Research

Should you globe-trot your dollars?

The pros and cons of overseas investments.

Thinking about expanding your existing portfolio into international stocks, property or business interests? It’s important to understand that moving investments outside of domestic markets is not an option suited to everyone.

As with all investment choices, diversifying to international holdings is a move that involves both risk and reward. Your own unique financial situation should always play a strong role in weighing up any decision.

Some of the risks and rewards of expanding into overseas investments are briefly outlined below, although it remains important to consult a finance professional before making any alterations to your portfolio.

Pros

  • Diversification: Put simply, if the domestic economy falters, having a cache of international stocks will provide a buffer. A purely domestic portfolio would leave itself more vulnerable to domestic volatility.

  • Tax relief: You could reap the rewards of more relaxed tax requirements and strategic incentives. The scale of tax compliance for international investments is lowered in some countries as a means of incentivising foreign investment – which in turn enriches the host nation’s domestic economy.

  • Opportunities: In an increasingly globalised economy, limiting yourself to domestic options could mean missing out on broader opportunities within the international marketplace.

  • Confidentiality: Keeping a low profile can be an advantage for investors with overseas interests. Some international markets adhere to stringent corporate confidentiality, providing additional discretion and privacy.

Cons

  • High Risk: Less regulation compared to a domestic market can represent a double-edged sword. On one hand, processes may encounter less obstruction and flow more smoothly. On the other hand, there is an added degree of uncertainty. External volatility, such as civil unrest, changes in government or even natural disasters can facilitate economic changes – including the possibility of a recession.

  • Ongoing Costs: There are costs associated with overseas investments. Transaction fees and management fees – and many other fee varieties – tend to be higher overseas than they are domestically. It can all add up to a make a noticeable dent in your bank balance. Do your research beforehand and read the fine print.

  • Currency Risks: You need to consider the reality that currency variations could potentially impact your returns, especially if you are approaching your investment with a short term view.

For more information on international and domestic investment opportunities, please contact your Morgan Stanley Financial Adviser.

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