Investing Abroad

In an economic environment where things are constantly shifting, investors want to find ways to diversify their portfolios and take make money from companies that are performing well in other countries. There’s no rule that says you have to be limited to the investment opportunities in your country. Buying shares of international companies based in the U.S. is one way to go to diversify your portfolio, but it’s also becoming increasingly easy to invest in equities and debt available on overseas markets. This is a great opportunity to take part in booming opportunities in fast growing stock markets around the world. Investing globally puts you in a position where you can benefit from strong performances in multiple markets, not to mention that some markets might perform well when others perform poorly, helping to stabilize your investment portfolio against widespread losses.

Benefits of Investing Abroad

When considering the option of investing abroad, investors like to invoke what I like to call the “rosy scenario”, which is what can happen if all the right conditions are met. In this case you can make money three ways:

1. the investment itself (provided that it is a sound and profitable venture) becomes highly desirable and thus rises in price, providing capital gains
2. the investment pays dividends
3. the country’s currency rises agains the dollar, so that should the investor decide to sell, they get more dollars from the transaction

Another perspective on international investing involves the correlation they have with your local market. Although we’re living in a world that’s increasingly interconnected, all markets do not necessarily move in sync with each other. While one market can be down, another can be up, the correlation depending on what extent those two markets’ economies interact with each other. So if you’re expanding your investments internationally in markets that have little correlation with your own local market, overall you’ll reduce your portfolio’s overall volatility.

You should also consider the fact that not all investment opportunities may be available in your own country’s stock market. For instance, if you’re an American investing exclusively in the US market, you might miss out on the rapidly developing makers of steel and electronic appliances which are not based in the US. Analysts also say that emerging stock markets in China, southern Europe, and southeast Asia have a faster growth rate than the established markets in the US and United Kingdom.

Risks of Investing Abroad

There’s no such thing as risk-free investing, and overseas companies face many of the same realities as do the ones in the U.S. But when deciding to invest abroad, you have to keep a certain number of things in mind.

Probably the biggest risk in investing abroad comes from the potential for political and economic upheavals that less stable foreign countries may experience, which can greatly affect the local stock market. In all honesty there’s not much that can be done agains that, except maybe to stay out of the most volatile countries. Then comes the fact that differences in market regulations and standards could also be a difficulty especially when it comes to evaluating foreign companies: tax treatment of gains or losses differ from one country to the next, accounting and trading rules may differ, market regulation can be loose, information can be hard to find, and so on. Finally, you should not overlook the fact that converting dividends into dollars may add extra cost to the transaction.

How to Invest Abroad

There are several ways for a US investor to invest internationally

• Big US brokerage firms with branch offices abroad that can invest directly
• Some international and multinational companies list stocks directly on US stock exchanges
• Many mutual fund firms offer international funds that invest overseas
• The stock of some of the largest companies is sold as American Depositary Shares (ADSs)

Investing abroad is not without its risks, but so is any other investment vehicle out there. As long as you do your homework and invest in solid foreign companies operating in relatively stable environments, there’s a great potential to both increase your investment portfolio’s value and reduce your risk exposure.

Investing Abroad: Benefits And Risks Of International Investing

There’s an awful lot of people who want to start investing and would like nothing more than to find something like an “Investing for Dummies” guide so they can figure out how to start investing in the stock market. Learning how the stock market works is a long process and there’s definitely the possibility to lose money while you’re trying to understand how the whole thing works.

One of the first decisions you’re going to have to make as a beginner investor is what kind of company you’re going to use and what level of service suits you best. Back in the day, there was really no option but to go with a full service broker because the Internet wasn’t around just yet. Since it became ubiquitous, one of the major effects has been that anyone with a computer and Internet access has the chance to start investing. Discount brokers such as E-Trade and Zecco have introduced great yet inexpensive services that allow you to do all the investing yourself.

Of course, what that means is that all the research is now your responsibility. You have to learn how to read stock charts, how to read and understand financial reports, and all of that financial literature that’s going to be fundamental for you if you need to make the right decisions to minimize the possibility of you losing money. Those discount brokers just act as middlemen; you save money on your transactions, and you keep full control of your money and where it goes.

