Investing in local stocks or foreign stocks?: How to balance both in your portfolio

By Dela Herman AGBO

The question “Should I invest in local stocks or foreign stocks?” is one many investors grapple with, particularly in an increasingly globalized financial market. As rightly highlighted in Mary Henewaa Karikari’s recent LinkedIn contribution, the answer is not a simple “either/or.” And she nicely concluded by saying “keep your battlefield and grow where you can stay calm”.

This is very true but it also lies in understanding the role each one of the assets plays in a well-constructed investment portfolio, guided by one’s objectives, risk tolerance, and country of domicile.

This article expands on that discussion by examining the differences between local and foreign stocks, their respective benefits and risks, and how investors can strike the right balance between the two.

Understanding Local Stocks

Local stocks are equities listed on a country’s domestic stock exchange—such as the Ghana Stock Exchange (GSE) for Ghanaian investors, the Nigerian Exchange Group (NGX) for Nigerians, or the Johannesburg Stock Exchange (JSE) for South Africans and so on.

Benefits of Investing in Local Stocks

Familiarity and Information Advantage

When it comes to familiarity and information advantage, investors often understand local companies much better than the foreign entities — their brands, management, regulatory environment, and economic drivers.

Currency Matching

Currency matching is much easier since returns are earned in the same currency as most expenses incurred are in same local currency, this helps reduce exchange rate risk.

Contribution to National Development

Above all, investing locally supports domestic businesses, job creation, and economic growth.

Regulatory Protection

More importantly, local markets are governed by familiar regulators, offering clearer investor recourse.

Limitations of Local Stocks

• Smaller market size and limited sector diversification in many emerging markets
• Higher exposure to domestic economic and political risks
• Lower liquidity compared to major global markets

Understanding Foreign Stocks

Foreign stocks are equities listed outside an investor’s home country—such as U.S. stocks (Apple, Microsoft), European stocks (Nestlé, SAP), or Asian stocks (Toyota, Samsung).

Benefits of Investing in Foreign Stocks

1. Global Diversification
   Global diversification supports exposure to industries and companies not available locally, such as advanced technology, global healthcare, and multinational consumer brands.
2. Currency Diversification
   Diversification of currency is very important hence foreign investments can hedge against local currency depreciation.
3. Access to Larger, More Liquid Markets
   Access is key to asset allocation and selection which developed markets often provide better liquidity, transparency, and corporate governance.
4. Participation in Global Growth
   Path to global growth is much easier so investors benefit from innovation and growth trends in other economies.

The following are risks of foreign stocks investors must consider before investing outside their country of domicile.

• Foreign exchange volatility
• Geopolitical and regulatory risks
• Taxation complexities
• Limited familiarity with foreign markets

Factoring in Country of Domicile

An investor’s country of domicile matters greatly when deciding between local and foreign stocks.

• Emerging market investors often face currency depreciation risk, making foreign stocks attractive as a store of value.
• Developed market investors may already have global exposure domestically, reducing the urgency for foreign diversification.
• Regulatory rules, capital controls, and tax treaties also influence how easily foreign investments can be accessed.

Balancing Local and Foreign Stocks in a Portfolio

The balance portfolio is the key. Rather than choosing one over the other, prudent investors aim for strategic balance of the investment portfolio.

Key Considerations:

1. Investment Objectives – that’s if your investment objective is:

1. • Capital preservation → higher allocation to stable markets
   • Growth → balanced exposure to high-growth global and local opportunities

1. Risk Tolerance

Conservative investors may tilt toward local blue-chip stocks and developed market equities, while aggressive investors may include frontier and emerging market stocks.

Longer horizons allow greater exposure to foreign equities, absorbing short-term volatility.

1. Income Needs

Local dividend-paying stocks may better support regular income needs due to currency matching.

Practical Example

A Ghanaian investor might consider to:

• Allocate 60–70% to local equities (banks, telecoms, consumer goods)
• Allocate 30–40% to foreign equities (U.S., European, or global ETFs)

This kind of portfolio blend supports domestic growth while preserving value through global exposure by allocating between 30 -40% of the assets to the foreign equities.

The Role of Professional Portfolio Management

Balancing local and foreign stocks is not static—it requires continuous monitoring of markets, currencies, regulations, and economic cycles. This is where professional fund management becomes critical. Skilled managers ensure that portfolios remain aligned with investor objectives while managing risks across jurisdictions.

Conclusion

The decision to invest in local stocks, foreign stocks, or both should never be driven by trends or fear alone. It should be rooted in clear investment objectives, an understanding of risk, and a long-term strategy. As Mary Henewaa Karikari rightly initiated, the conversation should move beyond where to invest, to why, how, and in what proportion.

For investors seeking expert guidance on building diversified portfolios that balance local opportunities with global exposure, EcoCapital Investment Management Limited provides professional asset management, advisory, and portfolio construction services tailored to individual and institutional needs. EcoCapital remains committed to helping investors grow and preserve wealth through disciplined, well-structured investment strategies.

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