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Sound Advice: June 21, 2023

International Investing

International investing refers to the practice of investing in assets outside one's home country.  It has gained significant popularity in recent years due to increased globalization and the growing interconnectedness of financial markets.  Investing internationally offers several advantages and opportunities, but it also comes with unique risks and challenges.

One of the key benefits of international investing is diversification.  By spreading investments across different countries and regions, investors can reduce their exposure to country-specific risks and potentially achieve more stable returns. Different countries have diverse economies, industries, and market cycles, which means that while one country may be experiencing a downturn, another may be flourishing.  This diversification can enhance the overall risk-adjusted return of an investment portfolio.

Moreover, international investing allows access to a broader range of investment opportunities.  Investors can tap into rapidly growing economies, emerging markets, and industries that may not be available or well-represented in their home country. This can provide exposure to new technologies, consumer trends, and innovative companies that have the potential for substantial growth.  Additionally, investing internationally can offer exposure to different currencies, allowing investors to take advantage of exchange rate movements and potentially enhance returns.

Even so, international investing also entails certain risks.  Political and regulatory risks can vary significantly across countries, affecting the stability and profitability of investments.  Currency fluctuations can impact returns, as changes in exchange rates can either amplify or dampen investment gains or losses.  Moreover, cultural and language barriers, as well as differences in accounting practices and legal systems, can pose challenges for investors unfamiliar with the international market.

To navigate these risks, thorough research and due diligence are crucial.  Investors should analyze the economic and political stability of target countries, assess the regulatory environment, and understand the potential impact of currency fluctuations.  It is also advisable to consider the expertise of local investment professionals or utilize international investment funds managed by experienced professionals who are well-versed in the nuances of international markets.

Overall, international investing can provide diversification benefits and access to new investment opportunities.  It does, however, require careful consideration of the associated risks and challenges.  Investors should approach international investing with a long-term perspective, conduct extensive research, and seek professional advice to make informed decisions.  By doing so, they can potentially enhance their investment returns and participate in the global economy.

N. Russell Wayne, CFPÒ

Any questions?  Please contact me at nrwayne@soundasset.com

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