International Investing: What You Need to Know
Have you ever thought about expanding your investment portfolio beyond the borders of your home country?
International investing is a very smart strategy that will allow you to diversify your portfolio.
It’s an approach that offers you many great investment opportunities and potential new sources of return.
Plus, one of the best things about international investing is the way it allows you to mitigate some of the risks associated with one country’s economy. You won’t have to worry about the strength of one economy, as your wealth will be spread across several nations. It will diversify your portfolio beyond domestic investments - increasing your potential gains.
However, international investing isn’t something to jump into on a whim. There’s a lot to learn about where to put your money and why.
Let’s look into some of the important things you should know before you get started with international investing.
Patience and Consistency Always Win
One of the biggest things to avoid when it comes to international investing is reacting quickly to international events. Trying to sell right before a decline or buy right as the market bottoms out is often a bad idea.
It’s easy to see headlines about major political changes or events in the country where you’ve invested, and feel tempted to sell your investments. It’s also likely that you’ll hear a buzz about a hot new market and be compelled to buy.
However, the best approach tends to be a slow and steady approach. Create a solid strategy and then stick with it - exercising patience rather than impulsiveness. You’ll be best served by your international investments if you’re able to take a long term approach to them.
Seek Out Emerging and Frontier Markets
What types of international markets offer the best opportunities?
You’ll want to look at many different countries in order to have a diverse portfolio. However, make sure you include some investments in Emerging and Frontier markets.
An “Emerging” market is a rapidly developing country that is starting to play a more important role in the global economic system.
These types of countries have a burgeoning middle class who are currently building wealth and are hungry to acquire and consume. By investing in these markets, you can ride the wave of financial advancement.
According to The Balance, more than half of global economic growth is driven by these emerging markets. A great example of emerging markets is the “BRIC” countries - Brazil, Russia, India, and China.
“Frontier” markets are countries with lower market capitalizations and liquidity.
They are considered to be even riskier than emerging countries, but this also means they potentially offer higher returns in exchange for that added risk.
Frontier Markets are not defined exactly, but there are several popular indices that provide lists of countries. Examples of economies that are often considered Frontier Markets include Sri Lanka, Estonia, Cyprus, Botswana, Bangladesh, and Albania. (A list of all frontier markets as classified by the FTSE can be found here.)
These types of markets are not meant for conservative investors and they do have an element of risk. However, while these types of markets are more volatile in the short term, they have the potential to offer you better return potential in the long run. (If you don’t need to withdraw your funds right away, you’re in the best possible position.)
Potential Risks of International Investing
Of course, like all types of investments, there are some risks associated with international investing.
For example, investing overseas can result in transaction costs that are higher than the local markets. The investment might even include unexpected taxes and the broker’s commission. It’s important to keep this in mind so you can factor these extra costs in when making your decision.
Also, you should know that there are various levels of liquidity involved. Some foreign markets might have lower trading volumes for securities and restrictions on the types of securities that foreign investors can purchase. This might make it harder to find a buyer when you want to sell your securities. Read up on the particular regulations of the market you want to invest in.
You’ll also want to keep in mind the fact that the foreign market will have different operations than your home country’s trading market. Plus, instabilities in currency exchange rates can also have an effect on your foreign investment.
These potential risks shouldn’t deter you from making the most of the advantages of international investing. If you do your homework and understand the full costs before investing, you’ll understand what to expect and how to handle these risks.
Investing in Property? Consider Fractional Ownership
Buying international property can be an incredibly smart investment decision. But what if you don’t want to own an entire property yourself? Fractional ownership allows you the option to buy small portions of a property - so you can invest as much (or as little) as you like.
For example, Partbnb offers vacation rental properties in the Caribbean - divided into 10,000 parts starting from $34 each. You can buy a portion of a property, then enjoy monthly rental income dividends paid directly into your digital wallet.
After 6 months of ownership, you can keep your parts or sell them on the platform to other investors. Due to the highly desirable Caribbean locations, capital growth is excellent.
Do Your Homework
No matter what type of international investment you choose, the most important thing is to know what you are investing in. Learn as much as you can about the economic, cultural and political conditions in the home country of your investment. Take the time to study, research and compare the investment to make sure it fits well into your overall strategy.
After all, investing internationally can be compared to traveling internationally. It can be an incredibly rewarding and enriching experience, but it’s important to know where you’re going and what to expect. Make a plan, craft a thoughtful strategy and think it through when choosing which international investments will work best for you.