If you are starting out on your entrepreneurial journey, you may be looking at investing in stocks to generate income. This could be as an investment on behalf of your own company or what you will be doing as your full-time job. If you’re doing this, then you are not alone! Millions of people around the world and in the USA trade stocks for the many advantages they can bring.
From being easy to get into and understand, to the way you can leave trades to run while you focus on your main business, stock investment is a great option. Of course, the returns that you can see with successful trades is also pretty good! Naturally, as with all financial investments or careers, you need to first know what you are doing.
Along with the obvious things such as understanding how the market works and having a strategy to find out exactly which stock to invest in, you also need to think about what type of stocks you will put money into. Should you go local with US companies or reach out further into global stocks?
Why should you think about staying local?
When it comes to investing in stocks, many US investors will choose to stay local. This is actually an approach favored by legends such as Warren Buffett and Jack Bogle. It is thought that US traders only hold around a 15% exposure to global stocks, to further back this point up. But why is this?
- Familiar companies – one reason many US investors will go with US stocks is that they are familiar companies that they know well. When investing, this can be really helpful, as it is easier to understand if they are worth investing in or in trouble. This is not always the case with global stocks, where the company you are looking at is a mystery to you.
- Simpler – another reason many US investors will stay local is that it is just simpler overall. Judging the market conditions in the country is much easier if you live there and know what may be about to happen, or are aware of general economic sentiment that may affect any investments you make.
- Best of both worlds – it may sound strange, but many choose to stay local to get the benefit of global trade without the hassle of actually investing in international businesses. If you were to invest in an S&P500 index fund, you would be backing US companies that you know (such as Coca-Cola) but that have a global reach. This type of local stock trading gives you access to the benefits of international diversification without actually risking global investing.
Why do some people favor global stocks instead?
As with everything in life, some US traders do choose to invest in global stocks. Here are a few reasons why:
- Reduced risk – by not investing purely in US companies, you will be diversifying your portfolio across the global markets. The effect of this is that you are reducing the risk of any one market collapsing and tanking your whole portfolio. This is true even for the US markets, where it is possible that a crash could occur and wipe out anyone with only local stocks in their possession.
- Better value – you might not realize this, but the US markets are not always the best value and don’t always give the best returns. Developing countries around the world, in Africa and South America, have had a great few years in terms of their stock markets’ performance, which could make them a better investment for you.
- Greater choice – the simple fact is that the choice of stocks to invest in around the whole world is much greater than only looking at US stocks. This gives you, as an investor, much more scope for finding great value investments that will offer superb returns.
Latest news is crucial
One thing is true for both local and global stock trading – you need to know what is currently happening. This will mean that you can make any investment decisions based on the latest news and analysis while managing your portfolio correctly. Great share tips are certainly worth keeping an eye out for and will help in making sure you stay ahead of the curve.
Global vs local: The choice is yours
The simple answer to the question of which is best, is neither. To go global or local with your stock investments is an entirely personal choice that will be determined by what you prefer. Some will like the familiarity and ease of local investment while others will look for the better value and potentially higher returns of global. Take the time to understand both and then choose which is best for you.