The United States stock market is the largest and most lucrative globally, so why would anyone consider buying international stocks? The truth is that venturing into developed international stock markets can help bolster your gains, but there are many considerations to make to ensure you are choosing the right investments for your portfolio and taking on minimal risks.
This guide will differentiate between domestic and international stocks and explain how to invest in foreign stocks. Let’s get started.
The Fundamentals of Investing
Investing involves committing money or capital to a venture expecting to gain a financial return. In this context, that includes buying assets like stocks that you think will increase in value over time.
A stock is a security that represents ownership of a company. Companies list stocks to raise money for business growth and to overcome inflation. Investors then gain a share of the company by buying its stocks.
As an investor, you should target companies that show signs of growth or plans that indicate they will do so in the future. The price of your stocks will eventually rise if you predict correctly. You make a profit by selling your stocks when the price is higher than the buying price.
Benefits of Investing
While you can keep your money in a savings account, there are several convincing reasons why you should consider investing, including:
- Cash in a savings account depreciates due to inflation.
- Compounding grows wealth quicker than interest on savings.
- Investing is more tax-efficient than saving.
When it comes to stocks, you can invest locally or internationally. Domestic stocks are stocks purchased from companies in your country, while international stocks are from foreign companies.
Getting Started with International Stocks
The easiest way to start investing in international stocks is by opening an online investment account. You can then use it to purchase shares or stock mutual funds.
Deciding How to Invest
You can invest in international stocks through different approaches. You can find the best stocks by yourself if you already understand everything about foreign investments, or you might want to engage a professional broker who can walk you through the process and help you make the most of your hard-earned money.
Here are some of the things you need to get started:
- You need an investment account to start buying and selling stocks and stock mutual funds.
- An online brokerage account provides the easiest and most economical way to purchase such investments.
- A broker can help you open an IRA or a taxable brokerage account.
If you want someone to manage your international stocks, find a brokerage that offers robo-advisor services. You’ll get affordable investment management that is both geared to your goals and constantly evolving with the markets.
5 Risks Involved in International Stocks
International stocks are excellent investment options for amassing wealth, but investors must consider the risks involved. Here are some examples:
1. Exchange Rate
Returns on foreign stock depend on your country’s currency strength compared to where you have invested. If you are in the U.S. and the currency in the country you have invested rises against the dollar, selling your stocks at such a time is profitable. You lose money if you sell when the foreign currency has lost against the U.S. dollar.
2. Political and Socioeconomic Instability
Countries experience political, social, and economic turmoil from time to time, which often affects their stock markets. Such issues make foreign stocks hard to track.
3. Liquidity Issues
In some countries, stock markets may not have as many buyers and sellers as available in the U.S. when you want to trade. Markets with limited trading hours and low trade volumes may restrict your ability to buy or sell.
4. Limited Information
The rules regulating the data companies must publicly report aren’t standard around the world. It can be risky to purchase stocks in a country where business’ financial information is inaccessible.
5. Stock Market Regulations
In the U.S., investors enjoy the protection of the Securities and Exchange Commission (SEC) against fraudulent activity. You may not access similar legal avenues when trading international stocks.
Gifting Someone Your Stocks
Did you know that you can gift someone your stocks? The procedure entails transferring the number of stocks you wish to give away from your account to the beneficiary’s account. There are some tax rules to observe when gifting your stocks to someone, and the process depends on your stock holdings.
Red Flags of Investment Scams
You can fall prey to scammers who run away with your money and frustrate your dream of investing in foreign stocks. Below are some signs of investment scams.
Exorbitant Subscription Fees
Some bad actors may lure unsuspecting investors with incredible results without showing any proof. They often require you to pay high subscription fees to access the data, only to disappear after payment. Also, be watchful of players who ask for your bank or credit card information.
Demands to Register with a Specific Broker
Some buyers and sellers will insist that you register an account with a particular stockbroker. They will most likely be getting a kickback. Do due diligence when working with any international stock market stakeholders to find brokers who won’t take advantage of you.
Determining if Investing Is Right for You
Below are some reasons why you may want to consider investment opportunities:
- Grow your money
- Save for retirement
- Attain your financial goals
- Start or expand a business
- Reduce your taxable income
- Qualify for employer programs like 401(k)
To find out if you can invest in international stocks, ask yourself the following questions:
Do You Have Disposable Income?
Investing makes sense when you have a surplus after meeting your essential expenses.
How Much Stock Do You Want to Acquire?
A stock can cost between a few and thousands of dollars, but companies may set the minimum shares you can buy. For mutual funds, for example, the lowest amount you can invest is often $1,000.
Engage a Wealth Management Firm
Choosing between mutual funds or individual stocks can be confusing, as can the companies to buy from and the amount to invest — especially when investing abroad. Factors like your age and financial goals can make things even more complicated.
A wealth management professional can guide you in weighing portfolio performance and choosing your benchmarks. They have an expansive knowledge of international markets, and can help you invest in the stocks that will bear returns over the desired investment period.
International Stocks Management Services
No single country’s stock market will outperform all the rest all the time. Investing in international stocks provides an excellent wealth-growing opportunity that hedges you against local events. Contact Bogart Wealth today to discuss your investing concerns or any other wealth management queries.