Most U.S. investors focus on stocks (or mutual funds) in the Dow Jones Industrial Average or S&P 500. But even new investors don’t have to limit themselves to investing in companies in their own country.
Whether you live outside the U.S. and want to get in on the most valuable companies in the world such as Apple, Google, and Microsoft, or if you live in the U.S and want to diversify a bit and invest in emerging economies, this article is the guide for you.
We’re going to go over the risks and benefits of foreign investing, and the five best platforms to use when investing in international companies.
Risks
Investing internationally comes with its fair share of risks. For starters, emerging markets are among the most volatile one can invest in. It’s easier for events such as a global pandemic or political issue to have an impact on smaller markets. This recent article on Medium, for example, goes over how foreign investment in Africa dropped by 16% in 2020.
Another factor many U.S investors may not realize is that access to information about foreign companies can be very limited when compared to publicly traded companies on the NYSE. There can also be increased costs and fees depending on the country you are investing in, and there could be changes in currency rates that are incorrectly factored in.
Benefits
The most common reason for investing in foreign companies is diversification. This is especially true if you live outside the U.S., as a lot of the largest companies in the world are based within the United States.
For U.S based investors, investing in foreign companies is a great way to take advantage of the economic growth of some emerging economies and diversify their portfolio.
Domestic Brokers
There’s a chance the brokerage you currently use will let you trade on foreign exchanges. Contact your broker and see whether it’s possible to invest in the market you want to invest in.
If it’s not, you can look into some brokerages that are meant for foreign trading. Our top pick is Interactive Brokers, as people from both the U.S and other countries can use the platform.
They accept customers from over 220 countries and are expanding the number to this day. You can trade options, stocks, indexes, futures, bonds, forex, and mutual funds all from one account on their site.
There are 135 different markets that you can invest in that cover 33 different countries. They offer market research on their platform as well, which is a must-have for foreign investors.
Foreign investing can be slightly risky as you are investing in companies outside your government’s jurisdiction and there can often be limited information available depending on which market you want to trade in.
With that said, diversification is a solid method to use when investing, and foreign investing can help you achieve just that. We recommended Interactive brokers as an exchange to use for foreign investments.
