Emerging markets zig when the U.S. economy zags. Put another way, people look to invest abroad whenever the United States faces a downturn.
As someone who likes to travel, I wanted to share some personal experiences with investing abroad. As well as highlighting several hidden risks that international investors face.
Here are five factors to consider.
1. A Great Place To Live Isn’t Always A Great Place To Invest Your Money
I love Argentina.
It’s a beautiful country filled with exotic animals, friendly locals, fantastic nightlife, and big steak dinners.
It’s also a country that routinely experiences hyper-inflation and vendors give deep discounts if you pay with U.S. Dollars. A fun country, but not necessarily a great place to invest.
You could buy U.S. Treasury Bills or regional utility stocks and outperform the Argentinian economy.
Many countries are fun to visit but have underlying economic issues that make them unappealing to invest in. And stalwarts like the S&P 500 or high-yield bonds will outperform the local market.
2. Beware Of Taxes
Taxes are boring.
Which is why I’m keeping this brief.
Depending on where you live and what international market you invest in, you may be subject to a “Foreign Withholding Tax.”
These can get pretty steep.
Switzerland has a 35% withholding tax on its dividend stocks. So if you own shares of Nestle and were expecting $100 in dividends, you’ll only receive $65.
I like Chilean stocks, because of their high dividend yields — I’m currently eyeing a company Enel Chile S.A. ($ENIC) that’s yielding 11.17%! — but Chile also has a 35% foreign withholding tax.
Sometimes it may be easier, and more profitable, to buy a comparable company in your own local market. Since you won’t lose 15–35% of your cash…