The Global investment is a strategy that consists of acquiring financial assets from several countries of the world. This, with the objective of diversifying the portfolio and distributing the risk among different markets.
That is, this type of tactic allows the agent to invest in stocks, bonds and other instruments of various countries. Thus, it increases its potential number of sources of income.
It should be noted that, the more diversified a portfolio, the lower its risk. This, because, although the value of one of the portfolio assets decreases, there may be an increase in another.
Characteristics of the Global Investment
Among the characteristics of the global investment are:
- It is the opposite of domestic investment, which is when the agent acquires only financial instruments from his own country.
- The Exchange rate risk, that is, a potential loss due to the decrease in the value of a currency. For example, imagine that a Spaniard acquires bonds from an American company, receiving a periodic return in dollars. Then, if the price of the dollar decreases, the investor’s income – by changing them to euros – will also fall.
- It is a strategy that should consider the geopolitical variable. It may be, for example, that a country’s government decides to impose restrictions or higher taxes on foreign investments.
- 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, in comparison to emerging or developing countries, where there is greater volatility, but also higher profitability.
Types of assets in a Global Portfolio
By 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.
- Actions: These assets are a part of the company’s capital stock. That is, the buyer becomes a partner of the issuing company. Profits are obtained by reselling the share and / or upon receiving dividend payment.
- Financial derivatives: They are instruments (options, futures, swaps and forward) whose value changes depending on another underlying asset for example a Stock index.