How to Buy International Bonds

International bonds provide diversification and higher returns.

International bond investing provides the advantages of diversification, higher historical returns and currency hedging when compared with investing just in U.S. bonds. According to Investopedia, the foreign bond market is about half of the global bond market. There are many complications with purchasing individual foreign bonds, so investors should invest with a bond portfolio manager through a bond fund. Exchange traded funds, ETFs, offer low costs and diversification for bond investors.

Instructions

1. Open an account with an online stock brokerage company or use your existing brokerage account if you already have one. For help picking a broker, go to the Smart Money 2010 Broker Survey (see Resources).

2. Fund the account with the money you want to invest in international bonds. The broker's website will provide directions on how to send in money by wire transfer, mailing a check or electronic deposit from a bank account.

3. Review the current share prices and yields of the international bond ETFs. The largest international bond ETFs are:

   Barclays Capital International Treasury Bond, symbol BWX.

   J.P. Morgan U.S. Dollar Emerging Market Bond, symbol EMB.

   PowerShares Emerging Market Sovereign Debt, symbol PCY.

4. Calculate the number of shares to buy of the bond ETF you have selected as appropriate for your investment portfolio. Divide your investment amount by the share price.

5. Buy the shares of the international bond ETF using the stock order screen of your online brokerage account. Enter the stock symbol for the ETF and the number of shares to purchase. The order will be filled at the current market price.

Tips & Warnings

• Review the share price chart of the ETFs before investing. If the prices are in a down trend, wait for a leveling off and turn upward before investing.

• BWX is focused on established economies, while EMB and PCY hold emerging market debt. A balance between the two types of economies would give diversity and balance to a bond portfolio.

• The Financial Industry Regulatory Authority, FINRA, warns that international bond investing exposes you to the financial risks of each country represented as well as currency risks.

• Do your own research and understand the risks before investing in any ETF.

References

• Investopedia: Shape Up Your Portfolio With International Bonds
• Index Universe: ETF Screener
• FINRA: International and Emerging Market Bonds

Resources

• Smart Money: 2010 Broker Survey