Essential Tips for Foreign Investment and Mistakes to Avoid

by Contributing Author

Even though countries across the world have different currencies, money remains universal.

Over the years, financial advisers have been suggesting buying foreign stocks to diversify your portfolio.

Several challenges are associated with this opportunity, including currency conversions and regulations.

Additionally, there could be a language barrier as well. You may not understand information about the company of your choice if it is written in a local language.

If you strongly consider foreign investment, there are easy ways to go about it. You also need to avoid mistakes that could result in losing all your money or even getting fined, if not jailed.

Decide on the type of investment

You can consider three types of investments for your foreign portfolio: stocks, exchange-traded funds, and mutual funds.

Stocks can be purchased through a broker, and you can decide which company to invest in.

Exchanged-traded fund and mutual fund, on the other hand, requires you to commit your money to specific investment experts who decide on the stocks to invest in.

Aside from crossing borders with your investment, it is possible to invest in local companies with an international presence. If the firm’s foreign business becomes profitable, you invariably get a better dividend.

Research

• Company Types

There are different types of companies. Most of them are private and more difficult to invest in, and they usually hold potential. On the other hand, publicly listed companies are available for public investment.

They are also promising if their future projections are good but may not give a miraculous return compared with a private company with the incredible potential of going public. Imagine investing in Apple Inc, Amazon, or Google before they went public.

Do your diligent research on any company you are considering investing in. Examine their boards and market potential.

Investigating through a mutual fund, investigate their previous year’s returns.

• Regulations

Study the regulations concerning foreign investment in the locality and the country of choice. Even if you have studied these regulations before, it is advisable always to do this periodically, especially when considering new investments.

Nation’s tend to review their laws. For example, a panel led by the Finance Ministry was established in 2019 as part of the Israeli Ministerial Committee on National Security Affairs to assess the national security aspects of foreign investment approval.

• Culture

People’s culture plays a significant role in their purchasing decisions, and culture may also vary even within the same country.

Examine the culture of the targeted market by the company of your interest and how it could affect its product success. Another way to gauge this is by analyzing similar firms and how they are performing in the area.

• Local economy
• The economy and infrastructure of a country will affect the citizens’ demands. For example, it is a waste of money to invest in a telecommunication service provider company operating in a country with less than 10 percent internet penetration and zero governmental interest in improving infrastructure.

Source of fund

Before sourcing funds, determine how much you are willing to commit to the investment.

• Personal fund

This includes money from your savings, salaries, and credit cards. Aside from cash from credit cards, a personal fund is best for any investment.

Investment is risky, and you may lose all the money.

• Family and friends

Funds for foreign investment can be sourced from family and friends. If possible, this kind of fund should be avoided.

The inability to refund their money can strain your relationship. You do not want money issue to come between you and those you love and care about.

• Loans
• There are limited loans you can access for foreign investment. To start with, it is not advisable to borrow money with interest and invest with the hope of a higher Return on Investment (ROI).
• Loans such as a reverse mortgage can be used for almost anything, including foreign investment.

Mistakes to avoid

• Lack of expected goal

Just like any other investment, it is essential to have specific objectives. Setting goals will help you decide which stock to buy and others to ignore.

Your goal may be to garner enough retirement funds, save up for your children’s college, or get enough funds to purchase your dream home.

• Investing all your money

Foreign investment is a game of gain and loss. You rarely break even. Therefore, always prepare your mind to lose your money. With this at the back of your mind, avoid investing money you cannot bare to lose such as your whole life savings.

No matter how great the potential presented by a stock, only invest up to the limit you are willing to lose. Things can go wrong.

• Impatience

Long-term investment requires extreme patience and confidence in your research. It is normal for any foreign stock fluctuate.

If you have done your groundwork, the volatility of the market should not make you panic and rush to sell.

• Emotional investment
• Investment should not be made with emotions but with facts. Avoid the urgent fear of missing out.
• Do not rush into buying or selling stocks. Take your time. Remember, this is your money, so use it carefully unless you plan to waste it, which is unlikely to be the case.
• Ignoring tax regulations

Avoid this mistake at all costs. Before making a foreign investment, research how the tax remittance works, both for your local area and the country your money is going to.

Depending on the concerned countries and the type of investment, you may be eligible to some tax waiver. Here is how it works. If the foreign country already taxed you for the income, the amount paid can qualify you for some reduction in the tax expected to be remitted to your home country upon receipt of the income.