When considering making an international investment, it is important to consider that you are not only investing in the company but also in the currency of the country each company trades in. For instance, if you are a citizen of Japan who lives in Japan and decided to make an investment in Apple, which is based in the United States of America, you would not only need to pay attention to the Japanese yen but also the US dollar. As such, if the stock price of Apple did not change over the period of time that you owned it but the value of the US dollar grew 15% versus the Japanese yen, you would experience a 15% gain in value if you chose to sell your positions. Conversely, if you decided to make investments in foreign markets but the Japanese yen saw a rise in value, your portfolio could see a significant loss regardless of how well the companies you have invested in are performing. Through this example, it is simple to see how the value of different currencies can affect your portfolio; however, there are additional things to consider when investing in foreign stocks that could be beneficial to understand. Here are a few:
2. By investing in foreign markets, you face risk factors in a different way than you might have if only investing domestically. For example, the ways that the market responds to news in another country might be considerably different than in your own. Although you might currently follow things such as political trends in your own country —noting how different elections or government decisions affect markets — staying up to date on developments in countries whose markets you are investing in is also very important. It is often recommended to follow an array of news outlets that offer domestic coverage, worldwide coverage, and coverage of other countries from their domestic perspective.
3. To become a great international investor, you will likely need to become familiar with the laws and regulations that are specific to the host country of the markets you are investing in. Further, this is particularly important because the majority of global markets are less regulated than developed markets such as the one’s in the United States. As result, investors who reside outside of the United States should make sure that to research and understand any laws or regulations that could impact them. It is always best to be proactive and avoid any potential mishaps. Finally, even accurate information can be tricky because interpretation of rules, and their impact on markets, can vary from country to country and market to market.
Although there are clearly some risks associated with investing in foreign markets, it is still an extremely important option to consider as it can lead to great opportunities for financial gain. For instance, it is another way to diversify your portfolio and hedge the risk that you are already incurring from your investments in domestic markets. Just like with any market, if you do your due diligence, there are many ways to be profitable — perhaps even more so than you would be by solely investing in your home country’s markets!