7 Tips for Investing in Foreign Markets

If you have foreign investments abroad, you probably already understand what a headache it can cause—especially if you’re the one doing all the financials. When you’re just starting out with foreign investments it’s easy to overlook things. You may overlook certain forms to file, best practices, and even potential cultural factors. All of these elements play an important role in investing abroad.

Investing abroad can be an excellent way to make additional revenue streams and diversify your funds. However, if you’re new to the foreign investment game, then pay heed to these tips.

Understanding T1135 Penalties

If you’re a Canadian resident, then you’re more than familiar with the CRA. But are you familiar with their T1135 form? This form is vital to file for those who have more than $100,000 CAN in overseas investments. If you don’t file this, you’ll have to face some pretty strict T1135 penalties.

One of the penalties you will face is a payment of funds, that can cumulate up to $25 per day until the form is filed. In order to avoid this, make sure to get your form in on time, or at least ask for an extension. If you’ve already filed a Voluntary Disclosure Agreement with the CRA, then you may not need to file a T1135.

Hire an Expert to Manage Finances

Investing abroad is complicated business. It’s too easy to miss something important that could harbor serious financial—or even personal—consequences. The best way to avoid this is to find a foreign tax expert to manage your accounts, or to at least review them on a regular basis. By simply removing this headache you’re going to reduce a lot of unneeded anxiety and worry in your life. Tax experts are often quite affordable, too.

Investing Abroad Is Playing The Long-Game

If you’re investing abroad, you’re making a smart move. Why keep all your funds in one market? However, you shouldn’t be doing this to make a quick buck. Investing abroad is a long-term game. You should be thinking decades. One reason for this is that the price-to-earnings ratio (P/E) is much lower in other markets than it is in the United States. As a result, you should focus on buying the cheapest stocks if you’re in your 20s and 30s and wait them out.

Diversify Often

When you invest, diversification is absolutely key. The reason for this, of course, is that markets are unstable. These unstable markets could crash anytime, so it’s important to spread out your funds as much as possible to limit any financial damage you may incur. For instance, no one really knows if China is in a bubble or not, but there’s definitely speculation.

This means that if you have your funds split between only the United States and China, you’ll lose half your portfolio when China crashes. It’s important to look into other markets such as India, which has been showing some impressive growth as of late. The only way to stay somewhat safe while investing is to diversify.

The Best Time to Invest is Your 20s and 30s

If you’re contemplating investing abroad and you’re a 20 or 30-something, you should definitely take the plunge. Think of it this way, this is the time in your life when you’re going to have the most expendable income. Our 20s and 30s are the most productive times in our lives.

Especially for those who don’t have kids, we have far more money to take risks with as well. If you are aggressive with your foreign investments, then you’re going to have the most time to rebound from them if they don’t succeed compared to your 50s and 60s.

Have an Understanding of Your Goals

What are you trying to accomplish by investing abroad? Are you looking to make a comfortable retirement for yourself, or are you there to get rich? Many people invest in stock markets abroad in order to provide cozy retirements for themselves. It generally seems to be a smart way to approach retirement savings.

But there is surely a lot of money out there to luck out and make millions. Create a roadmap of what you’d like to accomplish with your foreign investments and make a plan to accomplish this. You can’t achieve your goals by simply investing without a strategy.

With Foreign Investments Comes Complexity

Investing in foreign markets is much more complex than simply investing in the S&P 500 companies on Wall Street. There are going to be annoying extra hurdles you need to jump over with the government, research into the health of foreign markets, and even more speculating about how successful something is going to turn out for you. Take the time to read a lot of literature and understand the importance of your gut so that you make the right choices.

Investing abroad is an excellent way to diversify your funds. Between the lower price-to-earnings ratio, exploding markets in countries such as India, and dirt cheap stocks it’s an enticing opportunity. However there are plenty of things to be aware of such as extra government forms and knowing how long to keep your stocks going.