Top 5 Risks Of International Investing For Beginners

Accountancy Resources

Top 5 Risks Of International Investing For Beginners

Uncategorised Author: Admin


Investing in international markets presents a significant opportunity. Global investing is not for the faint of heart, but it is possible to make some decent cash, especially if you time your investments with the growth of emerging markets — but the road is not without peril. Consider international investing as a portion of your portfolio, but read on for what you’ll be up against:

5 Risk Factors

1. Transaction Expenses

Investing internationally typically comes with higher expenses across the board compared to investing here in the United States.

Commissions charged by brokerage houses are typically higher with international investments, which can significantly cut into your profits (or can even increase losses). There are a whole host of other fees that may apply in addition. Just be sure to research expenses before diving in so you know what you stand to gain or lose.

2. Currency Risk

To invest internationally, you must exchange your U.S. dollars for the currency of the country in which you plan to invest — and when you sell, the money gets exchanged again. This adds another level of investment risk to your overall ROI, especially if the U.S. dollar increases in value in the interim.

3. Political Instability

When you invest internationally, you’re at the whim of foreign governments. Political instability can arise at the drop of the hat — consider, for instance, Greece, Italy, Spain, Syria, or Iran. The collapse of governments abroad or other political calamities can bog down returns, and, in extreme cases, can make it entirely impossible to withdraw your capital.

4. Limited Information

The accounting practices and reporting requirements of overseas nations just aren’t the same as those in the States. Crucial information can be difficult to acquire, and in many cases, it may not be available at all. If you can get a prospectus, you can never be sure that it’s 100% accurate. That’s not to say you should ignore international investments — just be sure that you always remain aware. You may have to deal with nonstandard accounting practices and sketchy reporting guidelines.

5. Decreased Liquidity

Some foreign markets trade at much lower volumes compared to the major exchanges in this country. There could be fewer investment options, and the markets may not be open during all traditional business hours. You may also pay a higher price to purchase foreign shares, and when you’re ready to sell the stock, you could experience trouble locating a buyer.

Final Thoughts

Unless you are comfortable with an element of risk and can afford potential losses, reconsider investing internationally. There’s no doubt that international investing presents a long line of potential benefits, but the risks are significant. When you’re considering potential gains, don’t forget to consider potential losses, and account for the additional risks that can augment these losses. If you are uncomfortable investing directly in international equities, consider investing in international funds and ETFs. You still get most of the benefits. And by working with U.S.-based funds, you are substantially reducing your risk exposure. What other risks of international investing can you think of?