How to Invest in International Stocks

Investors need some exposure to international stocks to diversify their portfolios. An allocation in international stocks allows an investor to profit when U.S. markets underperform. International investments tend to be more risky than domestic ones, but they carry potentially higher returns. It may seem complicated to invest internationally, but you can follow these steps to simplify the process.

Instructions

1. Put money into an international mutual fund. There are worldwide international funds, regional funds and single country funds. This method requires the least amount of work on your part. You need to determine what kind of exposure you are looking for and then match your need with a mutual fund that has low expenses. If you have a broker that you trust, they can help you with this.

2. Buy shares of an multi-national corporation listed on an American stock exchange. If a company has extensive operations in other countries, it can provide you with some international exposure. This is an indirect approach, which reduces the international exposure of each dollar invested.

3. Purchase the American Depository Receipts (ADRs) of international companies. ADRs are dollar denominated shares of ownership in foreign companies that trade on American exchanges. This method reduces currency risk because the purchase is dollar denominated.

4. Invest directly into foreign stock markets. You need a full service broker to use this approach. This is the riskiest method for investing in international stocks. Many stock markets lack the strict oversight that the U.S. markets have.

Tips & Warnings

• Mutual funds are the best method for investors with smaller portfolios, but they can provide additional diversification for wealthier investors, too.

• Don't invest in a foreign company without first researching the countries economic and political situation. Unstable countries make for risky investments.

• Always make investments through reputable brokers to avoid scams or fraud.