As any savvy investor will tell you, if you want to get the most out of your portfolio, the wider your spread of investments, the more you will protect yourself against risk. And they will also tell you that if you can play the global markets – and get over the many tricky hurdles that exist – it’s a great way to diversify. In this post, we’re going to explain everything you need to know about achieving success with investments on a global scale – let’s get started with some of the basics.
There is an enormous range of issues involved in investing globally, and unless you can afford the right team or have the time to investigate the subject properly, failure is all too common. There are language barriers, of course, not to mention all the ever-changing regulations that are in place on the foreign exchanges – more on which in a moment – which you must learn and keep up with. But you also need to know a fair amount about the country you decide to invest in. What is the current political situation, and how is it affecting the economy? Take the UK as the perfect example – anyone going to bed on the night of the Brexit vote would have woken up the next morning having lost a significant amount of money if they had stocks in virtually any British firm you can imagine. So, do your research, know your industries, companies, and economies, and also make sure you keep your portfolio in a diversified state.
There are no hard and fast rules when it comes to investing in foreign countries – but you need to be aware of the rules and regulations of each exchange your plan on trading in. There are plenty of Fintech products out there these days which can help you track rules, which tends to happen on a regular basis. It is vital that you stick to these rules, as any breach could result in you ending up in some seriously hot water. Bear in mind that some countries will require you to have a ‘green card’ equivalent to invest, too. Investing here, for example, requires an EB-5 Visa. The American EB-5 visa application process is easier with an attorney, and likewise, you should work with a lawyer from the country you plan to start investing in. Again, make sure you – and any fund companies you are using – are all working within the rules to avoid any problems.
Mutual funds and ETFs
OK, so now let’s take a look at some of the best ways to get started. One of the first things worth looking at is exchange traded funds (ETFs) and mutual funds. These products hold a range of international stocks and bonds, which often cross multiple industries and countries, and are probably the quickest and easiest way of getting involved with the global markets. There is a broad range of fund types, including International funds (for foreign investment), Regional funds (for specific regions), Country funds (for specific countries) and Sector funds, which involve investing in sectors which run across multiple countries.
The next thing to consider is American depository receipts – or ADRs. Using these ADRs is an easy way of accessing foreign markets, and you can trade them just as you would any other stock or share on the New York Stock Exchange and Nasdaq. Another benefit is that any foreign company issuing stock as ADRs tend to conform to U.S. accounting standards, which means you can avoid many of the pitfalls and bother of the huge variation of international investment regulations.
Another safe way to diversify on the international stage is to invest in a domestic stock that has plenty of exposure to foreign markets. It’s the big hitters we are talking here – the Coca-Colas, Glaxo-Smith-Klines and McDonalds’ of the world. In most cases, all these global giants make a decent chunk of their money – at least half – from overseas trade. And let’s face it, if you are concerned about your world knowledge, it’s a solid way of getting involved.
Should you or shouldn’t you?
To conclude, seeking out investment potential in the global markets is an excellent way to build up your resilience and diversity. As long as you keep some of the things we discussed here, you should be able to avoid any of the major problems, although you have to bear in mind that political instability could change everything. In short, invest in the world, but always diversify to reduce your risk.