How To Invest In International Stocks
You may be fed up with the low growth that has been occurring in domestic markets over the past decade. If so then you may be looking for a way to invest in economies that have greater potential for double digit growth in the future. Fortunately, it is a whole lot easier to invest in international markets than it used to be. There are a number of ways for investors to get exposure to foreign markets through brokers. Here are a few of the more popular ways to invest internationally.
American Depositary Receipts (ADR)
Buying stocks overseas is incredibly complex and ADR’s make it a whole lot easier. Investors trying to buy stocks in foreign countries without ADR’s would have to worry about currency exchange rates and regulatory requirements. American Depositary Receipts are negotiable certificates issued by a bank that lets investors buy shares of a foreign stock. Each ADR represents a specific number of shares of a foreign stock. ADR’s are traded in United States dollars and make it easy for investors to gain access to foreign markets. Companies like British Petroleum (BP) are major companies that sell shares in the United States through ADR’s..
International exchange traded funds have become a major asset class over the past twenty years as investors have sought exposure to emerging overseas markets. BRIC nations (Brazil, Russia, India, China) have grown rapidly because of foreign investment. Exchange traded funds like the iShares MSCI Emerging Index (EEM) offers investors broad diversification amongst different countries without having to select individual winners in different countries. There are international ETF’s that track specific country indices and country specific stocks as well.
International Mutual Funds
Most fund companies classify their international mutual funds under the global or world fund moniker. Global funds can invest in any market including domestic markets like the United States. The Vanguard Global Equity Fund (VHGEX) would be an example of this type of fund. International funds invest specifically outside of the United States. These funds could invest in specific regions like Latin America, Asia, or Europe. They could also invest in specific countries like Mexico, China, or South Korea. Warren Buffett himself has found South Korea a suitable area for investing over the past few years.
International investments should represent some portion of every investor’s portfolio. The allocation could be as little as 5 to 10% for conservative investors or as much as 30 to 40% for the most aggressive investors. International stocks and mutual funds in emerging markets have the potential to outperform the markets in developed countries in which single digit growth is likely for years to come.