There are plenty of good reasons to invest in the global marketplace. International stocks and mutual funds offer American investors international exposure, access to emerging markets and worldwide diversification. Before you begin investing in countries you know very little about, you first need to decide how much to invest among the three asset classes (cash, bonds or stocks), how they work and what they do. Here's a primer:

Cash

Often referred to as "cash-equivalents," this asset class consists of savings vehicles or bank accounts that enable investors to access funds quickly and without penalty. Examples include money market mutual funds, bank money market accounts, bank checking accounts, short-term Certificates of Deposit (CDs) and U.S. Treasury Bills.

• How Cash Works: Cash investments generally remain stable in price with little to no risk of losing any portion of the principal amount. But, in exchange for low risk, they earn a relatively low amount of return. Bank accounts, CDs and T-bills are government-insured up to a certain limit. Money market mutual funds are neither insured nor guaranteed, but are considered to be extremely safe.
• What to Consider: Because cash investments are viewed as safe, the interest rates they pay are low, and over time, their returns typically do not exceed the rate of inflation. Therefore, if you are a long-term investor, your portfolio should contain little or no cash investments.

Bonds

Bonds are debt securities (or basic IOUs) issued by corporations and governments in exchange for the money you lend. In return you—the investor—receive periodic interest payments.

• How They Work: In most instances, bond issuers agree to repay their loans by a specific date and make regular interest payments until that date rolls around. Bonds held to maturity are called fixed-income investments and are considered relatively safe. However, most bonds are traded in secondary markets and sold before they mature. Therefore, their trading price can fluctuate. These types of bonds are not considered fixed-income investments and can lose value.
• What to Consider: Generally, when interest rates rise, bond prices fall. Conversely, when interest rates fall, bond prices tend to rise. The longer a bond's maturity, the more its price will be affected by changes in interest rates. So, ideally, long-term bonds are considered riskier than short-term bonds but will provide higher returns.

Because the price of bonds can change with market events, and because non-government bonds have a certain degree of default risk, the bonds are considered riskier than cash but safer than stocks. Over time, bonds have provided higher returns than cash, with less risk than stocks. Bonds have a place in almost every investor's portfolio if for no other reason than as a "safe haven" when stocks are underperforming.

Stocks

Stocks represent ownership (or equity) in a public corporation, like Wal-Mart, Google or GM.

• How They Work: If you own stock in a company and the company does well, you get to share in its profits (in the form of dividends) and benefit from the rise in the market value (known as capital appreciation). We've all heard the saying: "What goes up must come down…" right? Well, if the company runs into some financial problems, the value of the stock could fall and you could lose some or all of your investment.
• What to Consider: Because their prices tend to fluctuate suddenly and sometimes sharply, stocks are considered the riskiest of the three asset classes. However, over time, stocks have offered investors the highest rate of return.The allocation of stocks in your portfolio will depend on a number of personal factors including your time horizon, the expected rate of return and your risk tolerance.