SINCE THE ECONOMIES of the world's different regions tend to boom and bust in cycles that offset each other, international stocks can provide excellent diversification for a portfolio heavy on U.S. equities. And a fund with a good manager is often the best way to go, because research is scarce and foreign companies are notoriously hard for individual investors to track on their own.

Foreign-stock funds allow you exposure to overseas markets at varying levels of risk. Some are fairly tame. Others can make your hair stand on end. Consider the experience of the summer of 1998, when the Asian economies fell like dominoes and plundered stocks in the region. Funds like Pioneer Emerging Markets and Ivy Developing Nations, with heavy exposure to Asia, got hammered. Even when foreign economies are doing reasonably well, currency fluctuations can have a negative effect on stock prices.

Of course, economic and currency risk can also swing very strongly in a positive direction. So, as always, diversification is the key to managing risk. Funds investing overseas fall into four basic categories: global, international, emerging market and country specific. The wider the reach of the fund, the less risky it is likely to be.