Learning how to invest in international markets can increase your returns and give you exposure to countries that are growing at a faster pace. For example, investing in international companies allows you to take advantage of favorable economic and political conditions that help these companies grow faster than their counterparts domestically. But before you invest in international stocks and bonds, you should understand how international markets differ from domestic markets.
One of the biggest differences is the level of liquidity. In international markets, you have to pay tax in the country that issued the stock. If you sell it for a profit, you will most likely have to pay taxes in the country from which the investment originated. However, this tax is usually minimal and does not limit your gains.
One of the best ways to invest in international markets is through index funds. These funds track various types of markets and can be purchased through most brokerage accounts. When you are new to international investing, it’s best to start slowly and use dollar-cost averaging to increase your exposure. This method allows you to buy investments without having to make large purchases all at once.
Investing in international markets can be risky, however. Currency exchange rates in other countries may fluctuate drastically, and your investment may not generate as much profit as you would in a U.S. market. You should also be aware that currency conversion costs are higher, which will increase your expenses. As a result, you may need to spend more money to invest in international stocks than in U.S. securities.