As the world has become more interconnected, the global markets have as well. In this article, we will take a look at how investors can develop a global view towards the global financial markets, and look for international opportunities for their investment portfolios.
Planning Your Trip – What is Global Investing?
Global investing involves investing through a “global lens”, by selecting international investments as part of a geographically-diversified portfolio. Investors invest internationally to enhance their portfolio’s diversification, and spread investment risk among a variety of foreign markets, companies, and assets.
Global investing provides investors with a vast investment environment for selecting investments and trades. It can help broaden an investor’s perspective, by helping them shed their “home bias”, giving them investment ideas outside of their home country. In some instances, it can even help investors mitigate some idiosyncratic risks associated with their home country’s economies, and even provide investors with new sources of income.
Global investing expands the variety of eligible investment instruments available for an investment portfolio beyond just those of domestic investments. In fact, global investing essentially provides an investor with the same types of investment options on an international basis that they have on a domestic one. By investing through a global lens, the global financial markets offer investors various international opportunities across asset classes such as equities, fixed income, currencies, commodities, mutual funds, options, futures, exchange-traded funds (“ETFs”), and real estate.
Planning Your Trip – What is Global Investing?
Investors looking to go global can find a variety of investment options available to them in the global financial markets. Looking to international equities, foreign currencies, and global bonds, helps to provide investors with a solid foundation for global investing.
International Equities
Foreign Exchange
International Bonds
Travel With Caution – International Investing Risks
As with domestic investing, global investing is not without its risks. In fact, global investing presents some of its own specific risks, which include some of the following:
- Foreign Exchange risk – Fluctuations in a currency’s exchange rate;
- Interest Rate Risk – Changes in foreign interest rates;
- Geopolitical Risk – Chaotic economic, political, and social events;
- Liquidity Risk – Trades significantly impacting the market price;
- Lack of Information – Little information available for investment decisions;
- Jurisdiction Risk – Differing market operations and procedures across regions; and,
- Price Risk – Large, unprecedented fluctuations in market value.
Despite these risks, professional investors and traders can mitigate some of these risks using various derivatives such as options or swaps.
Enjoy Your Flight – Global Investing Overview
Overall, investing in the international markets can provide investors with investment opportunities that they would not be privy to if focused solely on domestic investments.
By going international, global investing can help investors diversify portfolio risk by spreading it geographically, but also help them take advantage of international trends to help them maximize their portfolio returns in a saavy way.