How to Invest Outside the U.S. Without Fear
Investing outside the U.S. may seem like a big idea—and may even be intimidating—but chances are you’ve already invested internationally if your portfolio is well diversified. Investing in foreign markets means putting some extra time and effort into doing your due diligence. You can’t simply rely on a financial expert to make decisions for you, and one key distinction you’ll have to make is whether to invest in developed or emerging markets.
Regardless of the route you choose, you will fare far better with an understanding of the social, economic, and political climate of each country you are vested in. Start by increasing your intake of information, and think about the best resources for world and financial news. You can begin by subscribing to newsletters, news channels, and newspapers within each market such as “The Kiplinger Letter” in the U.S. Try the United Kingdom’s Financial Times, The Economist and its EIU Reports.
The easiest and most convenient way to invest outside the U.S. is through low cost exchange-traded funds (ETFs). These can track broad international indices at low cost.
Global and International Real Estate Investment Trusts (REITs) are a great outside investment. REITs are long-term performance products known that can offer good returns and are a good hedge against inflation. An account with a well-established online brokerage firm will give you access to ETFs and REIT investment products.
The Foreign Exchange Market (FX), or Forex, is where you trade foreign currency. Forex is the largest traded financial market in the world in terms of dollar volume, because it’s open for trades almost 24 hours a day during the trading week. If there’s an open market, you can make a trade. The trading day begins Mondays at 10 a.m. in Australia and ends each day at 5 p.m. in New York.
Investors who trade currency are speculating against its future value and are attempting to take advantage of market fluctuations. If you’re going to invest in the Forex, reading and knowledge of the basics of economics are a must. You need to understand how market conditions such as low inflation and high interest rates tend to strengthen a country’s currency. If you’re interested in currency trading, Forex.com offers an easy to follow video library and practice account to help you get started.
Trading commodities is another great way to invest internationally. Gold and silver commodities are available on the Forex. All commodities such as agriculture, coffee, wheat, and oil are traded directly on the open exchange, or through ETFs and mutual funds. However, bear in mind that unlike stocks, the historical track record of returns for commodity investments is less impressive.
Making investments involves taking risks. A good investment strategy would be to start with a broad low-cost ETF to track a foreign index such as a Vanguard fund—VEA—for foreign developed stock markets or VWO for foreign emerging markets. Both options are relatively low cost and track broad indices.
Investing internationally is not as scary as it seems. It’s about taking risks, and without risks there can be no rewards.
Written by Qiana Chavaia. The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.