4 Reasons Why You Should Invest in Foreign Markets

Jane Miller |

Foreign markets can offer plenty of benefits to investors. If you're not sure whether this is the right opportunity for you, consider these four reasons why you should invest in foreign markets.

1) Emerging Markets Have Plenty of Room for Economic Growth

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Image via Flickr by Thomas Locke Hobbs

The gross domestic product (GDP) of the United States is usually between 1.6 and 2.5% per year. It's unlikely for US GDP to exceed three percent, because so many of the country's markets are already developed.

Developing countries, however, often have plenty of room for economic growth. Brazil's economy grew by 7.5% in 2010. China's GDP has topped 7.5% for four years straight.

Other countries with rapidly growing economies include:

  • Turkmenistan (10.2% in 2013)
  • Paraguay (14.2% in 2013)
  • Mongolia (17.5% in 2011, 12.4% in 2012, and 11.7% in 2013)

Investing in these countries now means that your money has a lot of room to grow along with their economies. 

2) Foreign Markets Add Diversity to Your Portfolio

Diversification is the cornerstone of a strong investment portfolio. The more diversity you can add to your stocks and bonds, the more you protect yourself from loss.

Investing in foreign markets is the ultimate diversification method. It does more than protect you from specific companies and industries that might falter in upcoming years; it helps protect you from the ups and downs of the American economy.

Note that you can choose between developed and emerging markets. Developed markets include countries like England and Germany. Emerging markets include the countries listed above. Many experts advise distributing your investments between both types of markets: Developed markets give your portfolio more stability, whereas emerging markets give you a chance to earn high profits.

3) The US Dollar Has Strong Buying Power Overseas

Although the US dollar still lags slightly behind the euro, it is stronger than most of the world's currencies. A dollar, for instance, can buy over six Chinese yuan. A single dollar can buy more than 60 Russian rubles. This means you can purchase more stocks and bonds without spending a lot of money.

Of course, you'll need to pay attention to exchange rates to make the most of your dollars. In 2011, a dollar would buy about 30 rubles. Today, the rate has doubled to 60 rubles. Anything can happen, so you have to stay on top of evolving rates.

If you want to learn more about overseas opportunities and pursue a career in foreign investments, consider an online MBA from an institution such as Marylhurst University. The school offers an accelerated program that can help you earn your degree in just 18 months. Because you take classes online, you can keep your full-time job while preparing for the next step of your career.

4) An ETF Can Simplify Foreign Investments 

Many people are too intimidated to invest in foreign markets. That's understandable, considering that foreign markets often use rules that are different from those in the United States. If you don't want to invest in foreign markets directly, consider using an exchange-traded fund (ETF). International ETFs simplify the process by letting you buy from a brokerage firm instead of going through the foreign market.

Many ETFs specialize in specific industries, too, so there is some diversification built into them. That makes investing easier and safer. You will, however, have to pay a brokerage fee.

Do these reasons make you more willing to invest in foreign markets? Are you more interested in developed or emerging markets?

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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