Our world is becoming more and more globalized each day. In other words, there is more international trading, more foreign transactions, and simply more interconnectivity between business and countries that are thousands of miles from each other. It is definitely an exciting time to be alive because with this globalization comes many opportunities that did not exist just a few years ago.
In the mid-1900s, many people would not even have considered investing in another country. That would have been too difficult to understand and incredibly taxing just to make it happen. No, this was typically left to the professionals and big business men that were searching for ways to make hundreds of thousands of dollars with their millions. For the individual that only wanted to invest $50 here and there, international investing was not an option. But, it is today.
Invest Internationally With Mutual Funds
One of the absolute easiest ways to invest outside the USA is by investing in a foreign mutual fund. As you search through your online broker’s site (this may be through eTrade, Scottrade, etc.), simply search for foreign mutual funds. Through this search, you will likely be able to choose from funds that are focused within Asia, Africa, Europe, Latin America, and pretty much anywhere else in the world you believe would be a good investment.
By investing through your online broker, you can still invest with US dollars and allow the mutual fund managers to take on all the hassle of investing overseas. For you, this method is super simple, effective, and relatively inexpensive. I would highly recommend it.
Investing Through ADRs
If you are not satisfied with foreign mutual funds, there are other options. One is called American Depositary Receipts, or ADRs. By setting up this type of account, you will be able to not only invest in mutual funds, but you can also invest in very specific overseas companies. Through this, you can also continue to invest with only US dollars if you wish (instead of having to buy foreign currencies online). This is a fairly simple and effective way to purchase those individual foreign stocks.
Establishing a Foreign Investment Account
If you want more power yet, you can establish a foreign investment account in the country whose company you are interested in investing with. While this can be quite effective, it is certainly not simple and also opens you up to many more risks. For one, if you set up a foreign account, you will need to sell your US dollars for the foreign currency. If that foreign currency dives, but your company is still doing well, you will still lose your shirt (because you are invested in that foreign currency).
Also, by establishing an account in that foreign country, you are really limiting your investments to companies in that particular country. If you would like to invest in another company that is located in another country, then you will likely have to establish another foreign investment account in order to invest in that next company (which would then involve you transferring your US dollars into yet another currency).
The other risk associated with this is the pure time that you will need to spend with these investments. Many of us can’t hardly find the time to read a book for 15 minutes a day. How do you expect to handle multiple investment accounts that reside in multiple countries and have multiple foreign currencies that are ever changing? This game can quickly grow complex and unless you are able to devote all of your time to these investments, I would suggest steering clear of this type of foreign investing.
Why Even Bother?
Some of you may be wondering why you would even bother with all of these foreign investments? Well, it is the same reason why you would bother with investing in mutual funds vs. individual funds. By spreading your money around, you are reducing your risk of loss. So, by putting your money into the global market (instead of just in the local US), you are insuring yourself against a potential catastrophic loss in the USA. If you have 25% of your money outside of the country when the US market tumbles, then at least you will have something left for your retirement. Plus, on the flip side, many foreign countries are actually beginning to outperform the US economy, which makes them a great option for increasing your wealth.
Are you investing outside the USA?