Diversifying your stock portfolio is always a good idea. And one way to do so is by investing in foreign markets. The U.S stock market consists of about half of the global stock market. So this means you are missing out on a huge amount of potential good investments by only investing in U.S stocks.
By investing in foreign stocks, you will be diversifying your portfolio in a new way to protect yourself against risk. For example, there could be instances in which the U.S stock market goes down as a whole, but the rest of the world is not impacted. Your foreign stocks may do just fine on those days, thereby giving you a more balanced and diversified portfolio.
Let’s explore some potential benefits and risks of international investing and review our top picks for international stocks you can invest in today.
Risks and Benefits of Foreign Stocks
As we mentioned above, investing in foreign stocks can be a great way to hedge yourself against risk and also potentially get some nice returns on your investment. For example, the Indian stock market has had some very large year-on-year returns, such as 21.5% in 2021.
We recommend reading this article on Times of India to learn some useful information about the markets in India. It goes over an investment fund based out of India and how it has grown to become one of the largest firms in the country so fast. Additionally, Times of India has many great stories about the Indian stock market you can read to learn more about investing in India.
Another benefit to investing in foreign stocks is the diversification that comes with it. When the United States stock market hurts, your international stocks could do just fine, making the overall returns on your portfolio for that day not as bad as it would be if you had just been invested in U.S stocks (even if those were diversified U.S stocks as well).
One risk to foreign investing is the differences in how stock markets work in different countries. Depending on what country you invest in, you could have a high amount of risk associated with your investment due to various factors including poor regulation, political instability, currency exchange rates, taxation, and more.
With that said, there are plenty of stock markets outside of the U.S. that have good regulation and relatively low risk. This is where we will be sourcing our top stock picks from.
Top Picks for Foreign Stocks
- Nintendo ADR
Nintendo is a large international stock, and also a relatively stable one. It has fallen in price over the past few years, which makes picking it up a potentially attractive idea for many investors right now. The company is based in Japan, and has a market cap of around $8.2 trillion JPY, or just under $58 billion USD.
- Taiwan Semiconductor Mfg. Co. Ltd.
While technically this is a foreign stock, it is also conveniently listed on the New York stock exchange, making it as easy to invest in as your average U.S.-based company stock.
The company has a market cap of $477.2 billion USD, and is obviously based out of Taiwan. They are a dominant manufacturer of semiconductors, and are the world’s largest semiconductor company, ahead of companies such as Intel and Nvidia.