It’s no big secret that investing is a wise move for anyone seeking to increase their wealth. Keeping your money under a mattress or in a common checking or savings account won’t give you the return you need to grow your money to provide for you in the long run, much less to keep up with inflation.

But the big question on every young professionals mind is: where should you put your money? Investing locally in local markets has always been an effective strategy; however, due to technological advancements and global opportunities, investing abroad in foreign markets is becoming more popular than ever before. So which option is right for you? Here is an analysis of the advantages and drawbacks of each approach.

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Investing at Home

Local markets offer increased liquidity due to their larger size and longer history. This makes it simpler for you to buy or sell investments quickly if necessary. Furthermore, local markets tend to be more predictable, so you can make better decisions about when and how much to invest. Here in the US we have a very accessible stock market that makes it easy to put money in or out, and although there are not cases of stock fraud here, it’s thankfully the exception, not the norm.

Popular Local Investments

Many people opt to invest in stocks, bonds, mutual funds and Exchange Traded Funds (ETFs). These investments tend to be less risky than international ones and offer a steady return over time. Furthermore, many local markets provide tax advantages which could further boost your returns. Personally I am a big fan of low-cost index funds; a great way to diversify without over paying in fees.

Why Some Don’t Invest Locally

Investing locally can be a viable option for those seeking some stability and predictability in their investments. However, returns from local markets can sometimes be lower than those found abroad, so you may miss out on more lucrative opportunities by staying close by. Furthermore, certain investments that are available abroad may not be available domestically. Finally, diversification should always somewhat be top of mind – all your eggs in one basket (i.e. your home country) could put you at risk if your economy has a downturn.

Investing Abroad

When investing abroad, you have access to a world of possibilities with different industries and asset classes. You may be able to secure higher returns than what your domestic market provides as well as diversify your portfolio with international stocks, bonds, currencies, commodities and other assets. Unfortunately though, foreign markets tend to be less liquid than their closer-by counterparts so you may experience difficulty exiting positions quickly. This limited liquidity may be a reason not to invest if you have limited funds and need to make quick profits, but if you have a no-strings lump sum such as a payout from a personal injury attorney or a bequest from a relative, then overseas investment may work for you.

Popular Foreign Investments

Popular foreign investments include stocks from multinational companies, global ETFs and emerging market funds. However, these are more risky than domestic ones and may require a longer holding period than local investments. Furthermore, foreign markets typically have different regulations and tax laws that should be understood before investing. At least here in the US, there are actually many foreign funds that you can purchase through your regular US based brokerage account. For example, Vanguard has a Emerging Market ETF that buys stocks in China, Brazil, Taiwan, and South Africa. Or, some foreign stocks have ADR (American Depository Receipts) options – i.e. Alibaba; the popular online combo of eBay and Amazon in China trades both in Hong Kong and the US. You can buy them either in Hong Kong or the US, all the same.

Investing in Africa

For an even more emerging market, Africa is an emerging market with enormous potential. It boasts some of the fastest-growing economies worldwide, boasting high growth rates, young populations and abundant natural resources. To invest in Africa could be one way to take advantage of these chances for greater returns; however it also comes with higher risks due to political instability and currency fluctuations. Nonetheless, investing in Africa carries certain risks due to these uncertainties.

Why Many Don’t Invest Abroad

Investing abroad can be intimidating for those unfamiliar with the foreign markets. It may also be challenging to monitor investments in countries with differing laws and currencies, making them more volatile investments that could lead to larger losses.

Summary

No single investment strategy works for everyone; your individual goals and tolerance for risk should be the determining factors. Whichever route you take, ensure that you possess a deep knowledge of the market in which you plan to invest. Also, do your due diligence when researching potential investment destinations overseas; effective planning can maximize both domestic and international returns with careful research.

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