Foreign stocks are an excellent choice for the long-term investor, and these are one of the easiest to invest in. However, one has to consider several factors before starting an international investment to create wealth.
The ten reasons listed below have been chosen based on their importance and help investors make better decisions. Also, whether or not it is worth your time to look into investing internationally.
Here are the ten most worthy reasons to consider investing in foreign stocks:
- Your investment is simpler than you think
Investment in foreign stocks is much simpler than perceived by the masses. Mutual funds are the most convenient of all. If you are a more conservative investor, this route is most appropriate for you.
- You want to diversify your portfolio.
When the economy declines, foreign stocks are one of the least likely to succumb. These are an excellent way to diversify your portfolio from more traditional investments such as stocks, bonds, and mutual funds. With the global economy being as interconnected as today, investing in foreign stocks could help you grow your portfolio — even if you see an economic slowdown in your own country.
- You are not afraid of currency exchange rate risk.
Doing business in foreign countries is easier than doing business in your home country with respect to currency risk. If you move abroad, you will have no trouble changing your salary into local currency. For example, suppose you earn $1 Canadian and earn the equivalent wage in a foreign country. In that case, the chances are that the dollar will fall against your foreign currency when you convert it back into Canadian dollars (on an average basis).
- You are protected
Your investment is protected when you purchase an international stock. This is because a foreign stock seller cannot go bankrupt and sell the shares to the buyers in case of extreme circumstances. In addition, investors can always sue their brokers if they get wrong information from them. Also, in the US, you get Securities Investor Protection Corporation insurance up to $5,00,000.
- You get access to a bigger market.
When you decide to invest in foreign stocks, you invariably open up a galore of options for yourself. Do appropriate research. Find the right stocks for you and shortlist them. For instance, several equity investment opportunities are unavailable in the Asian market but readily available in the US. These include Amazon, Facebook, Nike, Mastercard, and Visa.
- You get International credit.
When you invest in a foreign company, you expand your credit base. You can now access credit on the foreign land you have invested in. Further, when the stock market increases, so does its credit rating, helping investors get loans for infrastructure projects from international creditors more easily. This proves more advantageous when creditors back home are either unavailable or expensive for one or the other reasons.
- You get International exposure.
Investing in foreign stocks allows you to gain exposure to markets that would otherwise be difficult to access. For example, investing in American or Canadian equity can give you insight into these markets and help you see how the global economy is shifting. You also find many more ways to invest such as ETFs, stock investments, and mutual funds
- You can see emerging opportunities.
As economic development increases, so does the value of its companies and its stock market. This presents a unique kind of opportunity for investors who don’t want to stick with U.S.-related holdings.
- You may receive attractive tax incentives.
Yes, that may sound unreal, but many countries offer tax incentives to foreign investors, which is true. These are primarily started to attract foreign nationals strengthening their investing environment further. They vary from country to country; check carefully.
- Your risk is better managed.
Different stock markets present different risk levels. The good news is that developed countries have this in lesser measure. Therefore it would be wise to check other markets for their better-adjusted returns.
Knowing more about what is going on in other countries is vital for many reasons. Still, it is also essential when you invest your money in foreign companies and stock exchanges worldwide. Pay attention when you are investing. Rest assured, you won’t regret investing in foreign stocks.