International Investing (2024)

FAQs

What is an international investment? ›

What is international investing? International investing is an investment strategy that involves selecting global investment instruments as part of an investment portfolio. People often invest internationally to expand diversification and distribute investment risk between markets and global companies.

International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations.

Foreign direct investments can be made in a variety of ways, including opening a subsidiary or associate company in a foreign country, acquiring a controlling interest in an existing foreign company, or by means of a merger or joint venture with a foreign company.

foreign direct investment (FDI) – where an investor sets up or buys a company (or a controlling share in a company) in another country, and; portfolio investment – where an investor buys shares in, or debt of, a foreign company without controlling that company.

Investors can purchase U.S.-listed foreign stocks that trade in the United States through a U.S. broker. Trading on foreign markets. A U.S. broker may be able to process an order for shares of a company that only trades on a foreign securities market.

By moving abroad, investors can access new investment opportunities unavailable in their home country. They can choose to invest in emerging sectors, innovative companies and attractive real estate projects, thus broadening their financial horizons and increasing their chances of achieving attractive returns.

How much should be invested internationally? In general, Vanguard recommends that at least 20% of your overall portfolio should be invested in international stocks and bonds.

Start by allocating 15% to 20% of your equity portfolio to foreign stocks. That's the percentage I typically maintain in the Vanguard portfolios. It's meaningful enough to make a difference in your overall returns, but not so much that it will ruin your portfolio when foreign markets temporarily fall out of favor.

Depending on your return objectives and risk tolerance, your international allocation should be 5-25% of your total stock market investments and the international weighting necessary for truly global exposure is likely to increase over time as global trends become even more entrenched.

Foreign investment can offer many benefits, such as access to new markets, lower costs, and diversified income. However, it also comes with various risks, such as currency fluctuations, political instability, and regulatory changes.

What is the best foreign investment? ›

FPI Disadvantages include Market volatility, short-term focus, lack of control, currency risk, and market distortions. The key difference between FDI & FPI is that FDI involves ownership and control with a long-term commitment, while FPI is about short-term financial gains with no control over the business.

For example, you can invest in commodities in Australia, engineering space in Europe, or technology in the US market. You can also invest in various countries through ETFs. The global investment brings you the opportunity to invest in industry giants globally.

Economic development also plays a key role in terms of FDI attraction (see Figure 3). Low-income countries are mostly categorized as “unfree” and are less likely to attract FDI. Macroeconomic factors—trade freedom, quality of infrastructure, market size, and human capital, for instance—positively impact FDI.

An example would be McDonald's investing in an Asian country to increase the number of stores in the region. Here, a business enters a foreign economy to strengthen a part of its supply chain without changing its business in any way.

As mentioned above, an investor can make a foreign direct investment by expanding their business in a foreign country. Amazon opening a new headquarters in Vancouver, Canada would be an example of this.