Even if you’re new to the world of investing, you probably understand the importance of diversifying your portfolio. When most people hear this, they think about investing in stocks of many different companies across different industries; that’s a good start, but you’ll also need to consider investing in different assets, like bonds and real estate.
If you want to take things a step further, it’s important to invest in assets in other countries. But why? And how can you get started?
The Value of International Investment
Why do we consider international investment valuable? After all, isn’t the United States one of the most powerful economies in the world?
- Exposure to different markets. One of the most common reasons for investing internationally is getting exposure to many different markets at once. If you’re completely invested in domestic stocks and bonds, and the U.S. economy suffers a massive catastrophe, your holdings in other countries can balance out your portfolio and minimize your losses. This is especially important as your risk tolerance decreases with age.
- Growth potential. Some people love to invest internationally because of its sheer growth potential. If you invest in a developing country that’s on an impressive economic trajectory, you might be able to multiply your investment many times over. Of course, most high-reward investments also come with elevated levels of risk, so you’ll need to be careful here.
- A broader range of options. Why should you limit yourself to only the stocks, bonds, and real estate options within a single country? Once you start looking at investment opportunities all over the world, you’ll instantly have a broader range of options available to you. No matter what your investment strategy is, or what you’re looking for, you’ll be able to find better fits for your needs.
- Tax incentives. Depending on which countries you choose to invest in and how you choose to invest in them, you may qualify for certain tax incentives. Taxes on international investments can get complicated fast, so be sure to consult your tax advisor to learn more of the specifics.
- Additional opportunities. Certain types of international investments also come with additional opportunities. For example, if you own property in a foreign country, you may be able to start building credit in that company, which can open the door to more financial opportunities in the future. Owning real estate in another country could also have more practical benefits, giving you a vacation home or a place to eventually retire.
Opportunities for International Investment
These are some of your best opportunities for international investments:
- Investor visas. In some countries, like Italy, you can get a visa specifically for investment purposes. This visa is granted to people who are planning on investing in Italian startups, Italian companies, Italian bonds, or certain Italian charitable causes. You’ll need significant capital to qualify for this type of visa, and you’ll need to meet some other qualification criteria, but if you’re already interested in investing in international assets, you might be able to make this work.
- International stock markets. Most of us are very familiar with American stock exchanges like the New York Stock Exchange, but there are stock exchanges all around the world. You can freely trade stocks of international companies on these exchanges, provided you have access to them. For the most part, this is just as easy as trading on the New York Stock Exchange – though you might be subject to a few additional fees.
- International ETFs. Alternatively, you can get exposure to international investments through the help of exchange traded funds (ETFs). In case you aren’t familiar, ETFs function as collected baskets of other assets; an ETF might track the performance of several different stocks within a given industry, or even the performance of all the stocks on the S&P 500. If you’re interested in more international exposure, you can choose an ETF that covers assets within a certain country, within a certain area, or even assets across all world markets.
- Foreign currencies. If you believe a certain country is performing exceptionally well economically, you can invest in its currency rather than assets affiliated with the country. Foreign currency exchange rates can be volatile, so exercise caution here.
- International real estate. Even though you may not live there, you can invest in foreign real estate. If you hire a property manager in the area, you can manage and maintain the property remotely, without ever stepping foot in the country itself. This is an especially attractive option if you plan on eventually retiring in this country; when it comes time, you can claim the property for yourself.
As you can see, there are many different options for investing internationally. No matter what, if you’re interested in diversifying your portfolio and minimizing your exposure to risk, you’ll want to choose at least one of these methods to broaden your financial horizons.
