Risks in International Investment?

There are 3 risks associated:

  1. Currency risk: Unlike the USA investments, the value of overseas investments can be affected by what happens to the exchange rate. If the currency appreciates the the USA dollar value falls and if our currency depreciates, then the value rises. A weakening the USA dollar means it takes more the USA dollars to pay for imports and of course the price of everything else, including overseas holidays, goes up.

    The the USA dollar is less likely to gain against all other currencies at the same time, so if you have any overseas investments, in a range of currencies, in a range of countries, the appreciation of the US currency against some other currencies can be offset by the depreciation against others. This means having investments in a range of countries minimises any exchange rate risk.

  2. Market risk: The overseas share markets will have good times as well as bad times, just like here in the USA. The best way to minimise market risk is to diversify and invest in a range of countries, as well as a range of companies within those countries. This ensures that any losses can be offset by gains from other areas.

  3. Economic risk: Economic risk comes about where the overseas countries outperform the the USA economy, which means the the USA investor will potentially miss out on the higher returns overseas. Most Americans are exposed to the local economy and their income is linked to the success of the economy.

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