A Beginner's Guide to International Investing

International investing can provide many unique benefits. Although many investors choose to leave their money in the domestic market, this could cause you to miss out on some great opportunities. Here are a few things to consider about international investing and how it could benefit you.

How It Is Done

There are many different ways that you could invest internationally. One of the most direct ways to get involved in international investing is to purchase the stock of a foreign corporation. This will require you to open an account with a stock brokerage that deals with that particular country.

Another option that you have to get involved in international investing is to purchase shares in a mutual fund. There are many different mutual funds that specialize in international investment. They will go through and select a number of different stocks from foreign corporations for purchase. This eliminates the need for you to identify profitable companies and simplifies the process.

You might also choose to invest in foreign bonds. This could be done by purchasing corporate bonds from a foreign corporation or by purchasing government bonds from a foreign government. With either option, you are essentially lending money to the entity that issued the bond. They will provide you with a regular interest payment for your loan.

Advantages

International investing comes with several advantages. One of the biggest advantages is the ability to diversify your portfolio. If you have all of your funds tied up in a single country's financial markets, you are not truly diversified. If you spread your money out over several different countries, your portfolio will be able to withstand economic problems in your own country.

Another advantage that you can gain is investing in emerging markets. There are many areas across the globe that are still underdeveloped. These areas lack infrastructure, technology, transportation, and many other things that we take for granted. When these areas start to become developed, there is a huge potential for growth for investors. If you can get involved in investing in a particular region while it is being developed, you could bring in a substantial return on your investment.

Disadvantages

Although international investing can provide you with some advantages, there are a few disadvantages to know about also. For example, certain countries have very different laws when it comes to protecting investors. For example, if you purchased a corporate bond from a foreign company, and the company goes bankrupt, it may be difficult to get your investment back. If you are not a citizen of the country, you may have a claim that is unenforceable.

When you invest in foreign countries, you should also be aware of currency risk. Every time you exchange your money into another currency to invest, you are taking a risk. If the exchange rate changes while your money is invested, you may not be able to make as much as you expected when you cash out.

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