Investing in global Stock Markets allows investors to gain exposure to some of the world’s most valuable and well-known companies, ranging from technology firms like Microsoft to more traditional firms like Samsung.
Investment in such global stocks is a great idea and to diversify your portfolio, a sensible proportion might be given to such equities.
Furthermore, the companies and stock exchanges’ vast information and rigorous governance standards allow you to better understand your assets.
So if you want to invest in global stocks, here’s how you should go about it :
Investing methods
Direct Investment
Direct investment can be done by directly investing in foreign stocks. This can be done by opening a trading account. For opening an account, a person can either choose a domestic broker who is authorized to sell equity or o with a foreign broker.
Mutual Funds
An investor can also use mutual funds to invest in the international market. There’s an option to either choose between an international fund or a domestic which deals in foreign stocks.
Index funds can also be used as an indirect medium for investment in foreign equities.
Investors who aren’t that aware of how a stock market works but want to diversify their portfolio should consider and choose this method of investing in foreign equities.
New-age Apps
Many new-age startups and apps have been launched that assist investors, simplify the investment procedure and help them to invest in foreign equities.
Before investing in foreign stocks, consider the following factors:-
Before investing your hard-earned money anywhere, one must have complete knowledge about how things work and must also do in-depth research about the investee company.
Country Risk
Before investing in any foreign stocks, one must know about all the risks associated with it. One of the major risks which is there is the risk associated with the country or location of the company.
- A company might be really good but due to its location, it might hamper the main purpose of your investment.
- Geopolitical risks, macroeconomic considerations, and the specifics of the investee entity, as well as future commercial possibilities, must all be considered.
Foreign Exchange Fluctuations Risk
The currency risk of foreign exchange fluctuation can not be ignored. It plays a major role in how much profit or loss due you incur as an investor.
- For example, if the US currency is predicted to increase, you will receive a bigger return in rupee terms, and vice versa.
- The same applies for every currency you currently use and want to invest in.
Volatility Risk
Volatility risk can be defined as swings in stock values, either upward or downward. It is considered that the higher the volatility, the higher the risk of the unpredictability of a stock.
From the point of view of an investor, he will always consider a strong market with less volatility. This is always a safer choice to go with.
Economic Risk
Economic risk refers to a negative change in an economy’s macroeconomic variables.
Unemployment, interest rate fluctuations, political instability, unfavorable changes in regulations, and so on are just a few issues that can have a significant impact on an organization’s operations and, as a result, its share values.
Thus, before investing in any foreign stocks one must consider all the macroeconomic factors affecting the value of shares.
Expenses of Investing in Foreign Stocks
Transaction Costs
It’s worth noting that the transaction cost of investing in international equities is typically higher than investing in companies located in your own country.
The gap between the buying and selling rates of a foreign currency is one hidden transaction cost.
It is suggested that an investor must open a bank account in the same currency he is dealing with and invest in stocks. It would prevent the frequent conversion of foreign exchange.
The following are other crucial elements:
- Brokerage
- Money needed for the margin
- Charges from the bank
- Charges for depository
- If applicable, any applicable goods and services tax/VAT/STT.
- The transaction cost, on average, and assuming a good portfolio, can be in the range of 0.5 percent to 2 percent.
Conclusion
While investing in foreign equities is a fantastic way to diversify your financial portfolio, you should only do so after conducting thorough research.
- Investors must evaluate and research all the factors which might affect the value of stock, and all other components before putting their money into international stocks.
- Investors must adhere to exchange control legislation, register foreign assets and income, and assure compliance in the country where they invest.
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