Regardless of the methods that traders use to reach foreign markets, global investing has become an easy option for dipping into growing economies with bright opportunities.
Decisions for investments used to be simple in the past, and investors involved in securities trading would have to choose from a number of stocks and bonds (corporate or governmental) within the local market. It was not easy for small investors at first place to enter their local markets due to the costs involved and furthermore, it was all but impossible for them to trade the global markets in search of assets to diversify their portfolio, without professional help.
This status has greatly shifted in recent years because traders, regardless of their size and financial ‘capacity’, are exposed to a large number of newly developed financial instruments that give access to global markets. Traders are now able to invest globally and have the option to choose their own shares or dip in professionally-managed global funds with the aim to diversify their portfolio, or simply in search for better opportunities.
The expanding interaction and cooperation between individuals, governments, and organizations worldwide, also known as globalization, has helped the world to become more connected and feel ‘smaller’. A significant factor affecting economic globalization is the shift of many economies to free market systems in order to stay in line with rapid changes in the business environment, and therefore they open the door to foreign investors. Some of these economies are experiencing huge growth that is driven from their expanding populations’ needs for products and services. As a result, there have been significant advancements in many parts of the world in the sectors of technology, healthcare, and agriculture. During the seventies, two thirds of the world’s publicly traded companies were in the United States but now they represent less than half of the markets and it looks like this proportion will get even smaller in the future. The risk of ignoring these investment avenues is missing on the opportunities afforded by non-local markets
One of the most popular methods to gain access to global markets is with mutual funds. These types of assets enable investors to buy a portion of an international, professionally-managed, and already diversified portfolio at low cost. Mutual funds vary widely in terms of the international assets included, the types of markets, and the level of risk.
Exchange Traded Funds (ETFs) are similar to mutual funds in the sense that they provide opportunities for purchasing pieces of internationally diversified portfolios, and that they come at varying levels of risk. The difference is that ETFs are traded like shares, so that investors can buy and sell them during trading hours, and therefore they are more liquid assets.
Arguably the most popular method of the past few years for investing globally is through forex trading. It involves trading currencies from different countries against each other and therefore allows investors to take advantage of other countries’ economic growth. Forex traders chose currency pairs that they expect to change in value and place trades accordingly with the scope that the value of those pairs will move in their favour. Forex trading can be made through forex brokers, and by using their online platforms, they are able to trade from the comfort of their own sofa.
Call me conservative, but I’ve never been keen on investing in foreign markets. If I did, I would go the mutual fund route and would likely only do so over a long investment horizon since foreign markets seem to be more volatile.