For first-timers, investing abroad can feel a lot like entering uncharted territory. There are exciting new things that capture your attention as well as unfamiliar paths that may prompt you to think twice before taking another step.
Is this new journey worth the trouble? Should you take a chance on putting your money in foreign assets? Learn the things to consider below.
1. The potential risks and benefits
The conditions you’ll face when investing globally may be similar to or completely different from what you’ve grown used to here in the Philippines.
Here’s a look at the pros and cons of investing abroad:
- You’ll have access to a wider range of products and opportunities
Global investing opens doors to new assets, markets, industries and even regulations that may not be available or applicable locally. For example, you might be able to invest in the world’s top-performing companies that aren’t listed in the Philippine Stock Exchange (PSE).
Maybe you’ll finally able to indirectly own global assets, like overseas Real Estate Investment Trusts (REITs) which can’t be accessed from here.
There are developed markets that may offer relative stability. These involve nations with well-established economies, industries, and infrastructure.
If you’re comfortable taking more risk, emerging markets are also an option. These include countries with the potential to grow at a faster pace although they tend to be less stable and pose increased volatility.
- You can improve your portfolio’s diversification
With more options available, you can further diversify your portfolio to protect against risks. Having global investments may help you weather instability or downturns if they’re only happening in your home country.
Some markets may rise while others fall, unless there’s a significant event that has a huge impact across the globe.
- International investing comes with inherent risks
There are a lot of different factors that can affect how well your global investments perform. Your investment returns may be affected by currency fluctuations, economic and geopolitical developments, and changes in laws and policies.
No matter where you’ll invest, the associated risks should always be clear and acceptable to you.
2. Transaction costs
The costs of investing abroad may vary per country, market, or product. Global investment platforms may require you to transact using US dollars.
This means the exchange rate can affect how much you’ll pay for an investment and the amount you might earn from it.
There may be fees for adding money and withdrawing from your account, as well as buying, holding, and selling assets. You should also be aware of the relevant tax obligations in different countries.
3. Level of knowledge needed
Given the new risks and conditions to consider, investing abroad takes ample preparation and research. There are direct and indirect ways to invest, and some options (like pooled funds) allow you to benefit from the knowledge of experts.
The time zone differences can be considered a challenge, but they can also be an opportunity to expand your knowledge when you’re not busy with work.
You might need to find trustworthy sources of information for each unique market, product, or company to aid your decision-making.
It’s natural to know your home country better than a foreign one, and so you shouldn’t be afraid to seek guidance from trusted professionals that can help you navigate unfamiliar territories.
With the right tools and information at your disposal, your money might just go places through international investing.
