Investing internationally can lead to higher returns, but carries risks due to economic and political conditions. One way to access foreign assets is through American or Global Depository Receipts. Mutual funds and ETFs can also provide exposure to international markets while minimizing risk.
It is very likely that the best returns, or profits, are not confined to an investor’s home economy. Subsequently, international money management could create opportunities for higher income and returns. There are risks, however, as the performance of overseas investments other than foreign currencies is vulnerable to economic and political conditions that exist in other nations at any given time. However, there are definite ways to handle money internationally and in some cases an investor doesn’t even need to set up an account overseas.
One convenient way to get international money management is to get exposure to foreign assets in the domestic stock market. One way to achieve this is to invest in financial stocks known as American Depository Receipts (ADR) in the United States or Global Depository Receipts (GDR), which are mainly available throughout Europe. Although ADR or GDR securities represent the assets of some foreign entities, these securities are traded on local stock exchanges. By investing in ADRs and GDRs, investors can access international securities without having to open a brokerage account overseas. In addition, the trading and profits of Depositary Receipt Stocks are distributed in the local currency in which these financial stocks are listed.
International money management is not limited to investing in individual securities. Both individual and institutional investors can gain exposure to international markets through money management companies that oversee mutual funds filled with foreign securities. Investors can select portfolios that include stocks or bonds, depending on the types of returns desired and the amount of risk that can be incurred. An Exchange Traded Fund (ETF) is a type of mutual fund that can provide exposure to foreign markets, but is typically cheaper to invest than more traditional mutual funds. International money management including exposure to ETFs aims to deliver the average and similar types of returns to another market barometer.
There is an additional risk with investing in foreign markets. This is especially true in emerging market economies, where there is huge potential for growth but also instability as the political and economic structures in these nations continue to take shape. By selecting mutual funds, that risk can be minimized, which can help with international money management. Professional money managers often aim to achieve diversification across a fund, across countries or types of assets purchased. Even if the performance of some stocks is disappointing, there are other investments in the portfolio that can provide returns that offset any losses.
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