When to Invest in International Assets Essay

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International investing offers a unique opportunity to investors to diversify their portfolio, manage risk more effectively and take advantage of significant political, social and economic events in other parts of the world. However, international investing has some downside to it as well. This paper will discuss the pros and cons of international investing and recommend a best market to pursue for investors seeking to offshore at least some of their wealth.

The pros of international investment are that it can help increase an investor's total return in their portfolio. By adding assets international markets that are minimally correlated to investments already in a portfolio, one's risk is reduced. Mitigating risk is one of the most important concepts in investing, and the more that one can advantageously diversify a portfolio, the more likely one's return is to be positive.

International investments can be particularly appealing when an event occurs within a foreign nation's social, economic or political spectrum that will impact companies or other assets based in that region. For instance, the Russian stock market has nearly doubled since 2014 and for international investors the steady climb over the past 2 years has been a unique opportunity to benefit from strong leadership under Putin and a more advantageous role for the country in its dealings with China and Iran. Meanwhile the S&P 500, while achieving significant growth in the same time span did not quite measure up to the same returns.

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Moreover, the two markets do not share the same risks: the U.S. is much more deeply in debt than Russia, while the latter country's interest rate is more than 10x higher, indicating that Russian Government Bond 10Y yields would pay a much better return than a 10-year U.S. bond (Trading Economics, 2017).

The cons of international investment are that one can run into illiquidity in the marketplace and be unable to exit a trade at a desirable price. The same economic, social and political factors that can lead to potentially big returns can also flip and lead to potential losses. Investing overseas also brings with it higher fees from brokers than the fees normally associated with domestic investment. Currency risk is another issue: when investing overseas, changing the U.S. dollar for the foreign currency has risks associated with currencies rising and falling in value. Should more countries determine to the leave the EU, for instance, investment in the Euro could….....

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