How to Invest in Foreign Bonds
Many investors add foreign bonds to their portfolios as a means of diversifying. The easiest way to invest in foreign bonds is with one of the many foreign bond mutual funds. The foreign bond mutual funds provide the investor with a wide variety of foreign bonds with less risk than investing in single bonds from a particular country or region.
- Difficulty:
- Moderate
Instructions
-
-
1
Open a brokerage account with a traditional broker or with one of the many on line discount brokers which are available. No matter which kind of broker is chosen, the investor should be able to invest in mutual funds made up of foreign bonds.
-
2
Research the different foreign bond funds thoroughly. Some mutual fund companies have world bond funds which include United States bonds as well as bonds from foreign countries. Other international bond funds are composed of foreign-only bonds.
-
3
Understand the differences in the foreign bond funds. Some of the funds invest in bonds from developed nations, which have lower yields but also have a lower risk level. Conversely there are bond funds that are invested in emerging economies, which may provide a higher yield but also higher risk.
-
4
Learn how the price of foreign currencies affect a bond fund's performance. A foreign currency can be pegged to the United States dollar or it can be free floating, which may be riskier to an investor in foreign bond funds. For example, if the value of the Japanese yen goes down relative to the dollar, then a bond fund that invests in Japanese bonds will also go down when valued in dollars.
-
1
