By Meagen Seatter
February 3, 2025
Excerpt from article:
What are the pros and cons of global investing?
International investing is a strategy that offers advantages and challenges. It provides access to a range of opportunities in emerging markets and high-growth sectors that may be underrepresented in North America. International stocks offer the benefit of portfolio diversification as investors can spread their stakes across different markets and currencies.
Another advantage of investing in international markets is its positive impact on the global economy. Foreign direct investment can greatly impact wealth distribution and help develop successful economies.
A flourishing global economy also benefits North American investors as economic growth in foreign markets can increase the demand for goods and services from North America.
However, investing in foreign markets also exposes investors to risks. The value of foreign investments can be affected by currency fluctuations, and return on investment may be offset by transaction costs. Market volatility arising from political and economic instability in foreign markets can also negatively impact a stock’s performance.
Moreover, international investment involves navigating different regulatory frameworks and the potential unavailability or unreliability of information about foreign enterprises and markets compared to domestic ones. This difference poses a significant challenge in making well-informed investment decisions.
“The oft-stated purpose for foreign capital deployment is to seek higher returns, improve diversification, reduce aggregate return volatility and hedge loss of purchasing power of (the) home currency,” said Stephen Johnston, a private equity manager and director of Omnigence Asset Management. “The high-level tradeoffs are political and regulatory risk and enhanced administrative and tax complexity, depending on the foreign destination."
Johnston continued:
“Pension plans are susceptible to this reasoning as they cannot invest in higher return niche domestic opportunities given their material capital deployment needs — not so for non-institutional investors.
“It follows then that many investors could, within reason, be agnostic as to the domicile of their investment holdings, as long as those holdings suitably enhance their portfolios along the parameters above and can be implemented at the scale suitable to their individual deployment needs.”
Original article here