How to Invest In Foreign Stocks
- There are a number of ways to invest in foreign stocks without picking up a new language or learning about random laws.
- ETFs and ADRs allow you to easily invest in foreign stocks.
- If you’re uncomfortable with buying foreign stocks directly, or maybe you’re wary of ADRs, try seeking out domestic companies that derive a significant portion of sales from overseas.
Ever thought about investing in foreign stocks? Well, as you might already know, international investing can be a tricky endeavor. There are just too many hurdles to overcome, from language barriers, to currency conversions and foreign exchanges and regulations.
But at the same time, if you are currently an investor, then you should at least hold some foreign stocks in order to diversify your portfolio. The good news is that there are a number of ways to invest in foreign stocks. And what’s better is that you don’t have to pick up a new language or learn about random laws! Here’s exactly how you can do that!
Try out ETFs
The easiest way for you to invest in foreign stocks is by buying an exchange-traded fund or mutual fund that hold a basket of international stocks. And you know what? There are just so many ETFs out there that you’re bound to find one that suits your interests. Here are some that you can choose from:
- International Funds invest broadly across many countries outside of the U.S.
- Regional Funds invest in specific regions, like Europe, Asia or the Middle East, Africa.
- Country Funds invest in specific countries, like Spain or Russia.
- Sector Funds invest in particular sectors across multiple countries, like gold or energy.
What Is an ETF?
An exchange traded fund (ETF) is a type of security that involves a collection of stocks that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies.
So how to you know what fund type is best for you?
Well, there’s no clear answer for this, it all depends on your investment objectives and as they say, appetite for risk. Once you’ve decided on a fund type, the next thing would be to figure out where in the world you’d like to invest. If you’re a young investor, you might seek higher-risk funds that have the potential for high returns. As if you’re older, you might want to seek lower-risk funds that offer more stability.
Have You Heard About American Depository Receipts (ADRs)?
Basically, American Depository Receipts (ADRs) are another simple way to purchase individual foreign stocks. How do ADRs work? Well, ADRs are basically US-traded stocks that represent ownership in the shares of foreign companies. These are usually denominated in dollars and traded on American stock exchanges. ADRs are great because they do not require any complex currency conversion or foreign exchange transactions.
Foreign Direct Investing is Another Way to Invest Internationally
If you’re up for it, there’s another way you can to buy foreign stocks directly. You can open a global account with a broker in your home country, such as Fidelity, E*TRADE, Charles Schwab, Interactive Brokers, and E-Toro.
Just beware that buying stocks directly is probably not suited for a casual investor. There are additional costs, tax implications, technical support needs, research needs, currency conversions and other factors to consider. In short, only active and serious investors should dive in.
Try Out Multinational Corporations Like McDonald’s or Coca Cola
If you’re uncomfortable with buying foreign stocks directly, or maybe you’re wary of ADRs, try seeking out domestic companies that derive a significant portion of sales from overseas.
Multinational Companies are best suited for this purpose. This could mean buying The Coca-Cola Company (KO) or McDonald’s (MCD), both of which generate the majority of revenue from global operations. This is a back door approach and does not provide true international diversification, though it does give you international exposure.
The Bottom Line
Regardless of what you choose to do, keep in mind that international investing has its flip side. In terms of volatility, emerging markets in general are considered riskier. They can experience dramatic changes in market value, and in some cases political risk can suddenly upend a nation’s economy. Furthermore, remember that foreign markets can be less regulated than those in the U.S. This will increase the risk of manipulation or fraud. So while it is highly encouraged that you invest in international markets, always make sure that you do your research.