September 30, 2015
International investing can be a challenging endeavor. From currency conversions to foreign regulations, the process can involve a lot of hassle. However, most financial advisers strongly recommend having at least some foreign investments in a diversified portfolio. Here are three options to consider for your first-time investment in foreign markets.
Consider Equity Crowdfunding Model in Emerging Markets
At some point emerging markets will inevitably draw your attention as an investor. The term, however, is really broad and can cover everything from big entering India or Brazil, to up-and-coming Vietnam and onto the new frontiers of Africa.
The particular lure for investors is faster growth. According to the International Monetary Fund, growth in emerging markets and developing economies is projected to increase up to 4.7 percent in 2016. However, the price of this growth is higher risks and volatility.
Equity crowdfunding entails micro-investments from a group of investors in return for equity in form of a certain percent of shares or partial ownership. For developing economies, a sum of just $1.500 could become a game changer. According to Dhaka Insider: “In Bangladesh, seed capital of Tk. 1,00,000 ($1.300 approx) is enough to start a small business. Sometimes 100 GB server space, costing less than Tk. 1,000 ($12.30) a month is enough to start an IT venture.” While in the Western world a seed investment of less than $10,000 is considered risk free. The risk free sum at the emerging markets can be one-tenth of this number.
Research the Most Lucrative Tax Relief Schemes
One of the oldest, yet rather attractive initiatives is the Enterprise Investment Scheme introduced by the British government in 1994, specifically to encourage investments in small unquoted companies. EIS scheme is specifically aimed at compensating the risks of investments in small companies offering no share stakes in a form of significant tax reliefs:
- Tax-free growth
- Tax relief from investment losses
- 100% Inheritance Tax relief
- 30% upfront Income Tax relief up to maximum investment of £1 million, which can be carried back to the previous tax year
- 50% Capital gains tax re-investment relief
The Irish government introduced a similar scheme Employment Investment Incentive (EII) that provides up to 30% income tax relief on investments up to €150,000 per year.
Buy Individual Foreign Stocks with ADRs
Using American Depository Receipts you can purchase as many foreign stocks as you like in form of U.S.-traded securities that represent ownership in the shares of foreign companies. The perks are as following:
- The shares are denominated in dollars and the dividends are paid in dollars as well, meaning to hassle and losses when it comes to foreign currency conversions.
- You don’t need to have a foreign brokerage account or hire a new broker.
- ADRs trade occurs during U.S. market hours and are subject to the same clearing and settlement procedures as American stocks.
- You can diversify your portfolio with companies from different countries and sectors.
Yet, ADRs investments options are somewhat limited as many foreign stocks are not available as ADRs and could only be purchased on foreign exchanges, such as the London Stock Exchange (LSE) in Europe.
Featured Image: epSos .de//Flickr
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