Investing in foreign countries can be a very attractive option. Emerging markets can offer great returns. As more countries around the world industrialize, there are very exciting opportunities becoming available there. Of course, there can also be great risk with these investments.
However, foreign investment is a great way to diversify a portfolio. Foreign markets are often up when Canadian markets are down, and vice versa. This means that investing overseas can help Canadian investors ride out domestic recessions. This is one of the most important reasons to consider investing abroad.
There are great options for investing abroad, too. There are over a dozen other stock markets worth looking at around the world. Today, many of the biggest natural gas, oil, and steel companies in the world are located outside of North America. Investing overseas can mean getting in on a rising Standard Oil type company.
Of course, when investing abroad, it’s important to think about issues abroad. Some developing countries have real problems with political and economic stability. This is typically called country risk. Staying abreast of international politics can be a great idea to keep invested funds safe. It’s always important to know what is going on with investments overseas.
One easy way to invest in foreign countries is to use ADRs. These are traded on the NYSE and NASDAQ. This makes it more accessible for Canadians who are used to trading on US markets. Differences in currency exchange are another factor to keep in mind when deciding whether to invest overseas or not.
If currencies fluctuate too much, they can wipe out earnings from foreign markets. When buying stocks in foreign markets, it’s necessary to use foreign currency. If those currencies go down compared to the dollar, that means any gains in the stock are negligible. Since ADRs remove this problem, they are a wonderful solution for Canadian investors.
Other solutions that minimize risk include investing in multinationals. This provides some exposure to foreign markets, without fully taking the plunge. Alternatively, some foreign stocks do meet listing requirements and are listed on NASDAQ and NYSE. However Canadian investors decide to make moves overseas, they need to balance risk and reward carefully. Getting acquainted with US markets may be a good first step into investing in other countries, as you’ll run into some of the same issues with currency, but it is much more accessible for the average Canadian.