5 Mistakes to Avoid When Investing Offshore
Investing offshore can be lucrative if you do it right. As an investor it is good to venture out of your comfort zone and invest in foreign instruments, stocks and realties, especially, when the options for such investments are easily available.
Though offshore investments are considered less risky with greater returns the lack of familiarity with the foreign markets can lead to uninformed investment decisions which always lead to financial blunders. To avoid such complications and losses here are 5 mistakes that you need to avoid while investing offshore:
1. Lifestyle Purchases- Not an Investment
Most of the time, you may visit a foreign country and literally be swept off your feet into buying a new condo in your new favourite holiday destination. Real estate investment based on a traveller’s wimp is hardly fruitful.
Real estate investment goals are not the same as buying your second home. You need to think about the return on such investments, taxes applicable on purchase and sale, the real estate laws and practices followed in the region etc. before you invest in the real estate of another country.
Also, buying a property in an emerging market does not guarantee that the prices will soar and vice versa.
Also Read: Why Investing in Silver is Good Strategy
2. Confusing a Country’s Economy with its Stock Market
A growing economy does not translate into a bullish stock market. The stock market is not a platform through which you can hope to gain advantage from a growing economy.
In whichever country you are from the stock market of that country rarely functions on the factors that influence its economy. For instance, a disinvestment of funds from the FIIs from the stock market of a country can result in an immediate crash in the stocks but may not faze the economy in any way whatsoever.
3. Going the Easy Way
Investing in Mutual Funds and ETFs of other countries may be the easiest way to gain from the emerging offshore market. But buying the MFs and ETFs without knowing the portfolio of the investment vehicle is like buying a car without considering the mileage and engine capacity.
For instance, you may want to invest in the MF in an emerging Asian market but there is a possibility that the MF in turn is not investing in emerging industries or does not simply have the correct balance in portfolio.
Here the best option is to get acquainted with the local market, the instrument portfolios and contact a local broker for best deals.
4. All Index Funds are Not Cheap
If you think going for index funds will solve all your portfolio related worries, think again. Most index funds invest in top companies without spending any time or money in identifying the performance rate of the particular companies, hence, putting your money at risk.
Also, most index funds charge a low annual fee which translates into returns as compared to other funds. But all such funds are not bargains. Therefore, when you are buying an index fund from a local broker you must compare the charges being levied by similar funds as you may end up overpaying when there are other lucrative options available.
5. Investing Without Comparing Prices
As a tourist you may have loved the place you visited and must have also found the prices to be just about right for your investment escapade. But have you considered all your options before finalizing. For instance, buying a property in Thailand without considering the real estate potential of Malaysia or Cambodia. Without considering options in neighbouring lands buying a property in a holiday destination is no better than picking a trophy.
All investments are subject to market risks and hence there is need to understand the market and its risks before your invest your hard earned money.