Why and How to Buy Foreign Stocks – Vital Info for US Heavy Investors

In this article, I discuss why buying foreign stocks is so important now for US investors, and take a brief look at how to buy foreign stocks.

In the past, even during the worst recessions US consumers have still maintained their traditional high level of spending. This, however, is set to change, according to Mohamed El-Erian, an extremely successful investor and the CEO of Pimco.

According to him, although economists have predicted that sky-high consumer spending in the US will come to an end for years, there are very few shock-absorbers left. Houses can no longer be used as ATMS’s, cheap loans have come to an end, and unemployment levels are likely to remain (relatively) high.

However, unlike in the past the economy of the rest of the world does not rely on the US. India, China and Brazil have huge economies themselves as the middle-class is growing fast in these countries.

Mohamed El-Erian went on to say that this has important ramifications for US investors. Typically, American investors have only about a 20% exposure to overseas markets, and this is big mistake. He suggests that portfolios should be made up of 33% US, 33% other industrial countries and 33% emerging markets.

So, if you are interested in buying foreign stocks, but do not know much about it, the next important question is: How to buy foreign stocks?

Foreign stock investing remains a big mystery to a large number of American investors. As expressed by Mohamed El-Erian, however, investors really need to be exposing a large part of their portfolio to foreign markets. Here are the three easiest ways to do this:

1 – Global Mutual Funds:

Unlike for US managers, it is no big deal for global managers to outperform the markets. Good fund managers abroad succeed due to their ability to avoid dud markets. A high performing global mutual fund manager is sure to be worth the management fees.

2 – ETFs:

They offer a fast growing number of global investments. Barclays iShares is the biggest player, and it can give you exposure to over 20 foreign markets. Currently there are no ETF’s for Russia and India, and ETF’s can over weigh large companies in small markets in a way that mutual funds don’t do. With a click of the mouse, however, you can plug into the majority of the global markets with ETF’s.

3 – Buying foreign Stocks:

It has traditionally been an expensive endeavor to buy foreign stocks from the US. However, in recent time costs have come down fast. Schwab, for instance, has recently halved its foreign stocks fees. There are so many more options than there were before too. Fidelity, for example, now offers its customers shares in nearly 40 countries.

The best low-cost broker that you will find is Interactive Brokers (IB), with which you can trade on more than 50 markets in 16 countries. With IB, you can buy and sell in Tokyo, Frankfurt and London in one account just as easily as in New York.

So if you do not have any foreign stocks in your portfolio, now is the time to heed the wise words of Mohamed El-Erian, and to take a virtual trip around the world!

For more information, go to:
investopedia.com

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.