When it comes to making money, there are few shortcuts and the road is rarely a smooth one. As such, it makes sense to take the investing of your capital very seriously, since it has usually been highly challenging to generate it in the first place.
However, finding the best places in which to invest it can be tough. And, with the world becoming increasingly globalised and technology constantly improving, the choices facing private investors in terms of which regions to invest in have become far broader in recent years.
In the past, of course, investing outside of the UK was difficult. However, with the advent of the internet, it is now relatively straightforward to invest in European stock market, in the USA, Japan and various emerging markets across the globe. All have their pros and cons and, ultimately, can enable you to bring retirement a step closer, help pay off the mortgage, or provide a more abundant lifestyle.
Clearly, the FTSE 350 is a great place for any UK-based investor to start. That’s because there is a wide range of companies listed in the UK, many of which either do not operate in the UK or at least have considerable regional diversification. As such, their correlation with the UK economy is relatively low and, in the long run, this can help to de-risk a private investor’s portfolio.
Furthermore, buying UK-listed shares is very simple, with there being no exchange rate issues and no additional taxes levied on an individual. And, while the FTSE 100 is within 10% of its all-time high, its current level is hardly expensive, with there being excellent value for money on offer among a wide range of large, medium and small caps.
Of course, investing in the US provides a much greater degree of diversity than solely buying UK-listed shares. For starters, it is many times bigger than the FTSE 350, with the S&P 500 being just a tip of a vast ‘iceberg’ of listed companies in which you are able to invest. Certainly, tax matters are more complicated, with a W-8BEN form needing to be completed to ensure dividends are taxed at 15% rather than 30% by US tax authorities. And, there is the potential for losses from negative currency fluctuations, too.
However, with US interest rates seemingly set for a sharper rise than those in the UK, owing to comments made by the Federal Reserve and also the strength of the US economy, it could be the case that currency returns are positive over the medium to long term.
Meanwhile, Europe may be struggling to grow, but it remains a very enticing region in which to invest. That’s because it offers a wide range of top quality companies at relatively appealing prices, many of which are major brands and which therefore may have wide economic moats. And, with the Eurozone set to benefit from the effects of quantitative easing over the medium term, investor sentiment could pick up moving forward.
The problem for UK investors, though, is that with UK monetary policy set to tighten and the Eurozone’s expected to remain ultra-loose, currency movements could be negative for UK investors, thereby reducing profits.
While the Chinese stock market has fallen heavily in recent weeks, it remains a country with unrivalled long term growth potential. A challenge identified by many investors, though, is question marks surrounding corporate governance at Chinese companies and, as such, it may be prudent for private investors to buy shares in UK or US listed businesses that have considerable exposure to the Chinese market.
Japan, meanwhile, remains a firm favourite among investors, and, while concerns surrounding its debt levels have been highlighted in recent weeks by the IMF, it continues to offer a number of high quality companies trading at relatively appealing price levels. Certainly, ‘Abenomics’ is an abrupt change to the country’s past monetary policy, but if it is successful in reflating the economy then investments in Japan could prove to be highly profitable in the long run.
