Why Invest Overseas in the First Place?

There are a number of wealth creation opportunities in Australia and many Australian companies invest overseas. But to achieve true diversification you need to participate in the international markets. If you don’t you are only in 2% of the global market potential.

That means you are missing out on 98% of the world’s investment opportunities.

Australia is only 2% of the Global market.

Opportunities in Different Economies and Companies

There are many world class companies that simply don’t exist in Australia, thus you are unable to take advantage of their vast wealth management. Think IBM, Google, General Electric.

There are also different sectors that may not be represented here in Australia by any domestic company. Think technology and biotech. Australia may not have a competitive advantage in these areas. Competition is much greater in the US and Europe compared to Australia.

As we are all aware world economies do not all grow at the same time or rate. Different circumstances occurring in different economies allow us to change our portfolio mix to take advantage of economic cycles, e.g. Japan would not have been part of your portfolio for the past 10 years, but may well be worth being part of your wealth creation process.

Pity the poor residents of Japan who did not invest overseas. They have seen their domestic sharemarket fall continually for the past 10 years.

We are not limited to our own economics. The idea of overseas investments being risky has completely changed. If you are not investing overseas you are taking too much risk.

So What Are the Risks?

The main risks are that you are investing in good companies but the economic cycle is slow or declining. The other obvious risk is currency.

If you buy overseas today you are subject to movements in currency. So broadly speaking if the value of the Australian dollar falls against the currency of your selected investment then the value of your international investments will rise in Australian dollar terms. Conversely, if the Australian dollar rises against the currency the value of your shares / investments will fall.

So How Can I Boost My Wealth Management and Invest Overseas?

There are a number of ways you can invest overseas. Let’s look at how to take advantage of offshore investing.

1. Buy shares in Australian companies that invest overseas

Many Australian companies invest overseas. They may be by exporting or they may have physicality in another country and generate revenue there.

Invest with Australian companies that supply international companies with products from Australia. Examples of this are BHP, Rio Tinto, Aristocrat, CSL. These companies and many more can simply be bought through a broker here in Australia.

2. Buy International managed funds

Some of the best fund managers in the world are overseas (and they are paid accordingly). Unfortunately the world’s best don’t work in Australia. You can take advantage of their expertise and skills through managed funds.Some overseas fund Managers have achieved high returns regardless of the market conditions. Berkshire Hathaway (Warren Buffet) has achieved over 20% p.a compound growth for the last 25 years. Peter Lynch has done the same for the past 15 years

Most of the large global institutions have international managed funds which allow you to invest overseas in many economies and sectors, e.g. US energy stocks, manufacturing in Japan, IT in Korea. There is a fund to suit all sectors and all economies. This is why it pays to understand the economies and sectors you are investing in (or obviously delegate it out to your adviser to help you make the choice).

3. Buy through an Australian stock broker

If you want to purchase direct shares overseas you may want to do so with a broker with the Australian Stock Exchange. This is the ASX world link service. There are a few more details and forms to complete to open an account and the cost to buy and sell is more expensive than Australian shares. But once you have an account open, a share in an international company is only a telephone call away.

4. DIY investing – set up your own account through an institution

Serious wealth creation investors who would like to buy and sell international stocks can open up an account, e.g. Comsec. Once you have the account open you can trade 24 hours a day with the click of a mouse. The trades will be settled via an account that you nominate.

There is a whole world of investing out there – just don’t look in your own back garden.

About The Author
 

Venn Williams is a director of Halogen Private Wealth Services Pty Ltd. and an authorised representative of Australian Investment and Financial Planners (AI&FP) Venn is a senior member of the Financial Planning Association (FPA) and a member of the Australian Institute of Company Director’s (AICD).

Visit his website sites at www.halogen.com.au