Investment risks and how to avoid it

The past several decades have created an opportunity for the average investor to move their funds offshore. From basic savings accounts to high risk investing, almost anyone can get in on the action.

Where there are people with money there are con artists looking to separate them. Historically the scams involved precious metals, penny stocks, coins, mining, currency speculation and foreign business opportunities. More recently, the hot investment scams involve the reconstruction of countries emerging form conflict.

It can be extremely difficult, even impossible, to recover funds lost to international investment fraud. Differences in marketplace regulation make even mainstream investments risky. Here are five keys to protecting yourself from international investment fraud.

Ignore the hype

Domestic or international, you should never invest in anything simply because the cool kids are doing it. Hot investments are the first thing con artists jump to copy. Ignore the hype, look past the headlines and remember what your investment goals are. If the opportunity seems too good to be true, or doesn't fit with your goals then pass it up. Your global lifestyle will bring you shinnynew opportunities, but don’t fall for the glitters.

Investigate them and you

You can't decide what is best for you if you haven't determined what your investment goals are and what level of risk you are comfortable with taking. Do your homework; investigate what you need now and in the future so you have standards to hold the investment opportunities up against. Then, investigate them. What regulations govern the investment? Are you protected? How do you resolve issues? What country, what administration, what department? Request to talk to existing clients if possible. It's important to know all the details of who you are dealing with now and who you will have to deal with in the future should issues arrive.

Do you have to go international?

Oftentimes, international investments offer lower returns on your investment compared to domestic investment options. Coupled with the higher risk involved with international investing, it is important to evaluate why you want to go offshore.

Check their record

Overseas investments promoters are not exempt from state and federal requirements regarding registration. Check with your state securities agency for complaints. You can also inquire with the Better Business Bureau (BBB) to check for any record of prior customers' experiences with that investment company.

Common Sense goes a long way

You know there is not ocean front property in Kansas. You wouldn't invest in a ski lodge in Mexico. Don't fall for shiny brochures or flashy websites that look legitimate. Look for the contact links, the icons that show affiliation with known business organizations, and listen to the voice in your head that is trying to tell you that you shouldn't invest in rice fields in the Sahara. The more urgent the promoter is, the more likely they are to be frauds.

Investing can be fun and exciting. It can provide amazing returns and help you feel more secure about the future. Don't risk the pleasure of taking a calculated risk and generating profit at the expense of jumping on an exciting hyped up international investment scam.

The Pros and Cons of International Investing

Today's economy offers so many new options for planning our financial future. One option is international investing in the ever shrinking global marketplace. There are numerous pros and cons to investing oversea; however, once you have grasped the major principles, there is not such a great deal of difference between investing at home and investing internationally.

• Pro – Currency – 

The effect of the global economy on currency exchange rates play a big role in investments. It provides a new layer of diversification for any portfolio and can significantly increase your rate of return. This works best for investors with long term goals.

• Con – Stock in Companies operating overseas –

There are several risks involved with investing in companies based in your home country that have operations overseas. These are translation risk, transaction risk and economic risk. All are related to the effects of converting foreign currency back into home currency and the time differences that occur between entering contracts and settling contracts.

• Pro – Higher Rate of Return –

Often the return on investment from foreign investments are higher than comparable home investments. Newly developed multinational companies are growing rapidly and providing excellent sources of investing success.

• Con – Higher Risk –

The regulations imposed on those companies may be vastly different from the regulations we are used to in the United States. The foreign government may be new, or recently reestablished creating an uncertain or unstable environment. You cannot make conclusions on the valuation levels in other countries without fully understanding the differences between their accounting standards and United States Accounting Standards.

• Pro – Foreign Exchange Controls –

Then change in foreign exchange controls are making it easier and more accessible for investors to diversify internationally.

• Con – Fees –

The expenses associated with investing, such as transaction fees, management fees and custody fees, are often higher when dealing with international investments.

• Pro – Emerging Markets –

Many foreign markets that are considered “developing” have attractive companies that have yet to be fully valued by the market. These create profitable investment opportunities.

• Con – Less Liquid –

International investing is quite often less liquid than domestic investing. If there is a chance you may need to retrieve a portion of your funds for emergency needs then international investing may not be for you.

• Pro – Outperforming US equities –

As of the end of 2007, based on a 10 year period, the cumulative return for international stocks was almost double the return for domestic stocks.

• Con – Long term –

International investing is for the long term investor. It often relies on emerging markets, developing countries, and higher risk that can appear volatile on a short term basis but will bring great profits in the future.

Our world is shrinking. Many of our familiar products are from foreign corporations such as Bayer, Toyota, Nokia, Adidas and more. Investing in them would be investing in products you already use and love. Be prepared to invest for the long term, do your homework and research your investment firm. International investing may be the diversification your portfolio needs but might be a burden to manage once your assignment is finished and you are back in your home country.