There’s that often overlooked too which is nonetheless very important when learning how to invest: we’re talking about an investing budget. There’s really no way to stress this enough: setting spending limits is fundamental because as a beginner investor, it’s easy for you to identify a stock that you think is about to explode and then what happens? You put way more money into it than you can reasonably afford. The best way to prevent that is to set aside an investing budget (say, $100 a paycheck) and invest only $100 at a time. There are several reasons for that.

First off, taking baby steps will save you money. As a beginner, there’s a good chance you’re not too good at knowing exactly what investments are going to perform well (heck, even experienced investors don’t). If you’ve invested only small amounts of money at a time, you won’t find yourself in a situation where you’ve lost money that you couldn’t afford to lose. Plus, by investing small amounts of money over time, you’re actually using a time-tested investing technique called dollar-cost averaging which really lowers your risk in the long term. More on that in future posts.

Secondly, pacing yourself and going through small investments is an incredible learning opportunity, where you’ll gain valuable experience for future big investments. This is a very important step in learning how to start investing in the stock market. Skip it and there’s a good chance that you’ll jump blindly into a bad investment that will hurt you financially and from which you may take months, if not years, to recover.

The third and final tip is something that you will learn to develop over time. You might do all the research in the world and all the numbers add up and everything tells you that this is a good investment; yet a nagging voice tells you that something just doesn’t feel right. That’s your gut feeling. Listen to it. It can also go the other way around, where you have that stock and you just have the feeling that it’s going to do very well. The key here, of course, is moderation. If you’re acting on a hunch, make sure that you’re not betting the farm!

Learning how to invest is a long process, one that actually never ends. The greatest investors still have a thirst for knowledge to they can keep honing their skills and find new, profitable deals. They also know that things will not always go their way and that the key to being a successful investor is to win more often than you lose. That’s what you should also keep in mind as a beginner investor.

Investing 101: How And Where To Find Profitable Stocks

1. Get ready to start learning about investing. Go to your local library and rent out books about getting started in the stock market. Read about stocks, bonds, and other investment vehicles. Visit the beginner section of major financial sites like Yahoo Finance, Google Finance, CNN Money, and so on. If your budget allows it, take a seminar or a few classes on investing. The more you learn, the better prepared you’ll be.
2. Set financial goals for yourself that include investing but don’t stop there. Try and put together a comprehensive financial fitness plan that includes getting out of debt and increasing your income. As for your specific investing strategy, make sure you know what your risk tolerance is. This is the first thing that will dictate what your investment strategy is going to be.
3. Learn how to research individual stocks and also learn to keep on top of news that can affect a whole sector. Learn how to read stock charts, annual reports, quarterly reports, and other documents that publicly traded companies have to file with the SEC. Just remember to periodically step back and not let the abundance of information cloud your judgment, which brings you back to the importance of having a clear-cut strategy.
4. Invest in what you know. This is pretty much common sense advice. If you know an industry pretty well and know who the best performing companies are, it makes sense that you would invest there. Similarly, if you’re familiar with publicly traded companies in the area where you live that are consistently profitable, it might be a good idea to consider investing in their stocks.
5. Analyze the composition of the portfolio of successful mutual fund companies. If their portfolio is performing well, it’s because there are winning stocks in there. Pick them out and invest in them.
6. Diversify. This is also common sense advice. Concentration has its advantages, namely that you can get killer returns if a particular stock or sector gets hot. Conversely, if said stock or sector tanks, your entire investment fund can be wiped out. So as a rule, you want to avoid putting all your money in just one or two stocks, or for matter, just one or two industries. Sure, it will lower your potential returns, but at the same time, you’ll be better protected against market swings.
7. Save on commissions by using a discount brokerage to buy stocks. As long as you have the time to do your own investment research, are confident in your investing skills, and know that you have to take things gradually, you should be fine.
8. Buy stocks that you plan on holding on to for at least three to five years, if not more. The simplest way to make money in the stock market, as exemplified by Warren Buffet, is to find winning stocks and holding on to them. Period. So as long as a company’s fundamentals are sound, don’t give in to the temptation to dump the stock the minute it loses a few percentage points. Give it a chance to rise back; chances are it will, if it’s a sound and well-managed company.

Final word of advice: Don’t think that by investing all your money today, you will be a millionaire next month. Invest for the long term, stock market success doesn’t happen overnight.

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