Investing in Domestic vs Foreign Markets in a Volatile Economy

There are advantages in investing in foreign markets as opposed to domestic (U.S.) markets. Some of the largest returns are seen in nations like Brazil. But are these investments safe? I would venture that any developing country has less policing of their trading systems and company ethics than does the the U.S. With all our regulations and agencies, CEOs of large corporations being led off to prison on the nightly news is not an uncommon sight here in our own country. I’ve traveled in several countries in Latin America and I can tell you that bribery is so common in all levels of government and business that most locals don’t even call it crime. Another consideration is whether they have a stable government. In some emerging nations, government coups are the rule, rather than the exception. Do you really want to invest in a country where the guy with the most guns and muscle gets to be President? Then there are the billions in unpaid loans from foreign governments who we are trusting to give oversight to the companies and investments we are putting our money in.

The next logical question is this: Are there any safe ways to invest overseas? All investment involves risk. For the average household variety investor who is building a retirement portfolio, high risk exotic investments are not recommended. If you are going to invest overseas, an ETF or Exchange-traded fund may be the ticket. There are around 50 foreign ETFs that can help you to spread out your risk and take advantage of the high returns of the world stock markets. Some are country specific and some are regional. One such ETF is Brazil ETF (EWZ)made up mostly of oil stocks. Another is United Kingdom ETF(EWU)which is primarily made up of financial service stocks.

Here are a few advantages to using a foreign or domestic ETF. First, they are on the domestic stock exchange. Secondly, they can be traded just like any other stock from an online or brokered account. And Thirdly, they simplify the complex (near impossible)task of choosing winning stocks at home or abroad.

On the domestic market, many investors believe that there are many undervalued stocks right now because of economic fear and uncertainty along with an election year. This is a great time to buy some blue chip stocks at bargain prices. Be aware that both domestic and foreign markets are risky right now. Domestic equity markets are, by nature, safer than foreign markets.

Choosing market bottoms for the domestic market can be complex. Use a seasoned broker or a trusted personal adviser who is savvy in investing. A solution to reduce risk for the domestic market is also the use of ETFs. Rather than take years to learn the commodity markets, one can invest in pork bellies, gold, or grain by choosing the appropriate ETF.

Opportunities abound in both the foreign and domestic stock markets. The foreign market has produced large returns for many a large fund group, but is not a game played well by the novice trader. With the domestic market’s large swings recently, many investors lured by potential high returns of overseas markets have come back home to the domestic market and taken advantage of the present fire sale on good stocks.