Investing in foreign stocks gives you the chance to provide greater diversity for your portfolio. However, the foreign stock investment market has different rules and regulations, so it’s understandable if you’re cautious. This overview of pros and cons may help you make a decision.
Pros of Investing in Foreign Stocks
- Tax Reduction: Many countries offer tax incentives to foreign investors that are looking to participate in stocks. Some countries also have more favorable tax rates when compared to the United States, which makes it easier for an investor to make a profit. A select few nations give traders tax-exempt status when they invest in United States Markets.
- Confidentiality: Some foreign stock exchanges offer shareholders the benefit of privacy through legislation. For example, disclosing shareholders is a breach of corporate confidentiality in some jurisdictions. Identity disclosure is allowed in instances of clear money laundering, drug trafficking, and other illegal activities.
- Diversification: Having a diversified portfolio is something that investors desire and purchasing only in the United States can limit the amount of diversification possible. Buying foreign stocks allows you the opportunity to buy assets that aren’t available in the United States, and increase your profit. Offshore accounts provide flexibility and give you the chance to practice in international markets and all major exchanges.
Cons of Investing in Foreign Stocks
- Low Standards: Many countries lack the high standards that are involved in the United States stock exchange. This could mean that the information about your account or even yourself can be incomplete or inaccurate, causing difficulties in the trading process. It can also make comparing investments tough as the assets may display incorrect information.
- Currency Risk: Investing in foreign markets means you are tied to the currency of that nation. If you have a lot of money invested in the Euro, and the Euro decreases in value, your assets will as well. Even though it looks as though you’re gaining a profit in the foreign currency, it can be difficult to keep track to both the currency fluctuation and the stock.
- Instability: Some countries have political and economic strife, which can be a problem for potential investors. This creates instability in the market, which can quickly affect the value of the market. For example, Brexit caused the stocks in Europe to plummet. Many investors lost large sums of money, and they could only watch as the instability of the nation caused them to lose profit.
