Many investors achieve their financial goals without venturing outside of their own country. However, according to a news article published by CNBC earlier this year, the global economy is on the rise, and despite the inherent risks of investing overseas, many investors are seeing a turn in profits. Simply put, if you aren’t investing overseas, you may be missing out!
Experts say new investors should focus a third of their stocks on the international market when working on their portfolio. Having a diverse portfolio with around 10-15 assets spread across a range of industries and geographical locations will ensure that there is still the possibility of financial gain, even if there’s a downturn in the economy in one particular location. Countries such as Brazil and China are known for their economic growth, and places such as the Middle East are often considered a safe bet because of the oil market. However, it is still important to weigh up potential risks and rewards, when deciding on who and where money is invested into.
The risk-to-reward factors need to be properly assessed, and new investors need to take great care when investing overseas. Speaking to an expert, such as an investment banker, or the Oppenhuizen Law Firm, is a good idea for anybody without a lot of knowledge of the global market. An expert will outline the risks and opportunities prevalent internationally, with up to date market research to assist any would-be investors looking overseas to diversify their portfolio.
– Currency exchange rates. Exchange rates fluctuate over time, and there will be gains and losses made. Research is vital.
– Geopolitics. Some companies operate in countries where there are risks of war. If the political climate is hostile towards the investor’s country of origin, they are probably not a good candidate for investment, even if their economy is in a good place.
– Economic risk. There are some countries that have a poor investment grade. As listed by Forbes, these countries were considered a risk in 2016.
– Transaction risks. Associated with the exchange rate, the risk here is the time delay between entering and settling a contract.
– Upturn of the economy. The rate of return can be significantly increased when there is an upturn in the country’s economy. While the downside is also true, this may not harm somebody with a wider portfolio of investments elsewhere, so the reward may outweigh the risk.
– Emerging markets. Study suggests developing countries often experience slower growth, with an expected 2% rise in 2017. On the other hand, emerging markets are on the up, with a projected 4.5% upturn in growth.
– Tax reduction. Some offshore countries attract investors because of the favorable tax rates. However, tax laws are tightening, as the IRS works to ensure taxes aren’t evaded entirely.
– Range of companies. Think of the companies that operate in a country outside of your own. From automobile manufacturers to pharmaceuticals, there is a diverse range of options to invest money into.
It would be unwise to shift all your money overseas unless you had specific knowledge to back up your investment. However, despite the risks involved, there may still be some reward when trying to diversify your portfolio beyond your own geographical location.