1      Foreign Company Stocks

Buying shares in companies that trade on foreign bourses (European stock exchanges) are the most direct way to diversify your portfolio with some international exposure. To do this, contact your brokerage firm and find out if they provide such a service. If they do not have international exposure, then many large brokerages have international sections, which can assist with buying the stock in which you are interested.

You also can open an account with an investment firm that allows you to invest directly in foreign markets. Saxo Bank, the Danish online investment firm, is one such firm, at www.saxobank.com/. Another firm is Interactive Brokers, at www.interactivebrokers.com.

There are risks involved with direct investing in foreign markets. Currency exchange rates are volatile. Timely information about foreign firms is often not readily available in the United States. Additionally, investments also may be subject to foreign regulations and taxes.

 2      American Depository Receipts

American Depository Receipts (ADRs) are a convenient way to include foreign markets in your investments. They were devised to provide a convenient means by which Americans can invest in foreign companies.

Banks issue ADRs, which are essentially securities that represent a certain number of shares of a stock that is listed on a foreign exchange. One ADR, for example, will represent one or more shares of the company’s stock. Some of the best-known foreign companies have ADRs in the United States, including Nokia, British Petroleum, and Royal Dutch Shell.

You can buy and sell ADRs just as easily as shares of a domestic stock. They are traded on the NYSE (New York Stock Exchange) and on the NASDAQ (National Association of Securities Dealers Automated Quotation System). Purchase them through your brokerage firm just as easily as you would buy shares in General Electric or Microsoft, to name just two. Unlike direct investment in foreign companies, ADRs are priced in U.S. dollars.

More information on ADRs is available from The Bank of New York Mellon, the largest depository for ADRs, at www.adrbny.com.

 3      Foreign Companies Listed on U.S. Stock Exchanges

Some foreign firms list their stocks on American stock exchanges rather than on the exchange in their home countries. Many Chinese companies have done this by issuing their stocks on the NASDAQ. Chinese firms such as First Solar (FSLR) and New Oriental Education (EDU) experienced explosive growth after their initial public offerings on the NASDAQ exchange

A large number of companies based in foreign countries have listed their stocks on U.S. bourses (exchanges), to bring a certain amount of prestige to the firms. Because they are listed on U.S. exchanges, they can be bought and sold just as easily as U.S. stocks. Also, they are priced in dollars, eliminating the hassle of currency conversion for American investors.

 4      Mutual Funds Investing in Foreign Companies

This is one of the most convenient ways to invest in foreign markets. With a domestic mutual fund, for example, you buy shares of a diverse portfolio managed by an investment professional. Wide varieties of mutual funds that specialize in foreign markets exist.

Some funds are general international funds, investing in the stocks of companies around the world. Other funds may focus on a particular region of the world, such as a mutual fund that focuses on the stocks of European companies or firms in the Asia-Pacific region. There are even country-specific mutual funds that invest in the stocks of companies from a particular country, such as Japan or Russia. A country-specific fund allows an individual to invest in another country without having to go through the effort of opening an account there.

Another type of international mutual fund is an emerging market index. Emerging markets funds invest in the stocks of firms in emerging nations such as those in Africa, Latin America, and southern Asia. Emerging markets have the potential for huge growth, but can be extremely volatile. With emerging markets, the risk of political instability is an additional consideration.

 5      Exchange Traded Funds

Exchange Traded Funds (ETFs) combine the diversity of mutual funds with the flexibility of individual stocks. These investment instruments are similar to mutual funds because you are buying a piece of an existing investment portfolio. Like mutual funds, ETFs come in a wide variety. Some ETFs invest all over the world, while others concentrate on a specific country or a particular region of the world.

The difference is that Exchange Traded Funds trade like stocks rather than like mutual funds. They can be bought and sold throughout the trading day, and their prices fluctuate throughout the day. Therefore, they do not have a Net Asset Value (NAV) for each day as a mutual fund does. ETFs have another advantage over mutual funds in that their expense ratios are lower.

For more information on ETFs, see the Morningstar Web site at www.morningstar.com/Cover/ETFs.aspx.