A:

Foreign markets have always been an object of envy to domestic investors because the indexes in some foreign countries have produced double- to triple-digit returns in the past. For example, the SETI 100 in <?xml:namespace prefix = st1 /?>Bangkok rose 117% in 2003, and Russia's RTS Index gained 72% in the first nine months of 2005. The very high returns in foreign markets lead investors to look for ways to invest in them.

There are a few ways to invest in foreign markets. The direct approach is to buy stocks in those countries. However, buying shares that trade on exchanges outside of your home country or that of your broker can be harder than trading domestic shares. If you are looking to invest in a foreign company listed on a foreign exchange, the first thing to do is to contact your brokerage firm and see whether it provides such a service. If it does, the firm will need to contact a market maker or an affiliate firm located in the country in which you want to buy the shares. However, even if the firm provides this service, it may not be able to gain access to the specific shares you want. In that case, the alternative would be to try to set up a brokerage account with a firm in that foreign country.

If you find a way to invest in other countries, you must also understand the risks associated with foreign investment. First of all, timely and accurate information about foreign companies is not available to the same degree as it is in the U.S. Another concern is that the regulations in foreign countries can affect both your investments and any accounts set up in that country. For example, there may be restrictions on your ability to transfer funds from your foreign account to one in your home country, or your funds may be taxed whenever you try to take them home. Being informed allows you to carefully weigh the risks and benefits of investing in a particular foreign market.

Investors can also use instruments such as mutual funds or exchange traded funds (ETFs) as less risky ways to gain exposure to foreign markets. (To learn more about mutual funds and ETFs, see our Mutual Fund Tutorial and Introduction To Exchange-Traded Funds.) There are many of these investment products that cover a wide range of regions around the world, such as Latin America or Asia Ex-Japan. These instruments can be actively managed or tied to an exchange, but in either case, they offer both exposure to a country and diversification and management expertise. They can also be easily purchased through any discount or full-service broker.

(To read more, see Pros and Cons of Offshore Investing, Investing Beyond Your Borders.)


RELATED FAQS
  1. How do I purchase foreign stock in a retirement account?

    I would like to purchase foreign stock from a retirement account. So far, my research shows the following choices, dual listed ... Read Answer >>
  2. What does it mean when a country has little activity in its capital account?

    Know what a country's capital account represents and understand what the implications are if a country has little activity ... Read Answer >>
  3. What nations are actively recruiting FDI (foreign direct investments)?

    Understand the concept of foreign direct investments, and learn which countries most enthusiastically pursue investments ... Read Answer >>
  4. What are some examples of a Foreign Institutional Investor (FII)?

    Discover some examples of foreign institutional investors, and learn information about the nature of foreign institutional ... Read Answer >>
  5. How can I invest in a foreign exchange market?

    The foreign exchange market, also called the currency market or forex (FX), is the world's largest financial market, accounting ... Read Answer >>
  6. What is a country ETF?

    Learn about the operational basics of exchange-traded funds (ETFs) and the foreign investment opportunities and advantages ... Read Answer >>
Related Articles
  1. Managing Wealth

    Broadening Your Portfolio's Borders

    Find out what type of international fund might suit your needs in gaining exposure to foreign markets.
  2. ETFs & Mutual Funds

    Go International With Foreign Index Funds

    As global trade continues to expand and the world's economies grow, spice up your portfolio with these exciting opportunities.
  3. ETFs & Mutual Funds

    Playing It Safe In Foreign Stock Markets

    Find out some of the lower-risk ways to invest in foreign markets.
  4. Personal Finance

    Investing Beyond Your Borders

    Investing abroad poses risks, but can also help you diversify. Discover ways to invest in foreign stocks.
  5. ETFs & Mutual Funds

    Protect Your Foreign Investments From Currency Risk

    Hedging against currency risk can add a level of safety to your offshore investments.
  6. Markets

    Cautionary Signs For International Investors

    "Going global" is a fashionable investing style, but investors should know the risks.
  7. ETFs & Mutual Funds

    Getting Into International Investing

    Diversifying can mean not only investing in various asset classes but also venturing beyond domestic exchanges.
  8. Personal Finance

    Should You Open A Foreign Savings Account?

    Would opening a savings account in a foreign bank make sense for you? The pros and cons, how to establish one – and alternatives to consider.
  9. Markets

    How To Trade Foreign Stocks

    We weigh the major ways to trade foreign stocks for investors.
  10. ETFs & Mutual Funds

    4 Ways to Get International Exposure in Your Portfolio

    International investing provides diversification, which is needed these days. When it comes to investing in foreign stocks, there are lots of options.
RELATED TERMS
  1. Foreign Investment

    Flows of capital from one nation to another in exchange for significant ...
  2. Direct Investment

    1. The purchase or acquisition of a controlling interest in a ...
  3. Foreign Direct Investment - FDI

    A foreign direct Investment (or FDI) is an investment made by ...
  4. Foreign Tax Credit

    A non-refundable tax credit for income taxes paid to a foreign ...
  5. Foreign Debt

    An outstanding loan that one country owes to another country ...
  6. Foreign Fund

    A mutual fund, closed-end fund or exchange-traded fund that invests ...
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center