Why You Should Consider Foreign Investing
Is your entire investment portfolio based on investments in your home country? Then you may be missing out on an excellent opportunity to grow and protect your portfolio. With foreign investment, you can transform your portfolio in ways that deliver improved and more stable returns. Here’s a look at three reasons to add foreign stocks or foreign equities to your portfolio.
1). Better Diversification
Investing a portfolio of your portfolio in international or foreign stocks provides for a higher level of diversification. The fact is that if you have 100% of your portfolio in one country, they are simply not well-diversified enough. Here’s a look at a recent snapshot of correlations between the equities markets of select countries. Note that the closer to the number 1.00, the higher the correlation.
US to UK -.35
US to Japan .85
US to Germany .77
UK to Korea -.46
UK to Germany -.04
2). More Opportunities
If you live in the U, Canada, or the UK, then you are investing in what is known as a mature market. While there are lots of growth opportunities in these countries, you could be missing out on some exceptional opportunities in other countries which are known as emerging or frontier markets. As an example, the Mongolia MSE index returned 130% in 2021. A small investment in certain emerging markets can lead to big returns.
3). Hedge Against Risk
Finally, by having some of your money invested in other countries, you can hedge against risk at home. As an example, if there is an economic crisis in your home country, your international investments may hold their value. This can allow you to enjoy smoother returns on your portfolio.
Ways to Invest in Foreign Markets
You may be surprised to know that there are a number of ways for your to invest in foreign stocks. Here’s a look at four top options.
1). ARDs and GDRs
If you would like to easily invest in foreign stocks, then you can do so through American Depository Receipts (ADRs) or Global Depository Receipts or (GDRs). Each of these investment vehicles allows you to invest in an international stock through your own brokerage.
2). Foreign Exchange Traded Funds (ETFs)
If you would like to invest in a basket of international stocks, then you can do so through a Foreign Exchange Traded Fund or ETF. There are Foreign ETFs that represent a single country or a global region.
3). Global Mutual Funds
Another way to invest in a basket of foreign equities is through global mutual funds. These funds can represent a single country, a global region, or a strategy that involves international stocks.
4). Foreign Direct Investing
Finally, you can utilize what is known as Foreign Direct Investing. With this strategy, you own a trading account in another country. The main advantage of Foreign Direct Investing is that you will have access to stocks that may not be available in your home country.
How Much Of your Portfolio Should Be in Foreign Equities and Funds?
It is recommended that you allocated anywhere from 5% to 25% of your portfolio in foreign equities based on your risk tolerance.
Getting Started with Foreign Investing
Foreign investing offers a number of advantages including better diversification and more opportunities. Explore investing outside of your own country for a more balanced portfolio.
REFERENCE:
https://www.investopedia.com/articles/investing/032615/how-trade-foreign-stocks.asp
https://www.macroaxis.com/invest/worldMarketCorrelation
