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I want to buy shares in a company that is listed abroad. How do I do it within the U.S. without getting stung with large minimum investments and high fees? -- A.B.

As an investor, there eventually comes a time when you want to spread your wings and expand the investment options that are available to you. Foreign stocks offer a whole world (literally) of investment possibilities, but there are some serious concerns with investing in a

company whose

stock trades outside the United States. Here's how you can invest overseas without sinking your financial ship along the way.

First, Why Invest in Foreign Stocks?

There's a big financial world outside our borders. Foreign investment opportunities are myriad and filled with potential. Stock

markets in other countries often experience faster growth than our own markets do. For example, in China, the

Shanghai Stock Exchange's SSE 50 Index

has returned more than 190% since January 2004, a period over which the

S&P 500

(SPY) - Get SPDR S&P 500 ETF Trust Report

has returned 38.6%. Much of this growth overseas can be attributed to the fact that the entire economy is growing at warp speed in many developing nations (commonly referred to as "

emerging markets"). Not a bad thing to tap into.

Besides the economywide draw of investing overseas, you may discover individual companies abroad that are also just too attractive of an investment to pass up. So what's an adventurous investor to do?

How to Invest in Foreign Stocks

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There are quite a few ways to invest in foreign stocks. Buying these stocks doesn't have to be complicated or expensive. In fact, it can be no more involved than investing in any domestic stock.

Here are some investment avenues to consider:

International Mutual Funds and ETFs

. There are loads of domestically available

mutual funds and exchange-traded funds (

ETFs) that offer investors a whole portfolio of international stocks and

bonds. (Check out Ratings' list of the

top international ETFs.) These are by far the simplest choice for an individual investor. Why? The

portfolio manager handles the picks, and since the fund is based here in the U.S., buying it is no different than buying any other mutual fund. Naturally, the main limitation with investing in a fund of this type is a lack of portfolio customization.

American Depositary Receipts.

One way around a fund's lack of personalization is to invest in American depositary receipts (

ADRs). ADRs are certificates that essentially entitle you to shares of a specific foreign stock. They are listed and traded on major American exchanges (most report to the

SEC and file statements that comply with GAAP), and are denominated in U.S. dollars.

ADRs provide a way for investors to own a foreign

security without having to deal with the issues relating to actually holding the security in a

brokerage account. There are literally thousands of ADRs out there, mainly from major foreign companies, so it's not hard to find a nice addition for your portfolio in an ADR.

Holding Foreign Securities in Your Account.

If investing in foreign stocks through domestic alternatives like mutual funds and ADRs doesn't suit your needs, another way to invest abroad is by directly buying foreign stocks on the foreign exchanges they trade on. This can be done in two different ways: either by holding the stocks in your American brokerage account or by opening up a new account with a foreign


These are the two more complex choices for foreign investing. If you want to buy foreign stocks with your current broker, good luck. Few brokers currently offer their clients the ability to invest directly in foreign stocks. If this is the case with your broker, it's advisable to ask them whether they can suggest an affiliated foreign broker to open an account with.

Opening a foreign brokerage account can be a hassle in many places and impossible in others, especially in emerging markets that regulate outside investment. Refer to your prospective broker if you have any questions or concerns about the legal and tax implications of opening your foreign account. (For a refresher course on how to open a brokerage account,

click here.)

International Concerns

It's important to remember that not all investments abroad are as safe as investments here at home.


a company is located can have an even greater impact on your investment than how they make money. This is especially true of companies who trade in developing nations. Highly

volatile economies, low trading

volume, and poor regulation can all contribute to the financial implosion of an otherwise enticing investment.

Because accounting standards can be anything but standard in other countries, financial reporting is very susceptible to inaccuracies in some places. It's pretty disconcerting to have to wonder whether that

annual report you're reading contains more fiction than a Dan Brown novel. For those not versed in the intricacies of breaking down financial reports, limiting your investment to industrialized nations will definitely marginalize that

risk. (To get started with financial statements,

click here.)

Nonfinancial issues can also have an impact on your investment in a foreign company. For example, dealing with language barriers (with your broker or with the company's filings) can be a consequence of investing abroad.

While there are admittedly quite a few things to consider when investing in foreign companies, the upside can make the hurdles well worth it.

The Bottom Line

Complications grow exponentially when you invest in foreign stocks directly, which is why buying domestic investments based on foreign stocks (like mutual funds, ETFs and ADRs) can be a good solution for newer investors.

Investing in companies abroad shouldn't be done on a whim. However, with a reasonable amount of understanding, foreign investments can translate into some huge gains for your


To learn more about international investing, check out these recent stories on


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  • Heed the Red Flag on China-Focused Funds

Jonas Elmerraji is the founder and publisher of, an online business magazine for young investors.