There are several ways to diversify your portfolio with foreign shares. Some companies based outside the United States trade directly on U.S. exchanges, while shares in others can be had through American Depositary Receipts. In 2007, online broker E-Trade started a program for investors to buy foreign stocks directly through a U.S. account. Several brokers now offer relatively easy ways to buy international shares, or you can buy them indirectly through any number of foreign-shares mutual funds.
- Skill level:
- Moderately Challenging
Open an online stock brokerage account that allows international stock trading. Fidelity and E-Trade are two brokers that offer foreign-shares trading. Fidelity allows international trading for a customer who makes more than 125 trades per year or has £0.6 million in assets. E-Trade allows the addition of global trading to clients with a Complete Investment Account.
Research the foreign stocks you would like to buy. E-Trade allows online stock trading in six foreign markets: the United Kingdom, Germany, France, Hong Kong, Japan and Canada. Fidelity offers access to those markets plus six others: Australia, Belgium, Italy, the Netherlands, Norway and Portugal.
Buy the foreign stocks that meet your investment criteria. The online trading system for the broker will convert your U.S. dollars to local currency and buy the shares for your account. When you sell shares, you can leave the money in the foreign currency or convert back to dollars.
Research foreign companies that trade on U.S. exchanges through American Depositary Receipts, or ADRs. An ADR is a certificate that represents foreign company shares held in trust in a U.S. bank. J.P. Morgan's adr.com website allows stock search by region, country and sector.
Buy your selected ADR shares through your online broker. ADR shares trade exactly the same as U.S. company shares. The combination of access to foreign stock markets and ADRs provides a broad opportunity for international stock purchases.
Tips and warnings
- Foreign corporations do not operate under the same accounting rules as U.S. companies. Make sure you understand the financials of a foreign company before buying the stock.
- Brokerage fees and commissions for international stock trading are significantly higher than they are for buying U.S. stocks.
- Currency fluctuations can have a significant impact on the total return of foreign stocks. Understand the risks and potential of changing currency before you buy.
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