Investing globally – the risks and rewards
There are many different ways you can choose to invest. Many investors make it a point to diversify their portfolio overseas to cushion their investments against local risks. But putting your money in places you can’t see also comes with its fair share of uncertainties, including foreign exchange fluctuations, taxes, and policies that you may be unfamiliar with.
In this article, we outline some of the major drawbacks and benefits of investing globally to help you understand the key things to take note of before venturing overseas.
Spreading out local risks
One of the biggest reasons why investors choose to invest overseas is to spread out local risk. Financial investments, especially higher investment types, can fluctuate according to the perceived risk in a country. Changes in governance, interest rates of short term loans, and even natural disasters can affect the value of your investments much quicker than you think.
To mitigate such risks, investors often spread out their investments by putting their monies in a few different countries. This way, even if instability occurs in one country, you can still look to reap gains from your other investments from across the world.
Greater variety of assets and tools
Abroad, there may be a greater variety of financial tools and instruments to choose from. SPACs, for example, have only been made legal in some countries, including the US.
SPACs, which are essentially shell entities created by investors to raise money through an IPO, have been rather popular among investors seeking better investments in a low-interest-rate environment. However, they are not yet available in Singapore, pending reviews from the Singapore Exchange.
Investing overseas could thus give you more choices and variety in investing.
Investors who wish to venture overseas must however bear in mind that there are many costs to be aware of. They include fees incurred to convert currencies back to Singapore dollars, management fees (ranges according to different brokerages), and other administrative fees. You may also be required to maintain a minimum wallet balance/ deposits when you invest in assets overseas. This can be quite risky for individuals who may not have sufficient capital on hand to keep to the minimum balance, which if not maintained, will result in forced closure of current open positions for stocks.
However, there are some outlets where you can obtain cash quickly, such as legal loans in Singapore, which have a monthly interest rate of up to 4%. There is also a myriad of legal money lenders you can choose from to suit your own needs.
Overcoming investor risk
One of the ways you can manage investors’ risk when you decide to invest via financial instruments abroad is to keep yourself updated with current affairs. There are a few free business wires you can look out for, or even local papers which will allow you to keep tabs on what’s happening around the world. Markets are highly reactive and events that happen in one country can have a trickle effect on others, so take note of things that happen even in places you didn’t park your money.
Decide on your goals before investing – what is the target return of investment and how long would it take you to achieve it? Setting out investment goals and rules can help you plan and account for the costs in between, such as how much you can afford to invest and when to make a stop-loss call.
The Bottom Line
As a savvy investor, you should only invest what you can afford to. But in times of need, you may also look towards legal money lenders which offer legal loans in Singapore. These instruments can help you to obtain short-term loans to tide through an emergency.
There are however different types of loans and you should do your due research before taking on loans from legal money lenders, such as interest rates and terms of repayment.
While investing overseas could promise higher rewards, do remember that it also comes with its fair share of risks, as all investments do.