International Investment: Current Risks and Advantages

Jane Miller |

International investment can be a great option for investing money with a high rate of returns. However, there are a number of pros and cons to consider before starting the investment process.

Diversity Is Key

One of the major benefits of investing internationally is the improved diversification of your portfolio. More than half of the investment opportunities in stocks around the world are available outside of the United States. Seventy percent of the largest automobile companies, 70% of the diverse telecommunications companies, 80% of mining and metal companies, and 60% of the largest electronics companies all exist outside of the U.S., making up a huge portion of the big companies around the world. This means that for anyone who wants to invest in any of these businesses, they must invest outside of the country.

Consider the Risks

Since the exchange rate for foreign currency is constantly changing, investing overseas may seem overly risky. Additionally, consider the risk of economic or political instability that can wreak havoc on a country’s economy – sometimes even overnight. It may also be difficult to find information about specific companies overseas, especially if they are coming up in emerging markets that don’t provide statistics online. There are a variety of complex relationships between countries, but if those change due to unforeseen circumstances, the value of your investments could also change drastically.

Do Your Homework

One of the best ways to develop a strategy for investing that will work on a long-term basis is to do research before starting. You can work with an investment specialist who can explain the risks and advantages, or you can simply do research yourself to understand if it is a good option for you. Consider your financial goals and abilities, and determine an amount that you can reasonably invest. Since the international market can fluctuate substantially, even day-to-day, you should be able to handle this without pulling your investments out of the marketplace in frustration.

Take Advantage of Higher Growth Rates

After World War II ended, the United States was the investment powerhouse for many years. However, in the recent past, the American economy has been in a slow period of growth. In 2013, the total GDP grew by less than 2%, while China had a growth rate of more than 7.5%. Since China and other countries are experiencing much higher growth rates, investing overseas is a great opportunity to take advantage and potentially earn much higher returns. According to some financial experts, investing overseas is one of the only ways to earn during this slow period in the U.S. economy.

Common Concerns

If you are investing in a foreign economy, you should also remember that you will be dealing in the currency used in that country. This means that at some point, to cash in your returns, you will need to transfer the money into your own bank account and convert it into American dollars. Luckily, international money transfer has become much easier in the recent years. If you use a reputable financial source, the process of transferring money is safe. Be sure that you understand this process before you get started so that it will be an easy transition.

Understanding Foreign Stock Markets

Investing in overseas companies might involve purchasing stock of different companies. Since foreign companies might not have the same requirements placed upon them as those who are operating under the U.S. Securities and Exchange Commission, you may need to make sure that you can get information as a stockholder. The stock markets in other countries may also move at a slower pace than those in America, so be sure that you understand these differences so you won’t be unpleasantly surprised.

Investing offers a unique way to earn returns and make money when companies have financial success. If you feel that you can’t achieve the goals you have set for yourself in the American economy, consider branching out and investing in overseas companies and markets that may offer a better chance for high returns.

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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