While there are plenty of investment opportunities in the United States, some investors look to invest in stock, bonds and real estate overseas to diversify their portfolios. Just as the United States has the New York Stock Exchange and Nasdaq stock markets, there are equity and bond markets that trade on a daily basis throughout the world. With growing globalization, there are many opportunities to invest outside the U.S. Smart investors can take advantage of these markets and invest their capital and watch it grow throughout the world.
One of the biggest advantages to international investing is diversification. By placing your money in U.S. stocks, bonds and real estate, you are essentially investing in the United States. While many U.S. companies sell products and services to businesses in other countries, you are still keeping your investment dollars localized to the United States. By investing directly in stocks, bonds and real estate overseas, you are diversifying your risk. If United States has a sluggish economy for a few years, but other parts of the world are on fire with economic growth, you can boost your investment returns. Conversely, if that paradigm switches, you can stabilize your international returns by investing in the U.S. economy. In this manner diversification spreads risk.
When investing in other countries, you must account for the change in currency. If the dollar is stronger against another currency, you have more buying power. This will allow an international investor to control more stocks, bonds and real estate holdings than if he invested that same amount of money in the United States. The dollar tends to be strongest against markets that are experiencing emerging economic growth. Examples of emerging markets are Brazil, India, Russia and China.
Rate of Return
Almost every investment balances a risk versus reward ratio. This means the riskier the investment, the higher the rate of return on capital. Conversely, the less risky the investment, the lower rate off return. There are many cultures throughout the world that are just becoming part of the global conversation in terms of trade. By investing in these emerging markets, investors can see a higher rate of return than they might in a more established country that is undergoing slower growth.