Stocks: International Stocks

Do you have a yen for Japanese stocks? Think German stocks will hit the mark?

Forgive the corny joke, it's in the service of an important lesson on international investing: Buying foreign stocks can be a great way to diversify your portfolio and find great new opportunities, and buying foreign stocks has never been easier. But, there are important factors regarding risks and rewards to consider when investing overseas, a key one being currency.

An investor's return on a stock from a foreign country is tied to changes in currency values between the U.S. dollar and that country's currency. In short, if an investor buys a Polish stock, and the zloty (the Polish currency; using the yen as an example seems too obvious) rises against the dollar between the time your buy and sell the stock, your return is worth more. If the zloty weakens, the return weakens as well.

Beyond the perils and promise of the zloty, there are other matters to consider when investing overseas. First off, just like homegrown investing, you want to find out as much as you can about the company. But some international exchanges don't require as much financial information about listed companies as U.S. exchanges do, which may result in unforeseen problems down the road. Also, rules governing trading, taxes and corporate accounting vary country to country, some being less stringent than others. Moreover, stocks in some emerging countries with less stable governments and economies are vulnerable to sudden leadership changes, surging inflation and currency problems.

The notion of international stocks offering diversity doesn't always hold true: Oftentimes, because many foreign countries rely in part on the U.S. economy for imports and exports, foreign stock markets are vulnerable to U.S. market gyrations.

This isn't to suggest that overseas investing is all gloom and doom. On the contrary, some of the hottest growth areas in the past few years have been beyond U.S. borders. Before you write off emerging markets, remember that the U.S. once fit that description.

Investors can tap into foreign countries and foreign markets in a variety of ways. First, many established international companies list stock on U.S. exchanges, either directly or sold as American depositary receipts (ADRs). Also, many multinational brokers offer clients the ability to buy stocks on foreign exchanges. In addition, there are a ton of international mutual funds and exchange-traded funds that offer investors an easier way to get overseas exposure.

Over There!

TheStreet.com brings you the world, with daily coverage of international markets as well as periodic columns that offer timely investment strategies. For starters, the following stories provide sound investing advice to help you translate foreign bets into stellar returns:

Get Familiar With Foreign Stocks

Investing Overseas for Double the Payoff

China's Great Expectations

Got a Yen for Japan?

LatAm Es Muy Caliente Now

12 Growth Stars Shine in Foreign Lands

Talking Emerging Markets With Mark Madden