Domestic Slowdown? No Problem!

Lately, investing in the stock market has been a lot like piloting a sailboat through a storm -- lots of ups and downs, and a lingering feeling of nausea.

Difficulties in the mortgage market, declining sales, and falling consumer confidence have all dragged the market down this year. And while there is still some debate over whether the U.S. economy is in a recession, it's likely that we're in for some more stormy weather.

But fortunately, a slowdown in the domestic economy doesn't mean that your portfolio has to languish.

Hidden bargains
Having a diversified portfolio ensures that when one area of the market is suffering, another may not be, and that segment will offset lagging performance in suffering areas.

Commodities, for example, have historically done well during recessions. Your best bet probably lies with an exchange-traded fund -- such as the iShares S&P GSCI Commodity ETF (NYSE: GSG) or the iShares COMEX Gold Trust ETF (AMEX: IAU) -- that focuses on gold, oil, or other precious metals

If you want to invest in individual stocks, certain areas of the market tend to hold up better during downturns. The best example is consumer staples stocks.

During rough times, people will still buy basic necessities like food, shampoo, and laundry detergent, so stocks that focus on everyday needs -- such as Procter & Gamble (NYSE: PG), Johnson & Johnson (NYSE: JNJ), and Unilever (NYSE: UL) -- are ideally situated to keep ahead of the market during lean times.

A whole new world
Of course, investors worried about the slowing domestic economy can do one further thing to diversify -- invest overseas. While it's true that a downturn here in the United States can affect countries across the globe, there are still tremendous benefits to be had from foreign investing. In fact, a decent exposure to foreign stocks is one of the smartest things you can do for your portfolio.

Just look at how much money you would have made investing in the following foreign-stock mutual funds over the past 10 years:

Of course, there's no guarantee that foreign markets will continue to keep up the red-hot pace they've seen in recent years, but investing overseas is a must-do for many reasons.

First, more than half of the world's market capitalization lies in foreign markets. If you restrict yourself to domestic investing, you're missing more than half of the world's investment opportunities!

Second, having international exposure can help buoy your portfolio when the domestic stock market hits the skids. And since many foreign economies are growing at a faster rate than the U.S., there's a lot of growth potential overseas.

A word of caution
Despite the upsides, there are risks involved in foreign investing for investors to keep in mind.

For example, there's country-specific risk, or the risk of political or economic upheaval that would affect stock prices; currency risk, or the risk that changes in the exchange rate between the U.S. and a foreign country will eat away at your investment return; and risk arising from differing accounting procedures in many countries, which can make spotting attractive investments that much more difficult.

But in spite of these potential dangers, international investing is vital to your portfolio's health, especially during volatile markets like those we've seen recently.

So, if you're in the market for a little international flavor, there's a quick and easy way to get exposure to this sector -- foreign mutual funds. Why not let someone with years of experience fishing in international waters manage those risks for you?

Of course, you want only the best of the best foreign funds, and there's one spot where you can get the lowdown: the Fool's Champion Funds newsletter. We search high and low to find the best mutual funds investing both here and overseas, and we bring them right to your door each and every month. In fact, you can take a free 30-day trial to our service and preview all of our fund picks right now.

In the end, a domestic slowdown may not be fun for most investors, but that doesn't mean there aren't still good investment opportunities waiting to be found. If you can manage your seasickness during these turbulent times, there's a good chance you'll be able to pilot your ship through the storm and into calmer waters ahead.

Amanda Kish heads up the Fool's Champion Funds newsletter service. At the time of publication, she did not own any of the companies mentioned herein. Unilever and Johnson & Johnson are Motley Fool Income Investor recommendations. Click here to find out more about the Fool's disclosure policy.