Tips on Investing Overseas
Part of getting on the right investment path is diversifying your portfolio to include overseas investments. For example, if you live in the US, don’t just buy US stocks. If you live in India, don’t just buy Indian stocks. Any single market is subject to the ups and downs of business cycles (recessions and growth) that are specific to that country. Investing in different and diverse markets is a way to reduce that risk.
With that said, realize that all markets are somewhat related and that the global economy can be tough everywhere at once. Even though established markets that you are comfortable with are the easiest (psychologically) to invest in, they aren’t always the best.
For example, during 2005-2006, markets other than the US, Europe and Asia performed very well – some in excess of 300% per year. By investing overseas you can diversify your portfolio of investments and perhaps even increase your total return.
Here are some tips on investing overseas.
- Look for foreign shares that trade in your market. For example, many companies from China, Japan, Russia, India, Mexico and Europe trade in the US markets. Buying shares in these companies is easy and they must meet the regulations of the US markets, so they are easier to research and understand because financials will be translated to US dollars.
- Use mutual funds to get foreign exposure. There are mutual funds covering nearly every investable country in the world. Buying the funds is easy and straightforward. Make sure you look through the filings of the mutual funds to learn exactly what companies, industries and sectors the fund is investing in. Look for some funds in high growth emerging markets as well as mature and established economies.
- Exchange Traded Funds (ETFs) are available for many foreign markets. They offer very low fees and you can buy and sell them during market hours, whereas mutual funds are priced at the close of each trading day.
- Diversify your foreign exposure. Invest in both fast growing emerging markets and in mature, established markets.
- Although you should gain exposure to as many markets as you can, make a list of the countries that interest you most. For example, if you are interested in huge growth potential, add China, Brazil, India and Russia to your list. If you are interested in Europe, add Germany, London and France to your list. When you’re on your favorite investing site (like yahoo finance, google finance, cnbc, etc.) add the market indices for these countries to your portfolio. Then watch them over time to see how they differ from movements in your home market. Getting a better understanding of what drives foreign markets can help you learn to invest better in them.
- Visit sites that report on world markets, rather than just US markets. Add or browse the foreign news on a regular basis to get a better understanding of world markets. Use this knowlege to help you invest better overseas.
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