8 Ways to Invest in Foreign Markets
The United States might have the largest economy in the world, but it's far from the only economy. There's a whole world out there. When the US economy is faltering, there are plenty of other economies doing well. It's much easier to invest successfully in a thriving economy than in one that's struggling.
But most investors don't know where to start. Do you get on the phone and call Tokyo when you want to invest in a Japanese stock?
In 2012, the US was less than 19% of the world economy. That's a lot for one country, but it's still a small amount compared to the combined rest of the world. Do you think there might a few good investments in that other 81%? Of course!
Fortunately, there are several easy ways to invest overseas:
1. American Depository Receipts (ADR). These are US traded stocks that represent foreign stocks. If you've ever owned Sony stock, you almost certainly owned ADR shares. You didn't actually own a share of actual Sony stock.
The United States might have the largest economy in the world, but it's far from the only economy. There's a whole world out there. When the US economy is faltering, there are plenty of other economies doing well. It's much easier to invest successfully in a thriving economy than in one that's struggling.
But most investors don't know where to start. Do you get on the phone and call Tokyo when you want to invest in a Japanese stock?
In 2012, the US was less than 19% of the world economy. That's a lot for one country, but it's still a small amount compared to the combined rest of the world. Do you think there might a few good investments in that other 81%? Of course!
Fortunately, there are several easy ways to invest overseas:
1. American Depository Receipts (ADR). These are US traded stocks that represent foreign stocks. If you've ever owned Sony stock, you almost certainly owned ADR shares. You didn't actually own a share of actual Sony stock.
* These are traded on the US stock exchanges and are quoted in US dollars. This eliminates the need for currency conversions.
2. Buy the stock on a foreign exchange. Not all foreign stocks can be purchased with ADRs. Many foreign stocks can be purchased on the London or Toronto stock exchanges. There are international brokerage houses that can help with this type of investment, but the fees can be steep. Check before you buy.
3. International Mutual Funds. There are US funds that invest exclusively in foreign markets. International funds tend to invest with a broad scope.
4. Regional Mutual Funds. These are similar to international funds, but tend to invest within a certain region, such as the Middle East.
5. Country Mutual Funds. These are limited to a specific country, such as China or Russia.
6. Sector Funds. Sector Funds stay within an industry, but cross borders. A sector fund that invests in gold mining all over the world would be an example.
7. Exchange Traded Fund (ETF). An ETF is like a mutual fund that tracks a specific index. For example, there is an Oil Index (OSX) that is composed of 15 different stocks. An ETF mimics an index. Many ETFs contain foreign stocks. This is a great way to invest internationally within an industry.
* ETFs are priced, purchased, and sold like stocks. Remember that mutual funds are priced at the net asset value (NAV). The price of an ETF is whatever the market will bear. Mutual fund shares are always sold at their actual value. Still, it wouldn't be a bad idea to try pricing an ETF with the NAV and see where it stands.
8. Invest in foreign currency. Currency trading can be exciting and serves as an excellent means to reduce risk in foreign investments.
* However, currency trading is not for the weak of heart. Many people have made a fortune in currency trading. Many have been wiped out. If you have the expertise, it can be a great way to invest in a foreign market.
There are several ways to invest in foreign markets. It's time that investors opened their eyes to all the investing opportunities around the world. There are many companies and investment vehicles based in other countries. It would be a shame to miss out on all these foreign economies.
The US is less than 20% of the global economy. If you're not investing internationally, you're missing out on over 80% of the opportunity! Look abroad for your next investment for fun and profits.
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