Global investment

economic-dictionary

Global investment is a strategy that consists of acquiring financial assets from various countries in the world. This, in order to diversify the portfolio and distribute the risk among different markets.

That is, this type of tactic allows the agent to invest in stocks, bonds and other instruments from various countries. Thus, your potential number of sources of income increases.

It should be noted that the more diversified a portfolio is, the lower its risk. This is because, although the value of one of the assets in the portfolio decreases, there may be an increase in another.

Characteristics of global investment

The characteristics of global investment include:

  • It is the opposite of domestic investment, which is when the agent acquires only financial instruments from his own country.
  • Exchange rate risk must be taken into account, that is, a potential loss due to the decrease in the value of a currency. For example, let's imagine that a Spaniard purchases bonds from a US company, receiving a periodic return in dollars. So if the price of the dollar decreases, the investor's income - when changing it to euros - will fall as well.
  • It is a strategy that the geopolitical variable must consider. It may be, for example, that the government of a country decides to impose restrictions or higher taxes on foreign investment.
  • Another variable that can impact global investment is the policies of the monetary authorities, for example, if they raise or lower their reference interest rate.
  • Developed countries offer a lower level of risk to the investor, that is, they guarantee more stable returns over time. This, compared to emerging or developing countries, where there is greater volatility, but also higher profitability.

Types of assets in a global portfolio

When implementing a global investment strategy, different types of assets can be acquired such as the following:

  • Bonds: They are debt instruments issued by a company or country (sovereign bonds). The buyer "lends" money to the issuer and in return receives a periodic payment.
  • Shares: These assets are a part of the capital stock of the company. That is, the buyer becomes a partner in the issuing company. Profits are made by reselling the stock and / or by receiving dividend payments.
  • Financial derivatives: These are instruments (options, futures, swaps and forwards) whose value changes depending on another underlying asset, for example, a stock index.

Tags:  latin america right Spain 

Interesting Articles

add