Definition of International Investment

An international investment involves buying securities that originate in other countries.
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International investing is a type of investment that involves purchasing securities that originate in other countries. This type of investment is popular because it can provide diversification and opportunities for superior growth. There are many different ways to invest internationally including through mutual funds, exchange traded funds (ETFs) and American depository receipts.

Function

International investing is a procedure that many investors choose to get involved in by investing money outside of their domestic market. For example, instead of holding a portfolio of only domestic stocks and bonds, an investor could purchase some stocks from a foreign country or buy shares of a mutual fund that specializes in international investment.

Types

There are several ways that you could choose to invest internationally. Mutual funds and exchange traded funds are one of the most common methods. This allows you to invest money in a fund and then the fund manager buys foreign investments. Another method is the American depository receipt. This is an investment in which an investment bank purchases shares in a foreign corporation and then issues domestic shares that can be traded on the stock exchange.

Benefits

There are a few benefits that you can realize by investing internationally that may not come with traditional investments. By investing internationally, you can diversify your portfolio more than you could with only domestic investments. If the economy of your country performs poorly, having money in another economy can keep the value of your portfolio up. Another benefit of this type of investment is that it can provide large amounts of growth. Many investors focus on emerging markets of the world where there is ample opportunity for growth.

Warning

There are some risks associated with international investing. One of the most prominent risks is the risk of changes in the exchange rate. If you invest in a foreign bond, for example, by the time you get your principal back, the exchange rate could have moved against you and your investment may not be as profitable as you had hoped. Many foreign companies also do not put out as much information for investors, so making an educated decision can be difficult.

Liquidity

Some types of foreign investment also have lower than average levels of liquidity. When you trade domestic stocks and funds, you generally have plenty of traders to trade with. With some foreign stocks and American depository receipts, there is a low amount of volume, which could make it difficult to buy and sell your shares. This makes some forms of international investing a more riskier form of investment than many would prefer.

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