The total value of all the stocks trading on the world’s stock exchanges today is over $68 trillion.
This number represents many different types of stock from almost every country in the world. No matter what market you want to get exposure to as an investor, there should be a suitable option for you.
However, there are a few different things to keep in mind when buying international stocks.
Read on as we tell you everything you need to know about investing in foreign markets, providing a roadmap for you to become a successful international investor.
How Are Stocks Bought & Sold?
A stock is a share of a company. However, most investors do not purchase stocks directly from the company itself.
A publicly-traded company issues its stock on an exchange. Once this initial public offering is bought up, investors buy and sell the stock amongst themselves, with demand dictating the price.
Each country has its own stock exchanges. America’s main stock exchange is the New York Stock Exchange (NYSE).
Why Are International Stocks Different?
Companies that do most of their business in one country or geographical area are highly dependent on the economic conditions in that country or area. Even a company with solid business fundamentals and a good product or service will struggle in a failing economy.
To capitalize on growth in foreign economies, many investors look to invest in the stock of foreign companies. Countries like India and Brazil, where recent growth has been comparatively rapid, are particularly attractive prospects.
Because of our globalizing world economy, there is more transparency in foreign investment than there was in years gone by. However, there is always work to do, especially in emerging markets.
International market regulation is playing a huge role in promoting financial stability and growth in developing economies.
Is Now a Good Time to Invest in International Stocks?
The COVID-19 pandemic has left many financial markets in disarray. Stocks around the world plunged in March and April of this year when the knock-on effects of the virus for mobility and travel became clear.
However, the recovery since that plunge has been steady. Businesses in many areas have seen their stocks return to price levels they occupied at the end of 2019.
Had you been clever enough to pick the right stock when the market bottomed out in the spring, you could have doubled your investment in a matter of months.
If you missed that opportunity, don’t worry. There will be others. Turbulent times like these tend to see many spikes and sharp drops in security prices before normal service resumes.
Of course, picking the right stock is key. Making the wrong bet could leave you waiting years to see a return on your investment, or losing it altogether.
This is a great reason to look abroad for investment options.
Why Go International?
America’s response to the pandemic has not been as effective as those in other countries. This is likely to have severe economic knock-on effects going forward.
In other parts of the world, lockdown measures have halted the spread of the virus. While international travel restrictions persist almost everywhere, internal business operations in many countries have started to resume as normal.
These kinds of economies present much more attractive investment opportunities at the moment than America does.
Are Stocks My Only Option When It Comes to International Investment?
If the volatility of the stock markets doesn’t appeal to you, don’t worry. There are other ways to gain exposure to international investments.
Bonds
A bond is a debt instrument that is issued by a government or corporation. These organizations raise money by selling bonds and paying the holders back over time with interest.
As with stocks, most investors trade bonds on secondary markets. Prices go up and down depending on demand and supply in the market.
However, bonds are a much more secure investment than stocks. Because of the promise of repayment and the stability of the issuers (especially in the case of government bonds) investors can be very confident of returns.
This also means, however, that the potential returns are much lower on bonds than on stocks.
Foreign Exchange
Foreign exchange investing essentially refers to the purchase of foreign currency in the hope that it will appreciate in value relative to your own. You might, for example, buy euro in the hope that it will strengthen, before selling it back and getting more dollars than you paid in the first place.
Currency appreciation depends on economic strength. If America’s economy is not performing as well as, say, Europe’s, it might be a good time to hold euros.
Investment Funds
If you think investing in an individual stock is too risky, you can still get exposure to stock markets through investment funds. These funds collect a pool of money from investors and put it into a diverse group of stocks, splitting the returns among fund members.
The advantage of this strategy is that your investment is not dependent on the fortunes of one company. In volatile times like these, this is a huge benefit.
Your two main investment fund options are mutual funds and exchange-traded funds (ETFs).
Mutual funds are actively managed, which means that those in charge pick up and drop stocks continuously based on market trends. ETFs are passively managed, usually tracking the performance of an index.
Growing Your Wealth on International Markets
Given the volatility of today’s financial landscape, risk is high wherever you look. However, this also means that there are more opportunities for growth than there are under normal circumstances.
If you don’t think American stocks look like a value bet at the moment, international stocks could be the way to go.
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