations -- figure to post average growth of more than 7% annually through 1997 vs. only 3% for larger industrialized economies like our own. And, equally important in the investment equation, foreign stocks seem to be a relative bargain today. That's because following several years of stellar growth in the early- and mid-1980s, the stock market economies of Japan and Western Europe went into a long stall. Since 1988, the average international stock fund has returned just 6.8% annually, less than half the 14% payoff for funds concentrating in U.S. equities. While U.S. shares are trading at a steep 24.8 times earnings (against a 10-year average of 14.9), the French bourse, by contrast, has a multiple of 17.4 (vs. its 10-year average of 23.3). Sums up Rick Holbrook, global equity strategist for the investment advisory firm Bailard Biehl & Kaiser in San Mateo, Calif.: ''The best opportunities for . growth today are in foreign stock markets.'' Indeed, as he spoke, the turnaround was in train: In the first quarter of 1993, international funds gained 8.4% -- vs. just 3.3% for general equity funds focusing in the U.S. But even in periods when overseas equities seem less invitingly priced than today, many experts still urge Americans to allocate from a tenth to a third of their stock portfolio internationally for wider diversification. You have already read how spreading your domestic investments over a variety of industries and companies that perform well under varying conditions reduces your risk in seesawing market cycles. So it stands to reason that branching out into foreign stocks further reduces your downside when the U.S. market takes one of its periodic tumbles. Earl Osborn, a partner in the San Francisco investment advisory firm Bingham Osborn & Scarborough, compared two hypothetical investors over the past 20 years -- one with 80% of her assets in U.S. stocks and 20% in foreign markets, a second with all of his assets in U.S. stocks. She was smarter than he. Not only did the internationally diversified investor face 6% lower overall risk (as measured by price swings), her average annual returns were higher than the all-American investor's -- 12.7% to 12.5%. It almost goes without saying that if mutual funds are increasingly the vehicle of choice for small investors' domestic holdings, then funds are about the only viable choice for venturing into the uncharted, underregulated international waters. For starters, most foreign stock markets do not impose reporting standards on companies they trade as stringent as those enforced by the U.S. Securities and Exchange Commission. The financials are harder to come by and less reliable -- for the uninitiated, it's like pitching darts in the dark. Worse, buying foreign securities exposes you to two types of risks. The first is political risk, the danger that electoral shifts or governmental instability will adversely affect the performance of a market. A case in point: The closed-end Mexico Fund fell 22% in the second quarter last year and another 18% in the third, because of, among other reasons, concerns about the U.S. election and the future of the North American Free Trade Agreement. The other worry looming over investing abroad is currency risk, the danger that a rising U.S. dollar will shrink the value of your overseas holdings. Suppose, for example, you take $1,000 and convert it into Japanese yen at a ; time when the dollar is worth 120 yen; then you spend those 120,000 yen on 100 shares of a Japanese stock at 1,200 yen per share. Okay, now what happens if the dollar rises in value to 150 yen but your stock is going nowhere and you decide to bail out? Sure, you do collect exactly the same price you paid -- 120,000 yen -- but, ouch, after converting your proceeds back into dollars at 150 yen to the buck, you net only $800 (120,000 divided by 150). You lost 20% on your investment even though your stock held firm. (And in this oversimplification, we didn't even dock you for broker or exchange commissions.) Of course, if the dollar fell the same percent against the yen, you would have profited 20% on that stagnant stock. And the reassuring news, says John Markese, president of the American Association of Individual Investors in Chicago, is that currency swings tend to ''wash out over the long term,'' leaving no significant impact on portfolio performance after, say, 10 years or more. (But the year-to-year threat may well preclude the comfort of international diversification for short-term investors.) Having settled that those MONEY readers who don't consider themselves Henry Kissingers or Sir John Templetons (the father of global investing) are better off leaving their international stock picking to funds, the question is which type. There are four basic subcategories, based upon breadth of investing focus. The broadest are so-called global funds, which can invest anywhere in the world, including the U.S.; then come international funds, which invest everywhere in the world except the U.S.; regional funds, which invest in a specific segment of the globe, say Latin America; and single-country funds. (To ease understanding of this already complex fund category, we will cover in this article only the familiar open-ended mutual funds, which are sold to investors at net asset value, though many foreign funds are closed-ends, whose shares are traded on an exchange like a stock, as explained on page 118.) Investors first beginning to diversify worldwide can probably cut through the confusion of choices by ignoring global and single-country funds and zeroing in on the last sections of this story.

