Investing in an emerging Asian economy is a great way to diversify your portfolio and get exposure to some of the world’s largest companies. The major market indices such as the Nifty Fifty, FTSE 100 and DJIA are still dominated mainly by large-cap American stocks that have been around for decades or more.
However, picking the right companies from Asia can be difficult, and many start-up businesses exist, while others may be too risky without more information.
Stocks, bonds, and mutual funds are the three basic ways to invest your money. Each has its benefits and drawbacks. That’s why there is no hard-and-fast rule for how much of your portfolio should be devoted to any one type. Instead, you need to decide what mix of investments best suits your objectives.
The first step in creating your perfect investment plan is deciding on a goal. Are you investing for retirement? If so, you’ll want to prioritize low-risk investments like fixed annuities over riskier securities like stocks over the next few decades.
On the other hand, if this is money you know you won’t touch until you retire or later, putting more into stocks might make sense since they can earn higher returns. If you don’t need the money for a decade or more, stock mutual funds and exchange-traded funds (ETFs) are the way to go; these taxable accounts, unlike taxable bonds and CFDs, can be tax efficient.
The next consideration is if you’ll be getting income from your investment account and, if so, how much you expect that to be. If your investments will produce significant annual income in retirement, prioritizing stocks over bonds makes sense since they have the potential.
If nicely diversified into different sectors of the economy, they will outpace interest rates on bonds over more extended periods. If this is just an account to create wealth rather than generate cash flow in later life, you might want to go all-in on stocks.
Before investing in any company, find out what they do and make money. Generally speaking, you should consider three main things: revenue model, management team, and degree of risk.
The first thing you should consider about a company is generating revenue, generally through products or services. For example, Nifty Fifty Holdings is an Indonesian conglomerate with interests in insurance, banking, and property development – it’s unlikely that most people would know what these things are.
To help choose the right companies to invest in, you should seek research on firms within your industry; for example, business journalists can write extensively on major brands like Apple and Google, while personal finance journalists may focus more on banks like HSBC. Another way to learn about Asian businesses is by reading analyst reports or stock market reports online.
Once you have an idea about the type of companies that interest you, it is time to look into management. By choosing a company run by strong and capable individuals, there is a higher likelihood they will continue to grow, which means the stock price should steadily increase as well.
It’s fine if your choice firm has been around for decades, but make sure their leadership possesses traits such as being visionary with long term goals, being approachable and open-minded, not micromanaging subordinates and giving employees enough room to do their job. Generally speaking, managerial values like these are easy to see in action (try viewing their Twitter or even youtube channel) or through other articles online.
Choose Asian companies that are not too high risk. There is nothing wrong with investing in small companies, but make sure their financial ratios look good, like debt per revenue or working capital turnover. Novice traders should use a reputable online broker from Saxo Bank before investing in the Asian stock market.