International stocks often provide you with better returns and open your portfolio up to literally a world of opportunities. The concept of diversifying the portfolio and the benefits it brings about is well known enough already. By spreading the money all over the world, you actually do save yourself the risk of losing all your investment in case things go south.
How to buy International Stocks?
In order to buy international stocks, you do not need anything fancier than the setup you already have. Here is how you can go about it:
- Buy individual stocks on international exchanges: to do this, your brokerage account must give you access to those exchanges – you should know that not all brokerages allow that. If your brokerage allows you, you can simply purchase shares using US Dollars, just like you would buy any other investment nationally.
- Accessing international Stocks via the American Depository Receipts: ADRs are specific certificates issued by US-based financial institutions that represent a share of foreign company stocks. You don’t need special brokerage to access them since they are traded like domestic stocks on US-based exchanges
- Invest internationally through ETFs and/or mutual funds: you can use screening tools to research and identify different ETFs and mutual funds composed of international holdings. These are tools that help beginners to buy stocks internationally.
Risks of venturing into international stocks
While investing in international stocks might seem like a lucrative option, there are things you should know before you venture too deep within it.
- Currency risk: while investing in currencies when they are weaker seems a lucrative proposition, what about those times when the currencies become stronger? If the currency you invest in gets stronger, your investments will perform subpar and that might bring in some discomfort.
- Geopolitical risks: We know that global peace can shatter in a matter of tweets these days. The very same geopolitical risks that allow certain foreign companies to experience exceptional growth can even leave your international holdings vulnerable. In addition to instances of political unrest which can lead to economic instability in a certain region, there is also a chance that an investment might experience limited liquidity.
Through these means, one can consider buying stocks internationally and trade overseas to reap the benefits beyond one’s country. Getting a piece out of what others are profiting off of can seem an advantageous option but one has to go forth with due diligence.
Investing globally by adding international stocks to your portfolio can help you escape having the US dollar dictate all your potential market upsides. As with any other investment, it is always a word to the wise to ensure that you are allocating an appropriate amount of your portfolio to international investments for your given investment timeline and willingness to take such risks. There are risks involved with any investment; make sure you know yours.
Whenever you are in doubt, seek the assistance of a financial advisor so that you can asset allocation strategy and start smart with international investments.