Stocks of companies located in a foreign land are called foreign stocks. With the rapid advancement in technology, investing in foreign stocks and securities has become a lot easier. An investor in the US can invest in stocks of companies in Zambia, India, or China very conveniently.
Investing in foreign stocks gives limitless opportunities to investors to diversify their investment portfolios. The geographical diversification protects investors against concentrating all their investments into one region and thereby reducing risks.
Many investors still shy away from investing in companies they don’t know of and stock to the home-country bias, yet foreign stocks are forming an increasing segment of the investment portfolio of many investors, yielding high returns and spreading out risks.
Factors to Consider Before Investing in Foreign Stocks
Investors must remain aware of the risks, uncertainties, and volatility associated with investing in foreign stocks. Stocks of international companies are subject to different regulations, political risks, and effects of the economy. Therefore, investors must consider the overall economic scenario before investing in foreign stocks.
Additionally, investors must also remain conscious of the currency risks linked with foreign stocks. The returns on investments in foreign stocks get largely impacted by the fluctuation in currency. The currency movement may be in favor of investors, yet the risk must be taken into consideration.
In addition to the macroeconomic factors, investors must also analyze the foundational strength of foreign companies before investing in foreign stocks. The earnings and revenues growth, dividend yield, annual returns, P/E ratio, and other multiples should also be considered.
Which Foreign Stocks Should I Buy?
Stocks of many foreign companies trade on the US stock exchanges. Among the many options, we have shortlisted the best foreign stocks for you to select from. Investors must include foreign stocks in their portfolio to ensure diversification of risks.
Investors should buy foreign stocks that have demonstrated a steady EPS growth in the past few years, in addition to high average volume, and high market capitalization. Overall, foreign stocks hold strong potential for high returns and help to spread out the risks associated with an investment portfolio.