Using the company's location of operations is another popular way we can organize stocks. Many foreign companies list their stocks on US exchanges to be more widely available. However, they must follow the same reporting standards as domestic companies when they do.
Domestic stocks are companies headquartered and operating in the US.
Generally, these companies are more regulated and considered high quality and safe to invest in by international investors. The US financial market is the healthiest and the largest financial market in the world.
Stocks in developed markets are companies headquartered and operating in established first-world nations.
These companies are in countries that have the following characteristics:
- High levels of liquidity in debt and equity markets: Generally, more folks invest in developed markets, making it easier to buy and sell investments.
- Political and economic stability: More stability means less risk.
- Open to foreign investment: Being accessible to global investors encourages more liquidity.
- Investors can access and control their funds: Lower barriers to investing in these markets make them more attractive.
- High economic development: Better economic well-being and quality of life benefits a company's operations and productivity.
- Strong regulatory framework: Legal protection preserves the integrity, interests, and ethical boundaries of market participants.
- Higher per capita income: The folks in these countries tend to have more money to spend.
Emerging / Developing markets
Stocks in emerging markets are companies in countries that have some of the developed market characteristics but not all.
Emerging markets are typically in countries where both financial and commercial infrastructure are still improving. These countries are usually considered second or third-world nations.
Investing in emerging markets carries a large amount of uncertainty, making them risky. However, they have higher growth potential, so possible returns can be much larger.