If you’re looking for new investment opportunities, geography need not be a barrier. Because of the state of the UK economy in recent years, some investors have decided to look further afield in a bid for greater returns – and there are many different ways to invest in foreign assets.
One option for overseas investors is to invest in international index funds, which aim to track the measured performance of a particular international market index. But are they worth investing in – and what are the risks involved?
Why invest in international index funds?
Particularly in times of economic turmoil, some investors want to diversify their portfolios. Investing outside of the UK is one way to do so.
International markets may see rises and falls at different times compared with the UK. For this reason, some investors choose international index funds in a bid to try and reduce some of the volatility in their portfolios.
Others choose to invest in funds in economies that are growing, which may give them the potential for higher returns than domestic index funds.
What are the risks involved?
One of the big risks involved in investing in international index funds is currency risk. Exchange rates can fluctuate dramatically, which can have a significant impact on the value of your investments.
There are also big differences in regulatory requirements in different parts of the world. This means that – particularly for emerging markets – the risk of fraud or manipulation may be higher than in the UK. What’s more, emerging markets can also be more volatile than more established economies.
If you’re an ethical investor, it’s also important – as with any investment funds – to check which stocks your fund includes to ensure that you’re not unwittingly investing in businesses that go against your ethos.
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