Financial Advisory Blog


What your CPA should say about Investing in Emerging Markets

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Like with any other avenue in life there are times where the unknown can be scary.  Your CPA should be encouraging you to explore other avenues for investing and start to take part of your portfolio overseas so you can take advantage of emerging markets.

Why going global is important.

Increasing your diversity in your personal portfolio is an excellent reason for trying to take part of your portfolio global.  Not only will this hedge against possible down slides and volatility with the United States market it will also open new doors for growth.  Spreading your investment risk among different countries will allow you to take advantage of growth markets wherever they are in the world.

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Ways to take your portfolio overseas

There are three main ways to start to invest internationally: one, through American Depositary Receipts; two, through various mutual funds; and three, through direct investments.  American Depositary Receipts (ADR) are actual shares of companies that trade on foreign stock exchanges that are sponsored to trade on the United States stock exchanges; they are registered securities that are issued by a United States banks that represent the foreign stock.  All trades with an ADR are settled in U.S. dollars and you are technically trading in the United States market.

Mutual funds that have international exposure are called ‘Global funds’, as the name suggests the fund is able to trade on any stock exchange include the United States exchanges. Those mutual funds that are strictly stock exchanges that are outside of the United States are ‘international funds’.  You will have to work with a stock broker or brokerage company to find the fund that is right for you.

Direct investments into foreign markets are exactly as the name implies, you find a foreign company that you would like to invest in and find a stock broker that can work with you to make that trade happen.  Direct investment can be a little tricky, because you have to be on your toes with monitoring the activities that are involved with the transaction and trading.  It can be very difficult to track money that is crossing international borders when it comes to stock brokers and other people who wish to comment fraud against you.  Whenever you are considering to invest in the stock market have the information of a good securities attorney should the need arise, but it is especially true if you are considering investing overseas.

What are the risks involved?

The first risk involved is one that most Americans don’t think of until it is too late and that is considering the currency exchanges.  The change in the exchange rate of currency can either help or harm an investment.  If the U.S. dollar is strong against the currency you will have a higher rate of return on your investment, however if the opposite is true it can seriously strive out your return.

The second risk is that the investor needs to play to the different rules.  Not all stock exchanges have the same rules and regulations.  It is in the best interest of the investor to find a stock broker that is familiar with that specific country’s laws to be able to effective trade on their stock exchange.

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