Should You Invest In Foreign Companies?
When deciding where to place your money, you’d be forgiven for sticking with the companies and markets that you know. But staying close to home may mean that you miss out on growth opportunities and the chance to hold a more balanced portfolio. Read on for our tips on holding foreign stocks.
We’re lucky in the UK – lots of the world’s biggest companies have their headquarters here or are listed on the FTSE 100 in London. If you really want to broaden the scope of your investing, however, it’ll be important for you to look further away in order to capture the best value opportunities.
Why invest abroad?
There are two key reasons why you would want to widen your potential investment pool to foreign stocks: diversification and growth.
- Diversification: Investing in British companies means that you are mostly exposed to what happens in the UK. If the economy does well here, then the stocks will likely go up, and vice versa if the economy does badly. You can diversify your portfolio by holding stocks from different sectors and industries, but you can also diversify by holding stocks from different countries. So if another country happens to do well while the UK is doing badly, you’ll be able to counterbalance some of that loss and reduce your risk levels.
- Growth: Annual growth in the UK is typically in the very low single digits. This is because the UK is a mature economy that is up-to-speed with most of the technological advancement that can stimulate our economy at the moment. Many economies in developing countries, however, still have lots of potential and ability to grow, as they have yet to fully capitalise on potential growth opportunities. Emerging countries have been responsible for two thirds of global growth over the last 15 years, meaning that you are more likely to get dramatic growth rates by looking at these kinds of markets.
So how do I buy foreign stocks?
Foreign stocks can be purchased through ETFs or mutual funds that specialise in making investments overseas. Investing through this mechanism will mean that you essentially hand your money over to someone who will pick and choose specific stocks abroad that they will invest into on your behalf. This is a great option if you don’t feel like you know enough about the specifics of a different country, but would like to get some financial exposure to it.
If you feel more knowledgeable about where you want to place your cash, you can also purchase the individual stocks of foreign companies that trade in the UK. Depending on your broker, you can also invest in companies listed on foreign stock markets, although you may have to fill in tax related forms or waivers.
Global investing with Wombat
With Wombat you can buy shares of stocks in the US and EU, as well as the UK with Standard accounts. We’ve curated themed funds that include some of the biggest and best companies in the world, making it quick and easy for you to invest in them. You can take a look at the different themes we’re offering, or even pick out your favourite foreign stocks yourself.
Remember, when investing your capital is at risk.