GLOBAL FUNDS: For the hands-off investor. The problem with global funds is that the manager's freedom to acquire U.S. stocks can negate your whole purpose of buying the fund: to diversify overseas. The average global fund today puts some 40% of its assets in the U.S. Thus the small investor who is < aiming to reallocate a portfolio mix to contain, say, one-quarter holdings abroad could calibrate that percentage more precisely with a pure overseas play -- that is, in a 100% international fund rather than a global. To be sure, less confident or activist fund investors willing to trust their domestic/international equity balance to the absolute discretion of one wide- ranging megamanager could do one-stop shopping with a global fund. Ideally, though, it should be a global that historically maintains substantial holdings in the U.S. Two such funds qualified for Money's best foreign-stock fund list above -- Scudder Global and Templeton Growth. (In any case, maintaining a predetermined portfolio percentage between domestic and international stocks grows harder by the day, because many U.S. domestic funds are now also thrusting a toe into the ever-more-global economy. To cite one of many examples, the Acorn Fund, which made its name investing in small companies in the U.S., now keeps about 20% of its portfolio overseas, and has, in fact, recently added a foreign sibling, Acorn International.)

SINGLE-COUNTRY FUNDS: For the plungers. Single-country funds are only for high-stakes, bet-it-all-on-the-nose players, with a well-educated hunch and steady nerves. Investing in the Rio market, for example, is not to be confused with a day at Ipanema: The closed-end Brazil Fund soared 64% in 1989, plummeted 68% in 1990, skyrocketed 131% in 1991 and rose another 6% last year. ''Roller-coaster rides like that are only for the heartiest investors,'' says Ronald Yolles, a money manger in Southfield, Mich. The most famous (or infamous) foreign market, Japan's Toyko Stock Exchange, shot up nearly 240% between 1985 and 1990, then toppled 63% by August 1992. Holbrook of Bailard Biehl & Kaiser thinks the worst is over. He forecasts a 20% rise in the Nikkei over the next year as the sun rises on the Japanese economy, which could get a kick-start from a recently proposed $116 billion stimulus spending program by the government.

REGIONAL FUNDS: For parlay players. Regional funds spread the exposure somewhat wider. For instance, G.T. Pacific Growth -- which divides its equity assets over 11 countries and 10 different industries in the Pacific Rim -- has actually been slightly less volatile than the average international stock fund during the past three years. As for the future, no one knows for sure, but Holbrook believes that the Pacific Rim as well as Western Europe offer the best foreign investment opportunities right now. In Europe, he looks for lower interest rates and improved export prospects to propel stocks in Britain, Italy, Spain, Switzerland and the four Scandinavian countries (thanks to the recent devaluation of their currencies, which, in effect, lowers the price of their exports to foreign buyers). In the Pacific, Holbrook likes the go-go economies in Malaysia, Singapore and Thailand, among others. One way to parlay both these regions is $2.6 billion EuroPacific Growth, whose managers delivered above-average returns with below-average risk over the past five years. Most recently, the portfolio had 44% of shareholder assets in Europe and 20% in the Pacific Rim but, the fund's name aside, had hedged the remainder in Latin America and Canada and fit more aptly into the following overseas subcategory.

INTERNATIONAL FUNDS: For classic diversifiers. Investors who doubt they have the time, experience or heart to invest wisely in regional funds should settle for the more prudent overseas bet -- an international fund. Explains Osborn of Bingham Osborn & Scarborough: ''With the world changing so fast, most individuals are better off letting a professional figure out which regions and which countries are the best places to invest.'' If you loathe paying an up-front sales charge in this relatively high- expense fund category, fret not -- you won't have any problem finding solid choices. As you can read above, the leading international performer over the past five years is Harbor International, and two other low-expense no-loads, T. Rowe Price International Stock and Scudder International, are stalwarts of the international investing game, Scudder having been around since 1957. To be sure, compared with other growth categories, these international funds displayed relatively spotty numbers over the past five years. They are the sort of results that will discourage some investors diversifying worldwide -- and encourage others who are convinced that a turnaround is inevitable and potentially enormous.

CHART: NOT AVAILABLE CREDIT: Sources: Lipper Analytical Services, Morningstar Inc., fund companies CAPTION: THE 15 BEST OVERSEAS STOCK FUNDS Internationals -- clobbered by domestic equity funds in recent years as foreign markets faltered and the dollar stabilized -- bounced back with an 8.4% average gain in the first quarter of 1993. Since 1983, despite the dismal past half-decade, internationals outgained domestic stock funds, 14.8% to 12.7%, on annual average. MONEY's consistency rating, a key comfort criterion for venturing overseas, indicates performance against a fund's competition over each of the past five years. Thus a score of 58 means that a fund beat consistently 58% of its peers.