Are you looking for increasing portfolio diversification and also uplift potential returns on your investments?
Investing internationally can be an excellent way to increase your returns of investment. You get multiple opportunities to diversify your benefits that may occur from your portfolio which includes various assets across different markets and sectors.
It will be very difficult to achieve your investment goal, if you remain invested only in single market, particularly if it is full of only few handful sectors.
By exposing all your portfolios to variety of sectors, the potential return can be far greater if you can choose the proper investments rather choosing your funds by allocating them on any underperforming one.
Investing in offshore market can be one of the better ways to solve diversification issues that many investors face. However, before that, there are few things you need to know prior to investing offshore.
Ways to invest
You can gain exposure to different international stock markets in several ways. One of the most common ways are directly making investment in the stocks or through ETF (Exchange Traded Fund).
An ETF is a kind of fund, which owns underlying assets and divides those assets into certain shares that are traded as an exchange. The plus point of using ETF will be that investors may get the fund diversification at much lower cost as compared to investing directly into mutual fund.
Besides that, by opening your doors to various international exchanges, you can be exposed to much larger ETF varieties and acquire global exposure.
Biggest barriers for investing in the international markets can be the transaction costs. They may vary based on your chosen broker for executing your trades and also the foreign market that you are investing.
Typically, brokerage commissions will always be higher in the international markets as compared to rates of domestic market.
Besides, there are various additional charges that may be market specific. These charges can be levy tax, stamp duties, trading fees and clearing fees, etc.
Movements in the currency rate are another important thing to consider while investing in offshore stock exchange. As you need to exchange the domestic currency into local currency of that particular market where you wish to invest, and vice versa if you sell.
The currency movement can however be used for your advantage, if you can do the offshore investment correctly. The fluctuations in various exchange rates can also be used for your advantage.
As an example, many companies conduct large part of their sales in Yen, the Japanese currency and distribute their products to the USA. Recently, the Japanese yen has become stronger than the USD.
Due to this, their sales will be worth more in respect to USD as the currency is stronger, and can create greater shareholder value.
No doubt, foreign stock market investing can help you in diversifying your portfolio and gain exposure to different opportunities which may not be present in domestic market. By diversifying your portfolio, you can gain higher returns.
However, any average investor may find global markets too challenging due to various risks associated. With proper understanding of various risks and concerns, you can be better positioned in minimizing all these risks and make informed investment decisions.