International investing has always been a good option for investors who look to increase diversification as well as the total returns of their portfolio.
However, it’s not as easy as it’s being said because most countries have diverging monetary policies.
Although the benefits of international investing are accepted theories, it’s evident that most investors are yet to invest abroad.
The reason for the slow adoption of international investing is the risks involved when considering investing overseas.
The following are some of the major aspects to look into when thinking about international invests:
Currency Investing Equation
The currency exchange rates usually are on a constant change, meaning they can enhance the returns or diminish your earnings from the portfolio.
It can even get messy when the situation gets worse as it can result in huge losses.
Therefore, considering a currency hedging strategy is the best way to go as hedging against the currency risk helps take effect from the variations in the exchange rate out of the investing equation.
Timing the currency price movements are the hard part that most of the folks are unable to achieve.
Therefore, it’s the market volatility that makes the taking of decisions critical.
Flows into Traded Funds and Market Timing
If you can easily predict the currency price movements in volatile market conditions, then it will make a lot of sense to use the fully hedged ETFs to target particular opportunities in the short-term.
Besides, it helps in taking currencies out the equation.
However, if you don’t really know whether you’re able to make the right predictions about the currency price movements in volatile market conditions, then consider iShares adaptive currency-hedged ETFs.
The advantage here is the fact that an investor has no task of figuring out when and how to hedge when investing in foreign markets.
Adapting to the Market Situation
As it is the case with the currency markets, volatility is the biggest animal.
Therefore, as an investor, when investing in the markets of other countries, you should be able to adapt to this market situation that happens any time.
Apparently, some best investment opportunities are presented by some of the overseas markets, which means that you can get the profits via the short-term stimulus employed in some countries across the globe to spur growth.
Furthermore, one can take advantage of the stock prices at that moment which is attractive and then can set up the long-term international portfolio allocations.
Generally, when the market volatility continues, also, the currency volatility increases.
Therefore, it becomes even more difficult to predict in which direction the price movement will take.
This is because investor actions usually lag with respect to the changes that happen in the market; hence generating huge profits from the investments can indeed be a difficult task.
The Bottom Line
Undoubtedly, international investing is an excellent way of diversifying the portfolio as well as potentially gaining higher returns.
However, navigating the global market is not an easy task, especially for an average investor.
Understanding the main aspects of currency and international investing is the best way to minimize risks.