Globalization Levels the Playing Field for International Investors
We have many international readers who want to build wealth with investing. The pros of international investing are broad, yet, I’m sometimes guilty of assuming that investing is the same for all. Many readers outside the U.S. want information about the pros of investing globally, and how to get started. More specifically, our international readers want to understand the benefits of investing in the U.S.
This article looks into the pros of globalization for international investors. We’ll look at the hows and whys of international investing, from a foreigners viewpoint.
Must read; The Positive and Negative Effects of Globalization>>>
Why Foreigners Invest in the U.S.
In a National Bureau of Economic Research (NBER) paper MIT Management Professor, Kristin Forbes asks, “Why do Foreigners Invest in the U.S?” One topic the article discusses is a foreigners possible affiliation with the U.S., but there are several other reasons why foreigners invest in the U.S.
1. Reduce Risk
Just as U.S. citizens are encouraged to invest internationally, to diversify risk, the same premise holds true for international investors. Although U.S. and international markets have recently become more closely correlated, it’s still wise to diversify away from one’s own region. Correlations measure the degree to which investments’ returns move in the same direction or different directions. In theory, investors reduce risk in their portfolio’s when they invest in less correlated securities.
2. Participate in Wealth of U.S.
Although the U.S. is among the wealthiest nation in the world, it holds one third of the world stock market. This country is a popular draw for international investors. Although the U.S. isn’t growing as rapidly as some less developed countries, the U.S. offers a desirable level of stability. If the U.S. continues to grow and prosper, then owning a piece of the the U.S. stock market allows investors world wide to participate in the prosperity of the U.S.
3. The World is Small
Many U.S. companies are actually global brands. With trade barriers falling, and companies expanding beyond their national borders, international as well as U.S. investors benefit from international investing. As I travel abroad, it’s fascinating to see U.S. brands represented across the world. There were more Swenson’s ice cream parlors in Bangkok, Thailand, than I’ve seen in the company’s original San Francisco home. We frequently buy our bottled water and snacks at the Seven Eleven when traveling abroad.
As U.S. companies continue to expand internationally, it makes sense that foreigners want to prosper from these global companies, frequently operating on the foreigners’ home turf.
Clearly, the pros of globalization for international investors are vast. Fortunately, with the wide use of the internet, owning U.S. stocks and securities is easy to accomplish.
Read about: International Stock Investing Guidelines >>>
How Can International Investors Invest in the U.S.?
Many large domestic investment brokerage companies allow non-residents to invest in U.S. stocks. According to Zacks research firm, if you are a non-citizen living outside the U.S. you need to provide basic information before opening an account; a passport for identification and IRS Form W-8BEN. Specific brokerage companies may have individual requirements.
There are countless discount brokerage firms, many of which will offer assistance to international investors. Personally, our family holds accounts with TD Ameritrade, Schwab, Fidelity, and Vanguard. After all, these firms appreciate additional investors, from the world as well as the U.S.
One extra caveat to remember; when foreigner’s invest in the U.S., they need to be aware of the U.S. tax issues as well as their home country’s regulations.
The Takeaway-Pros of Globalization for International Investors
As the world shrinks in size with international travel, e-commerce, cross boarder alliances and global commerce there are countless pros of globalization for international investors. A diversified investment portfolio is beneficial for all investors, U.S. based and foreigners.
A version of this article was previously published.
