(MONEY Magazine) – The World Is There for the Investing

Chasing two years of great returns, Americans threw $38 billion into international stock funds between January and April--double what they invested in U.S. equity funds. Usually, such a torrid flow of money signifies an asset class that you should be avoiding.

Maybe not this time. Odds are you're underinvested abroad. Individual investors have, by one estimate, about 5% of their stock portfolios in foreign equities. But Lehman Brothers' Private Investment Management is advising clients with a taste for moderate risk to buy half their stocks from outside our borders. More typically, financial planners recommend a 20% allocation.

Build your international stake over time. Much of the money that's running overseas is based on a short-term wager that the dollar will start falling against the euro again, magnifying returns from Europe. If that bet goes bad, those returns could turn into losses.

But over the long term, investing abroad is a sound way to diversify your portfolio. Asian economies, though they may be volatile, will likely outpace those in the West over the coming decades. And European companies are cutting costs while governments are adopting more capital-friendly tax and labor policies. Richard Foulkes, portfolio manager of Vanguard International Growth (VWIGX), a MONEY 50 fund, says Germany and Italy are weak but profits in Europe and Japan will outpace growth in the U.S. this year. And he's downright bullish on Taiwan, Korea, Indonesia and the Philippines. "People are completely overestimating the risks," he says. --GEORGE MANNES

Check here each month to see the five top-performing funds in varying categories.

NOTES: As of May 19. [1] Annualized. [2] Closed to new investors. SOURCE: Lipper, New York; 877-955-4773.