Investors are constantly encouraged to invest internationally, in a bid to maximize the total return on their investment portfolio. International investing has numerous advantages, but many are still unwilling to risk investing abroad. There are various ways to invest internationally, popular international investments include direct investment in foreign markets. mutual funds, exchange-traded funds; U.S. traded foreign stocks or American Depository receipts. Financial experts feel foreign securities add value to any long-term investment portfolio, however, foreign investments continue to present hazards to inexperienced investors. Here are the 3 biggest risks faced by international investors:

Fluctuations in Currency Exchange Rates

Investments appreciate or depreciate in value as and when the exchange rate between the American dollar and the currency of an international investment fluctuates. International companies trade and pay out dividends in the local market currency, hence the dividends received from foreign investments will be converted into U.S, dollars, as will the money raised from selling international investments. A weakness in the foreign currency impacts on the ROI, as monies earned are converted into fewer dollars, however, if the foreign currency strengthens this will increase the return on investment.

Transaction Charges

We may live in a well-connected globalized society, but transaction costs can fluctuate wildly and the fees charged often hinge on the foreign market chosen. In general, the brokers commission is higher and additional local market charges could include exchange fees, stamp duty, taxes, levies and clearing fees. Investors who pay a fund manager to oversee their financial portfolio will incur other charges, but a successful investment strategy usually generates profit.

Investment liquidity Risk

Liquidity risk is inherent in emerging foreign markets and the ordinary investor is unable to safeguard themselves from such danger.  If an investment attracts no buyers they may be forced to mark down the price to attract a buyer and the impending liquidity risk could result in massive financial losses. In the worst case scenario, the investor will experience an acute cash-flow crisis. Investors should shield themselves against liquidity risks by avoiding investing in businesses with potential liquidity risks and refrain from buying illiquid long term investments, unless they are in a position to keep them regardless of a recession.

Many investors buy international stocks to diversify their portfolio and a high percentage of international investments offer a good financial return. However, beginner investors may find it difficult to understand the international markets and the international trade law. Prospective foreign investors should minimize risk by learning more about the 3 biggest risks faced by international investors. Exploring the disadvantages of investing abroad will teach you how to avoid the hidden risks in the emerging markets, but investors should note diversification is a pivotal part of a successful investment portfolio.  At present there are numerous international investment vehicles that have potential to offer a good return and global investments are viewed as a worthy part of all inv