If you’re only investing in U.S. companies, or in the companies of your home country, and not branching out, you could be missing out on a big piece of the pie. Growing economies in other countries can have a lot to offer in the grand scheme of investing. Consider the thriving tech economy of Singapore and the growth of natural resources in Australia. If you’re only investing in the United States, you are eliminating three-fourths of the solid investment opportunities out there today. Here are five reasons why investing overseas is a good idea:
Broader Market Exposure
The general rule of thumb is that 20 percent of your assets should consist of international stocks. If you’re worried that it’s too much of a risk with the euro’s value dipping as of late, work with your financial adviser to find out which funds would be a little less risky to invest overseas. Some institutions, such as Artisan International or T. Rowe Price International, have good long-term records compared to other international funds, and low ongoing expenses.
According to U.S. News, Poland, Denmark, the Czech Republic, Singapore, and Malaysia are the best countries in which to invest overseas. This is current as of March of 2017, but of course, you’ll want to keep up with developing economies.
Gage how risky, or not risky, an international investment is by taking a look at the growth of the economy. For example, Poland has shown steady growth over recent years, which is what makes it a great place to invest. Denmark is great because of how easy it is to do business there. The country is also investing in a large amount of renewable resources, which are expected to make a big (positive) impact on the market. Malaysia, on the other hand, is a better idea for those looking to invest overseas in real estate. The tourism industry in this country is growing, which means the real estate market is booming!
High Rates of Growth Abroad
Simply put, other countries may have investment benefits that aren’t available in the U.S. or Canada. Consider emerging markets in many Asian countries, and the movement of some countries towards free-market economic policies. Such economies are expected to have high growth rates, which can be up to two-to-three times faster than the current developed market economies. Since corporate revenues can potentially grow faster when economic growth is on the rise, countries like China become good places to invest.
Diversify with Different Currencies
You essentially take on less risk with some investing opportunities overseas, because you have the ability to generate a cash flow in other currencies. Focus on those areas that are appreciating in value, like the Brazilian real. Then if anything goes south with your primary currency, not everything in your portfolio will be negatively affected.
Exchange Rate Benefit
If you’re investing overseas in countries where the currency is stronger than it is at home, you have the potential to benefit from higher growth. This point plays into the point above, as well. If your own currency is falling in value, you’ll rest assured that that your international investments are solid.
More than Half of the World’s Market Lies Outside the U.S.
While the United States is known for having the biggest stock market, and for being particularly strong in investment growth, it doesn’t capture all that there is to be offered in the global market. Other countries are growing fast, and over half of the world’s stock market value sits outside of the United States. You know that saying, “Don’t put all of your eggs in one basket?” Why shouldn’t it apply with your portfolio as it does everywhere else? Having a couple of eggs in several different baskets is a great way to boost your long-term performance…and isn’t that the whole point?
Remember that international investment is a two-way street. Investors in other countries are investing in the United States as well, so if you’re worried that you’re helping other countries rather than your own, you can breathe easier in knowing that it’s not the case. Foreign investments help the U.S. generate jobs and growth, and the U.S. actively supports overseas investment.
If you’re new to the foreign investment game, keep an eye on the foreign exchange market, Forex. That’s where currencies are traded, and multinational companies do business with different countries through this market. Forex provides opportunities for speculators to take advantage of exchange rates and it allows you to invest overseas in different currencies – which we’ve already established as a smart idea for diversifying your portfolio.
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