Making the investment in local and foreign markets will benefit the investors. Normally the investors make investment in local markets as they aware of the current market situation. When the investors have enough experience in trading of stocks, the other alternative appears by way of investment in foreign markets. In order to safeguard against unexpected economic downturns, investing in more than one nation i.e. investing in foreign market is preferable. Spreading of money through several investment types benefit the investors and minimizes the risk.
Diversification is one of the ways to make investment in foreign companies. It is clear that local share and foreign shares do not always move in same direction. Local shares may be in higher side while foreign shares may be down. For example in U.S, the local shares and foreign shares do not always move in the same direction. But it does not mean the local shares and foreign shares move in opposite direction. Buying of foreign stocks in the shape of foreign EFT is one of the familiar investment methods in foreign markets. When the country’s currency is unstable, investment in foreign markets protects the capital from depreciation. The diversified portfolio balances and hence preferable in foreign investment to get the advantage from such movements.
The investment in American Depository Receipt-ADR which is available to the U.S. investors. The ADRs can be traded in U.S.stock exchanges. Major stock markets which are outside of the U.S. have more than thousand companies have substantial size over the international market. The U.S. investors may get advantage from such companies by purchasing of American Deposit Receipts and can gain from such foreign investment. There is another reason for which the investors consider investing in foreign stocks in order to take advantage of regional economic cycles.
The global diversification provide higher returns and free environment in international markets will be an added advantage to make foreign investment. Some foreign countries offer tax incentives to foreign investors. In order to attract foreign investors, such attractive tax rates will be designed by the foreign countries. The Exchange Traded Funds, mutual funds are similar in many angles except ETFs trading will be made with like stocks.
The small investors also can enjoy the profits through foreign investment with minimum risk, as the ETFs and Mutual funds are professionally-managed funds. However, the investors must be aware of the risks those may be caused by political, currency and market. Changes in government and political will influence the price of security. Similarly, the exchange rate fluctuations may limit the investment returns.