Regarding stock market investing, it is always better to become a long-term investor rather than a trader. And when we say stock market, we don’t just mean the Indian Stock Exchange. Investing in stocks is similar to investing in companies that you believe will grow in the future. This means that when it comes to stock investing, not only Indian companies but also international stocks have a lot of room for growth.
As we participate in the global growth story, international investing has become critical for our portfolios. Including international stocks in a portfolio provides diversification and may result in higher returns.
Here are the advantages of investing in the international market.
Diversification
Diversification is the most obvious, yet most important, the advantage of global investing. Moreover, during times of market volatility, a well-diversified portfolio serves as a source of stability.
Many of the companies listed in the United States have global revenues. Outside of the United States, the S&P 500 companies generate more than 40% of their revenue. As a result, you can diversify your portfolio by investing in the United States.
Confidentiality
Concerns about your financial confidentiality accompany global investments. However, the law does not require international financial institutions to disclose your financial information to anyone. As a result, you can rest assured that your information is always secure.
Wide range of investment opportunities
Global investing allows you to access investment opportunities that are not available in your home country. For example, some of the world’s largest tech companies are headquartered in developed markets such as the United States, which you cannot access by investing in India.
Tax efficient
Many countries around the world offer attractive tax breaks to foreign investors. These incentives have the potential to improve other countries’ investment environments as well as attract outside wealth. However, these incentives or benefits differ depending on the country.
More ways to invest
There are also numerous ways to invest globally. Direct stock investments, ETFs, and mutual funds are examples. On the one hand, mutual funds provide the most convenient way for investors to gain international exposure. On the other hand, investing in ETFs necessitates a little more advanced knowledge.
Investment protection
Global investing safeguards investments against fraud and liquidation. Strong regulations ensure sound corporate governance and severe penalties for market abuse in developed market companies. This safeguards retail investors against potential fraud and insider trading losses.
Lower and managed risks
Another compelling argument favouring global investing is that risk levels differ across markets. As a result, developed markets are generally less risky. Also, keep in mind that different markets behave differently. As a result, it has the potential to provide better risk-adjusted returns.
Currency diversification
Investing in foreign currencies exposes you to currency appreciation (or depreciation). For example, the USD has appreciated by 3-5 percent on average over the last few years against the INR. Over time, the currencies of emerging markets depreciate. Domestic savings account interest rates are typically 3-4 percent. Portfolios that have invested globally have benefited from improved markets and rising currencies.
The route through mutual funds
“It is very simple,” says one of the compelling reasons to invest globally. It is simple to do so by using mutual funds. If you are a more conservative investor, you can go this route. Fund houses provide international funds through which you can benefit from the expertise of global fund managers. Many Indian fund houses offer schemes such as funds of funds that invest in international equities. You can invest in these funds the same way as any other mutual fund. You can also invest through SIPs, which require a monthly minimum of Rs. 500.
International investing has become essential for achieving strong portfolio diversification. However, while the benefits are appealing, you must also consider the risks.
