Investing in Foreign Stock Exchanges

Most of the companies that catch the eyes of mainstream investors are traded on the Nasdaq, New York Stock Exchange, or American Exchange. But what about those foreign companies that have potential, is there any way for a U.S.-based investor to get in on that action? Sure.

Doing your research may be a bit more difficult, however. Besides potential language barriers, a lot of the common free research tools that you have at your disposal won't have information on stocks that are listed on non-U.S. exchanges. In addition, since they are not governed by the SEC, excellent research tools such as a company's 10-K and 10-Q are nonexistent.

Also, in addition to the inherent difficulties in researching the companies themselves, you must also know something about the foreign countries, their regulations, economics, currency fluctuation, and political situation. When you're investing in a more established market, such as the U.K., you have less to worry about; but investing in companies traded on stock markets in places like India or South America present additional political worries.

Not all foreign markets are open to outside investors, but there are nonetheless plenty to choose from. One thing to consider is that investing part of your portfolio in foreign markets can be a wise diversification move. The U.S. economy isn't infallible, and it may well be that when the Dow is down, the FTSE 100 is up. Foreign investing will also give you an opportunity to take advantage of emerging economies such as Poland and other countries in the former Soviet bloc, many of which represent huge potential future growth.

Most domestic brokerages will offer you the ability to purchase foreign securities, although you may have to pay a higher commission. Online brokerages, outside of some specialty houses, will probably require you to place your orders for foreign stocks on the phone instead of through your usual online portal.

A good way to get into foreign stocks without having to do all the legwork is to invest in a professionally managed international stock fund.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.