Making money by work is difficult and requires considerable effort. Therefore it is always sad to watch one‘s savings lose their value, which is what happens if you put your money in a savings account and leave it there. Banks offer interest rates so low that they fail to keep pace with inflation and in effect the real value of your money decreases over time. As much as one may hate it, investing and reinvesting is the only way to make more money – or at least not to lose it. Obviously, wrong investment carries with itself a risk of losing a lot of money as well.
There are numerous possible ways of investing – investing in real estate, in agriculture land, in antiquities, in bonds, in shares – the list could go on forever. One of the possible ways to invest your money is investing in foreign markets. There are numerous advantages – and naturally also a few disadvantages.
The most obvious and greatest advantage is diversification of your portfolio. While every economy has its ups and downs and these cycles are related to a certain degree, they are not parallel. Thus while the United States and Europe in 2008 went through the worst crisis in decades, Asian markets suffered only minor battering and recovered fairly quickly. At the time of writing Europe is struggling with massive debt of some EU member states, which is naturally reflected by stock market performance, South America and Asia on the other hand continue their strong growth. Investment into foreign markets thus helps to recover some losses and improve the overall performance of your portfolio.
Conservative investments generally generate lower profit but are less risky. Investment in old, well-established markets such as the EU or the USA has seen limited profits due to negligible growth of the economies (reasons for the poor performance would deserve another article). On the other hand, new emerging markets such as Brazil, China, India as well as other developing countries have seen consistent growth surpassing 10% for several years. Investing in such countries – though the risk involved is generally higher – naturally results in greater profits.
While it is obviously to predict future with an absolute certainty, present development seems to indicate that countries other than the US and the EU will drive world economy in the future. Consequently it only makes sense to invest in markets that have prospects of further development. Sticking stubbornly to markets that presently are or in the past were dominant is another kind of risk that may bear very bitter fruits.
In conclusion, reasonable investing in foreign markets has numerous advantages. It should not be considered risk-free, but the risks are offset by diversification of your portfolio, higher yields on investment, as well as better prospects of future development. The most important consideration in terms of disadvantages is the higher risks involved, which may include less stable political systems, as well as small size and consequent greater vulnerability of developing economies.