5 Risks of International Investing

International investing can provide you with some benefits as an investor. However, this method of investment does carry with it some risks that you need to be aware of. Here are some of the risks associated with international investing.

1. Exchange Rates

One of the biggest risks that you will have to deal with when investing internationally is the exchange rate. When you invest in an international company, you will have to first convert your native currency to the currency of the other country. Then, whenever your investment is completed, you will have to convert back into your original currency. When this happens, there is a significant exchange rate risk that is involved. If the value of the dollar goes down against the foreign currency, your investment may not be as profitable as you thought it would be. Before getting involved with a foreign investment, you should have good reason for confidence in the currency that you are converting your money to.

2. Limited Information

Even in today's information age, it can be difficult to obtain all of the information that you need about a foreign investment. In order to determine if an investment is sound, you need to have a great deal of information about it. When dealing with foreign companies, this may not be possible. Foreign countries may not have the same requirements as we do here in the United States. This means that you might not have access to financial statements or other important information that you need to make a decision. Many times, those that get involved with international investment do so based upon the recommendation of someone that they trust instead of actual financial numbers. This represents a big risk for most investors and could end up costing you a lot of money.

3. Political Factors

Something else that you will need to be concerned about is the political situation in the country in which you are investing. There are many unforeseen political factors that could creep up while you are investing in a company. The entire government that was in place could be overthrown. Many countries do not enjoy the stability that some of the more developed countries in the world do. If a new government takes over, you do not know how this will impact your investment.

4. Economic or Social Events

When you are investing in foreign countries, a number of economic or social events could potentially impact your investment negatively. If the economy of the foreign country goes south, this could considerably lower the value of your investment.

5. Lack of Liquidity

Another problem that often comes up when investing internationally is a lack of liquidity. Anytime that you are investing, you would like there to be a market for the security that you own. This way, you can sell it whenever you need to and cash out. With international investments, there may be a limited amount of buyers that are interested in what you have. This means that you might have to sell it at a deep discount in order to get your money when you need it.

blog comments powered by Disqus