Pros and cons of investing globally

Apr 10, 2018 | Investing

There used to be a time when investing in foreign companies was unheard of. Today, when the US only makes up a third of the stock market, investing globally is commonplace and often encouraged. Some investors still shy away from overseas opportunities, while others prefer to make their portfolio an international collection. Just like with any investment decision, there are pros and cons to consider.

Pro: Diversification

The U.S. market doesn’t always perform well, but if you buy stocks in other markets, you can even out your gains and losses. Also, when you buy internationally, you’re buying into the currency. Sometimes the Euro is stronger than the U.S. dollar, and if that happens when you’ve invested in a few European countries, you’ll be sitting pretty.

Con: Volatility

Just as you’re opening yourself up to new benefits, you’re opening yourself up to new risks as well. Foreign markets can often be a bit topsy-turvy. Political unrest or natural disasters can cause the value of a promising stock to plummet overnight. That’s not to say that the U.S. market can’t have its ups and downs too, but a lot of countries with emerging markets don’t have super stable economies, which makes it a bit riskier.

Pro: Returns

If you buy internationally, you can invest in developing countries. The markets in nations like China, India and South Africa are growing a lot faster than the U.S. If you buy stocks in these markets, the returns may be rewarding.

Con: Unfamiliarity

You might find it difficult to do research on a company if all of their press releases are written in Vietnamese. With U.S. companies, you have the benefit of understanding what they do, what services they have, and you might even interact with their products on a daily basis. With foreign companies, that’s not always the case, and being a little fuzzy on exactly what you’re buying might get you into trouble of the red-downward-arrow variety.

Global investing is something that’s been debated about for years and like any investing strategy, it isn’t a sure thing. It can bring diversification and high returns to your portfolio, but it isn’t without risk. If you need a brush up on some investing dos and don’ts, check out our blog on common mistakes to avoid. You’ll thank us later.

 

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