Risk and reward

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8. Overseas investments - currency risks

You do not have to restrict your investments to stocks traded on the London Stock Exchange. The world's biggest stock markets by capitalisation are in the USA and Japan, and there are also large markets in Germany, Italy, Australia, Hong Kong and Canada.

The advantage of investing in overseas markets is that you spread your risk and reduce your exposure to the ups and downs of the UK economy. Also, if you want to invest in a certain type of stock - technology stocks, for instance - the USA offers by far the best choice.

But there are downsides associated with foreign investment. If you buy foreign stocks through a UK broker, the handling charges will be high and often there is a minimum investment. You also have currency exposure, which cuts both ways:

• If the pound rises against the local currency, the income or capital growth you receive on your investment will fall because you just won't get as many pounds for the dollars/francs/lira.
• If the pound falls, the income or capital growth you receive on your investment will rise because you the dollars/francs/lira will convert into a higher number of pounds.

Also, if you receive your dividends in foreign currencies, your bank will charge you a fee to convert to sterling, which is usually around the £7 mark. One way round this, of course, is to run a dollar/franc/lira account with a foreign broker and only to use the money when you go on holiday i.e. never convert it to pounds.

1. The right place for your spare money? 2. The golden rule 3. Stock market performance and inflation 4. Stock market performance compared to savings accounts 5. Specific risk 6. Market risk 7. Pound cost averaging - a way round risk 8. Overseas investments - currency risks 9. Conclusion

• Against the Gods