There are several good reasons to make investments outside of the USA. If the USA gets involved in a trade war you might want to have assets in other nations. And, of course, the US stock market has had a great run but is well past over-priced and already starting to correct. The old saying is that there is always a bull market somewhere and investing offshore is one way to make sure that you do not miss out.
An excellent idea and the first of our three reasons to diversify your investments offshore is to avoid having all your investment denominated in US dollars.
The second of our three reasons to diversify your investments offshore is that, if you are from North America, Europe, or Japan, there are faster growing economies and faster growing markets than back home.
The third of our three reasons to diversify your investments offshore is to look for a tax haven or two. It is certainly possible to bank, set up a business, have a retirement, and/or retire offshore. There are many so called tax havens in the world. The term, tax haven, means that a country offers a set of tax advantages. Not all are alike.
With the dollar on the decline, the US stock market weakening and a trade war looming, how can you investing foreign companies or other foreign assets in order to diversify your investment portfolio?
The easiest way to get a piece of the action offshore and never leave the US market is to invest in multinational companies like 3M, Procter & Gamble, or Coca Cola. By investing in highly diversified companies like 3M, consumer goods companies like P&G, or a beverage giant like Coca Cola you also can avoid the pain awaiting the high tech darlings as the market corrects.
Direct Investment in Foreign Companies
The big money goes for foreign direct investment. Even if you do not have the capital to invest directly in projects offshore it is instructive to see where the smart money is going.
Follow the money is age old advice for knowing why something is happening. In this case we would like to follow the money that goes into foreign direct investment. Foreign direct investment is done by folks with lots of money and the intention to stay a course and make a profit. If you are looking for offshore investment ideas, take a look at where foreign direct investment goes year after year after year. There have been changes afoot regarding where foreign direct investment is going. A very useful reference in this regard is the just published United Nations study, World Investment Report 2013. We have used 2007 and 2012 as bookend comparison years as 2007 was just before the onset of the worst recession in three quarters of a century and 2012 is the most recent year reported.
The most recent report is 2017. Take a look to see where people in the know are investing offshore.
American Depositary Receipts
You probably do not speak Portuguese, German, or Japanese. And you probably are not going to fly to another country to check out the investment opportunities. Likewise, you are not going to be able to deal directly with a stock broker who does not speak your language. But, there is a solution for how you can invest in foreign companies and that is to use American depositary receipts. These are negotiable certificates issued by US banks. Each certificate represents shares in a foreign company. The beauty of using this vehicle to invest in foreign companies is that they are like buying US stocks and provide the same sort of information that you expect from a US company listed on the NYSE or NASDAQ.