The Best Ways to Invest in Foreign Markets

More Choices than Ever

Mutual Funds

One of the easiest ways to get started investing in foreign markets is with mutual funds. These allow small investors to buy a slice of a professionally-managed, diversified international portfolio at a low cost. International funds come in a wide variety of flavors, and the menu offers something for just about everyone, from the most aggressive investor to the most conservative.

Exchange Traded Funds

Exchange Traded Funds (ETFs) are similar to mutual funds in the sense that allow investors to buy a piece of an existing portfolio, rather than picking your own stocks. The main difference, as the name suggests, is that ETFs trade like stocks. You can buy and sell throughout the trading day or even sell short. Like mutual funds, ETFs also come in a wide variety of shapes and sizes, ranging from funds that cover the entire world to those that invest in a single country.

American Depositary Receipts

American Depositary Receipts, or ADRs, are yet another way to tap into foreign markets. ADRs are securities that represent a share of a foreign company, but they trade here in the U.S. The beauty of ADRs is that you can build a portfolio of international companies without having to change your broker. They're as easy to buy and sell as IBM or General Electric. Another plus: everything is priced in dollars.

Multinational Companies

Let's say you're interested in foreign markets, but worried about the risk. Fair enough. One "back door" strategy is to buy shares of American companies that have a large percentage of their sales and profits overseas. While you won't get all of the benefits that you might enjoy with an international fund or ADRs, you can at least get some exposure without taking any excess risk.