Capitalizing Upon Investments in the World Markets
Today, investors have more opportunities to invest around the world than they ever did any time through history. Through mutual funds, exchange traded funds, and even with online brokerages, traders are allowed access to exchanges like the London Stock Exchange, Toronto Stock Exchange, and even in exotic instruments like the Dubai Stock Exchange. Digitalization of trading has made it possible to be invested all around the world from the comfort of your home.
Exchange Traded Funds Make Investing Easy
One major step towards the globalization of stock exchanges was the development of Exchange Traded Funds (ETF). Exchange traded funds operated like mutual funds, but instead of buying into a mutual fund through the company, you can buy into an ETF just like you would buy stock. ETFs are offered on a plurality of stock exchanges,;the New York Stock Exchange and NASDAQ, as well as the American Stock Exchange have plenty of exchange traded funds ready for investment.
Exchange traded funds represent holdings in various industries and geographical areas. Some funds cater to emerging markets, while other track the London Stock Exchange and others follow specific parts of the world. Want to invest in Latin America? That's as easy as buying the ETF from iShares known as the Latin America 40 Index. It tracks the performance of individual stocks and stock exchanges in the Latin Americas and provides an easy entry into the area. Average volume for the ETF is huge - at about 2.5 million shares per day, there are plenty of players in the global financial markets.
Overseas Means More Risks
Investing in the world markets does carry some risk. In politically unstable countries, it is chancy that your investment will pan out well. Remember when Russia started nationalizing oil fields at the cost to shareholders? That challenge remains steady even today in the world's hottest market, China. The Chinese economy continues to grow at a 10% rate, but many of the firms have been nationalized and are not near as productive as they once were.
Inflation in Emerging Markets is a Worry
Another risk to your investment is inflation. Investing in developing countries means you have to produce a return that beats their inflation rate. Though Latin America is heating up, inflation rates run as high as 12% per year. Beating those kind of odds can be difficult, but proves to be extremely profitable when done correctly.
Don't Forget the Exchange Rate
Investing in world markets means that you must be privy to changes in exchange rates. If your European stock fund is up 20%, that return could be erased by a changing exchange rate. Always consider the strength of both economies and the current exchange rate to get the best returns for your investments.
Investing around the world can be dangerous, but it can also be profitable and a fun way to be invested in the growth of emerging markets. Diversifying your current portfolio around the world will also help buffer your domestic stock holdings in the case of an economic turnaround. In these times, there is no reason not to keep a worldly perspective when investing - you'll be more diversified, better informed and likely more profitable.