How to Create Value When Investing Abroad
Getting the most value out of investment abroad means keeping a close eye on trends. Here are pointers to consider to get the most out of foreign stocks.
During the recent period of economic growth, the tried-and-true patterns of global economic expansion haven't necessarily panned out the way they used to. Unlike the old adage, a rising tide hasn't lifted all ships equally during this bull run. The good news is that this trend has left investment opportunities open for exploration abroad, even as a historically long bull run squeezes out high-return plays at home.
Getting the most value out of investment abroad means keeping a close eye on certain trends, markets, and opportunity signals. This holds true whether you're looking to invest by country, region, or sector—and is doubly true if you want to get a toe-hold into alternative investments outside of the United States.
Finding Value in Emerging Markets
There's been tons of talk about emerging markets for the last 20 years as investors look for value and higher returns. Although former investment darlings in BRIC economies and Asian tigers may not have led to the kind of astronomical returns some analysts predicted, plenty of other emerging regions have yielded steady growth and respectable returns for early investors.
When considering emerging markets, take a similar approach as you would when looking for value opportunities closer to home. Namely, consider undervalued sectors in certain countries or regions. Even some emerging markets that are already rife with investment dollars have industries that have been overlooked, or may have only risen as an alluring investment play more recently. As countries' economies develop more broadly, there are often new opportunities for sectors that were once quiet but are prone for expansion.
Another potential strategy for creating emerging market value could take the form of alternative investments. Derivatives in emerging markets can create dividends even in countries and regions where foreign capital is already present. These alternative investments come with a larger potential for turbulence and risk, however, so be sure your portfolio (and stomach) are prepared for anything.
Maximizing Opportunity by Investing in Property Abroad
Foreign investing isn't limited to stocks. In fact, the market for investing in property abroad has grown as the dollar's strength has increased. As of 2018, Americans have invested more than $25 trillion in foreign property—an increase of almost 30% since 2008. There is still plenty of opportunities to create value by investing in property abroad, although there are also rules and regulations to consider.
First, consider your investing objectives. If you're looking to purchase property abroad in order to build equity for a future sale, you'll have different needs and considerations than you would if you're investing in order to rent out the property to locals or vacationers. You will also want to think about any financing needs you may have in order to complete the sale. U.S. lenders may be more reluctant to approve a mortgage or other loan to purchase overseas property.
Next, read up on local and national property taxes. You will almost certainly be responsible for paying taxes on your property, and this may be in addition to any other U.S. taxes relating to income and property. If you're uncertain about what taxes you be subjected to, be sure to work with local and domestic tax professionals well before making a down payment.
Tapping Into Under-Valued International Markets
International markets have garnered plenty of attention from U.S. and Western European investors, leaving less room for opportunity and returns than in the past. To find real growth opportunities overseas, savvy investors have to get more creative—and do their homework. There are still sectors, industries, and companies overseas that have not gotten as much attention from foreign investors as others, leaving opportunities out there for newcomers to the foreign market (as well as seasoned global investors looking to diversify their holdings).
Finding value plays overseas means reading the headlines, knowing local trends, and being on top of market moves in a way that most domestic investing (or investments in foreign ETFs and mutual funds) doesn't necessarily require. You will likely want to clue into reputable media outlets that cover financial and political news in the country or region in which you plan to invest. Doing so can help you keep on top of trade-winds that may impact your investment strategy.
If you have yet to dive into the waters of trading on foreign markets, you may be able to find opportunity by doing so. Brokers can help investors navigate foreign exchanges to identify regional opportunities that may not have a direct presence in American markets. Be sure to seek out the advice of a financial professional first, however, to be sure that your strategies are in line with rules and regulations in the United States about such investments.
Creating Value While Mitigating Risk through ETFs and Mutual Funds
Foreign investing isn't the exclusive domain of those with a healthy appetite for risk. There are more conservative investment options for those who want to diversify their portfolio without going directly into foreign markets. ETFs and mutual funds offer a multitude of options for investors—some funds are country- and region-specific, while others might focus on global industries and sectors.
The rise of passive funds have made it more affordable to explore foreign markets without encountering the same exposure level to direct investment. Granted, ETFs and other products may yield a lower rate of return, but they also come with a bit more security as a trade-off. By looking for international and regional funds, you can avail yourself to a move globally diverse portfolio without having to go into the deep research and trend-spotting that comes along with direct investing.
Mutual funds offer investors with an opportunity to build equity in a portfolio of international investments that are usually built out by sector or region. Country funds even allow investors to buy into opportunities for state-specific growth as well, all while leaving portfolio management to an expert. Alternatively, ETFs provide a similar opportunity for investors to seek value through international investments, but without the management fees that come with mutual funds. The range of international ETFs is comparable to their mutual fund counterparts, meaning there's a ton of variety for investors.
No matter how investing abroad fits within your portfolio, there are plenty of ways to create value—even as investors place more of they money beyond our borders. Savvy investors may need to get more creative nowadays in order to yield impressive returns, but there are always opportunities out there for those who do their homework.