Foreign Aid: Invest Internationally
- By:
- Anders Bylund | October 09, 2007
Geographic diversification is easier than you might think. Once you know what you're doing, you can trade foreign stocks, or even entire markets, just as you would any U.S. stock.
A well-diversified portfolio, the bottom line for successful investing, should generally include international stocks. But you don't need to be multilingual to have holdings in multiple countries. You don't eve need to visit each country to have foreign exposure. You can allocate a certain percentage of your portfolio to foreign securities through ADRs, mutual funds, and ETFs.
ADR is short for American Depositary Receipt, which is a simple way to buy foreign stock in American markets. Each "receipt" represents one or more shares of a company that's traded on some stock exchange abroad. However, you can buy or sell it in American dollars on a U.S. stock exchange.
These shares come with all the bells and whistles of any other investment paper, including dividends, shareholder voting rights, and prices that are set by the market. For example, if Sony shares-which trade as an ADR-gain 10 percent on the Tokyo exchange, the corresponding ADR will do the same in this country, adjusted for currency exchange rates.
An ETF is an exchange traded fund. These are set up like mutual funds, and hold a portfolio of stocks and bonds. They trade like normal stocks, but without the hassle of minimum investments and other restrictions that you'd find in a mutual fund. Country-specific, or regional ETFs, are a simple and popular way to get exposure to foreign markets without having to research individual companies. If you aren't too sure about Sony, but you like the Japanese market, you can buy iShares MSCI Japan to profit from a whole basket of Japanese stocks.
If you're more traditionally inclined, there are more than 240 mutual funds with a Japanese focus, available through your favorite broker. Where ETFs tend to match market indices, mutual funds offer the expertise of active money managers, which should mean better returns, although that's not always the case.
You might like the managers at Morgan Stanley, or Oppenheimer, or perhaps Fidelity. No sweat-they all have funds with a yen for Nippon. You could also buy a mutual fund that focuses on China, Europe, or the whole Nordic market. You can even find one that focuses on just Sweden, if that's what you like.
It really is that easy to push your portfolio beyond our borders. Diversifying your portfolio with international stocks is a way to hook into currency trends, regional economic development, or rich natural resources elsewhere. It's also an insurance policy just in case the American economy hits the skids.
Many economists recommend that you set aside about 10 percent of your portfolio for foreign investments, for all of the above reasons. If you happen to know a lot about certain markets, feel free to increase that allotment. Either way, your portfolio should never feel bound and restricted by international borders.
A well-diversified portfolio, the bottom line for successful investing, should generally include international stocks. But you don't need to be multilingual to have holdings in multiple countries. You don't eve need to visit each country to have foreign exposure. You can allocate a certain percentage of your portfolio to foreign securities through ADRs, mutual funds, and ETFs.
Hold the acronyms
ADR is short for American Depositary Receipt, which is a simple way to buy foreign stock in American markets. Each "receipt" represents one or more shares of a company that's traded on some stock exchange abroad. However, you can buy or sell it in American dollars on a U.S. stock exchange.
These shares come with all the bells and whistles of any other investment paper, including dividends, shareholder voting rights, and prices that are set by the market. For example, if Sony shares-which trade as an ADR-gain 10 percent on the Tokyo exchange, the corresponding ADR will do the same in this country, adjusted for currency exchange rates.
An ETF is an exchange traded fund. These are set up like mutual funds, and hold a portfolio of stocks and bonds. They trade like normal stocks, but without the hassle of minimum investments and other restrictions that you'd find in a mutual fund. Country-specific, or regional ETFs, are a simple and popular way to get exposure to foreign markets without having to research individual companies. If you aren't too sure about Sony, but you like the Japanese market, you can buy iShares MSCI Japan to profit from a whole basket of Japanese stocks.
Where's my fund?
If you're more traditionally inclined, there are more than 240 mutual funds with a Japanese focus, available through your favorite broker. Where ETFs tend to match market indices, mutual funds offer the expertise of active money managers, which should mean better returns, although that's not always the case.
You might like the managers at Morgan Stanley, or Oppenheimer, or perhaps Fidelity. No sweat-they all have funds with a yen for Nippon. You could also buy a mutual fund that focuses on China, Europe, or the whole Nordic market. You can even find one that focuses on just Sweden, if that's what you like.
Sail away
It really is that easy to push your portfolio beyond our borders. Diversifying your portfolio with international stocks is a way to hook into currency trends, regional economic development, or rich natural resources elsewhere. It's also an insurance policy just in case the American economy hits the skids.
Many economists recommend that you set aside about 10 percent of your portfolio for foreign investments, for all of the above reasons. If you happen to know a lot about certain markets, feel free to increase that allotment. Either way, your portfolio should never feel bound and restricted by international borders.
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