Question

When investing overseas for the first time what were your first thoughts? How do you measure the risk vs return for an international market investment? What actions will you take to minimize the level of risk? And What actions will you take to gain a high return from this international investment? Are there certain guidelines you follow that when investing overseas, and what are a few of the ventures that you would never ever undertake and why?

Answer 1

The Thoughts at the time of First Time Investing In International Market

a) The Reason of Investing in comparison with Domestic Market :

1)Diversified Market .

2)Higher Growth

3)More Options

b) The Process of Investing

c) Types of Risks & how to Overcome those.

d)How analyse overseas investment

e)Taxability on foreign Income

Measure the risk vs return for an international market investment

Risk is always there at the time of Investment.The reason of risk arrising are :

- due to loosing your initial investment

- due to receiving a lower return than the expeced growth return

- due to receiving a lower than expected income

Basically type of risks vary based on the type of assets.The investor always find for that stock which would give a good return with less risks but it never happens becouse risk and return both are positively related.This means a low risky stock would always generate a low return and vece-versa.

Management of risks

1) Diversified Investment.By this way one can invest in variety of stock.So the positive return received on any stock can be offset the negative return received from any other stock.It maintains the balance of your losses.

2) Management of risks also depend on the longevity of the investment made.Three type of time frames are there:

- Short term Investment ( 1-3 years)

- Medium Term Investment (3-5 years)

- Long Term Investment ( more than 5 years)

If an investor is having many years to invest his money ,he/she may be prepared to take more risks.In this situation, with more time to ride out any short-term fluctuations in investment returns, you have the opportunity to get the benefit from the higher expected returns offered by growth investments such as shares.

on the other hand, the investor has few years for investing, He/she is generally investing for the short term and security may be more important than higher returns. Accordingly, he /she might put a greater emphasis on placing his investments in short-term, more secure assets, such as cash and fixed interest.

3) An investor should review his plan regularly.Once developed, his investment strategy should consider all aspects of his personal situation. If his conception is changed due to the market behaviour he should update his plan accordingly.

Actions to gain a high return from this international investment

1) Analyse the past performance of the stock for which you are going to invest.

2) Use Passive strategy which allows an investor to buy company shares and hold them for a long period.In the long term equity market gives a good return.

3) Select a universe of equities and rank them according to their alpha factor.After ranking long the top percentile and short the bottom percentile.

4) Investment in any company shares based on the futue dividend forecast to be paid.Companies which pay consistent dividend tend to have the less volatile share prices.This strategy is called Dividend Growth Investing.

5) Invest in Small Companies share.It has been seen that smaller companies have higher returns.The best return by market cap-size are from micro companies.Small Companies with low P/E ratio is having the highest assets to market cap.

Every Investors should follow the guidelines issued by the Central Bank of his/her own country as well as the country in which he is going to invest.