Every time you turn on the news, it’s likely you see updates of political strife, wars, and international injustices. Without completely experiencing life abroad, it can feel somewhat ambiguous. Without doing your research, it may be easy to assume that international investing is risky or uncertain. However, that isn’t necessarily the case. If you have started investing, it’s likely you eventually will wondering what are the pros and cons of international investing. Here is what you need to know.
Why Should You Consider Investing Internationally?
With so many investment options within the United States, you may wonder why you should even consider investing internationally. Well, there are a few reasons.
For one, international markets are incredibly diverse and include opportunities to invest in industries you can’t invest in domestically. Every country has different economic strengths, and it may prove worthwhile to research growing industries in those countries.
Secondly, many major companies are based overseas. By investing outside of the United States, you are able to diversify your investments and find more large-scale opportunities. And while strong performance isn’t necessarily given, by investing in international companies, you broaden the opportunities viable to you.
Lastly, investing internationally diversifies your investments. As you know, it’s never good to have all of your eggs in one basket. If you only invest domestically and the country’s economy crashes, you may suffer more than if you diversified your investment portfolio.
Cons of International Investing
What are the drawbacks of international investing? One potential pitfall is the risk of not knowing everything that is going on abroad. A country’s economy could be near collapse, and unless you follow the news often, you could miss it. In turn, your finances could take a hit. Whether a country is suffering politically or socially, it could impact your bottom line.
Another potential con of investing internationally is the difference in regulatory requirements. While you are likely pretty familiar with the compliance expectations within the United States, other countries aren’t necessarily held up to the same standard. That means the information you receive about your investments abroad may be completely different than you’re used to, making it challenging to fully understand. Or worse, you could receive totally inaccurate investment reports!
Further, the differences in international currencies could affect your investments. Any fluctuations in currencies, when compared to the U.S. dollar, could affect your investments. This could be helpful or harmful; but either way, it creates another factor in comparing your international investments versus your domestic investments.
Is Investing Internationally Right for You?
So, is international investing right for you? While there are some potential risks and differences to investing internationally, it also helps to diversify your nest egg. If you’re able to keep up with various socioeconomic conditions of countries abroad or work with a financial advisor who can help you along the way, investing internationally may provide the diversification you are looking for.
Rachel Slifka is a freelance writer and human resources professional. She is passionate about helping fellow millennials find success with their finances and careers. Read more by checking out her website at RachelSlifka.com.