Are you looking to add diversity to your portfolio? If so, investing in foreign stocks is a great way of doing so. Keep in mind however that the foreign stock investment market is a bit different, so you should enter the field with caution. Before you decide on investing in foreign stocks, here’s some insight on both the good and the bad of the industry.
Advantages of Investing in Foreign Stocks
Reduction of Taxes
If you are a foreign investor looking to participate in stocks, most countries will offer a tax incentive. Additionally, there are countries that have more agreeable tax rates in comparison to the United States, which in itself makes it easier to make profit. If you invest in United States Markets, there are a few nations that will give traders complete relief from taxes (tax-exempt status).
Privacy
If you are a shareholder in the foreign stock exchange, you will have the benefit of confidentiality. For instance, some jurisdictions consider disclosing shareholders a breach in corporate confidentiality. That said, disclosing an identity is considered to be justifiable if it is involved in money laundering, the trafficking of drugs or any other illegal activity.
Diversity
If you are an investor, you should be working towards having a diversified portfolio. When you buy foreign stocks, you are given the opportunity to purchase assets that aren’t normally available in the United States. Additionally, if you have an account at a bank located outside your country of residence (an offshore account), this will provide you with the chance to practice working in an international market.
Disadvantages of Investing in Foreign Stocks
Foreign stocks have low standards
If a foreign country lacks the standards seen in the United States stock exchange, this could result in information about your account appearing inaccurate. As a result, there will be difficulties in the trading process.
Tied to a currency
If you have invested in a foreign market, you are at risk of being locked into the currency of that country. For example, if you have a decent amount of money invested in the Euro, and the Euro value decreases, your equity will also decrease.
Fluctuation
As some countries struggle with political and economic conflict, this tends to create instability in the market. For instance, take the recent example of Brexit. When Brexit was passed, the stocks in Europe dropped significantly. Unfortunately, there were a lot of investors who lost money, and all they could do was sit back and watch it happen.
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