STOCKS - Global Investing

                                        Global Investing

Although global investing may seem attractive, investors have to take into
account certain risks. Even though financial advisors recommend that investors
should have 20% of their portfolio in foreign stocks, you need to be aware of
the risks.

First of all, you need to take into consideration the differences in accounting
systems. Countries will have different ways of handling investors and keeping
track of their money. Their systems may be confusing for U.S. investors and
cause mix-ups when they look at the financial statement of a foreign company.

Second, you must also accept that you may not get the best prices for your
trades. The volume of smaller markets is considerably lower than that of the U.S.
In the U.S., your orders are quickly filled at your desired price. However, in
foreign markets, the price you want may be different from what you end up paying.
Since fewer investors trade in some of the foreign countries, the stocks are
less liquid, giving you a lower chance of meeting your bid or ask price. The
prices at which shares are bought and sold tend to produce lower profits because
investors may not be willing to buy for such a high price or sell for such a low
price. This causes a larger spread, the difference between the bid and ask
prices.

Third, you need to be aware of other risks, including economic and political
problems. In recent years, investors in Asian stock markets have been greatly
hurt because of the region's financial crisis. Countless countries are also
suffering from political meltdowns. For example, Brazil's economy is
questionable because of the upcoming Congress elections in October. Investors
are curious whether the Congress will focus on major economic proposals. If not,
the stock market could greatly suffer. Nearby, Latin American investors are also
suffering. The government is too busy dealing with other problems that it doesn?t
want to deal with corporations and investors. The government has also made no
effort to protect shareholders rights. This neglect has put the Latin American
stock markets on shaky ground.

Another problem is the numerous number of different currencies throughout the
world. Even each country in North America has its own currency including the
Canadian dollar and peso. Asian and European countries are no different. Just
like the U.S. dollar, the values of foreign currencies are constantly changing.
Also, investors may be informed of the exchange rate too late for their desired
order to be executed. Furthermore, an investor may have made a profit in the
foreign currency, but the ever-changing dollar could result in a loss after
conversion to American dollars. For instance, you buy the Italian stock Tiscali
at 50 euros per share and sell a few months later at 60 euros per share. That
would be a 20% gain for an Italian investor. A U.S. investor would make a larger
profit if the dollar was worth $.95 for every euro as opposed to $1.10. However,
if the dollar was $1.50 per euro, a U.S. investor would have lost money.

Investing globally can be hard to resist, especially with the wealth of
opportunities overseas and the ease of trading. Nevertheless, investors also
need to be aware of some risk factors. Aside from the political, economical, and
currency risks, confusion can arise just from different financial reporting
practices. Countries will have different systems from the U.S., and investors
just need to be ready to deal with them.