A U.S. Investor's Guide to Buying International Stocks
By Rachel CurryUpdated
Relying on a single nation's stock market to bring you returns isn't always the most profitable solution. If the U.S. market crashes, investors who only hold domestic securities will bear the brunt of it. That's where international stocks come into play.
Of course, international investing comes with certain challenges and risks—but so do domestic stocks. Here are a handful of ways to invest in foreign stocks from the comfort of the web.
How to buy foreign stocks on Robinhood
Robinhood doesn't directly support stocks from foreign exchanges, but that's not a one-size-fits-all rule. If an international stock has an American Depository Receipt (ADR), Robinhood may offer those shares to its users.
Currently, Robinhood supports ADRs for more than 650 companies with global listings.
You can't trade select securities on the OTC markets (though they do trade some, like Panasonic). Preferred stocks and foreign-domiciled stocks are also off limits. Most likely, Robinhood sets this up to mitigate risk for general public users, who aren't always investment experts.
How to invest in foreign stocks using ETFs
ETF assets under management are still surging after years of growing popularity. As such, it makes sense that international stocks would find their way into these funds.
There are so many ETF options that contain foreign equities. You can base your decision on a region, subsector, or other factor that determines the holdings within the basket. Here are just a few, but investors ought to explore their options:
- Invesco BLDRS Emerging Markets 50 ADR (ADRE)
- SPDR Portfolio Europe ETF (SPEU)
- iShares Core MSCI Pacific ETF (IPAC)
ETFs are also a tax-efficient way to trade, which could help offset high expense fees that accompany international trading.
Buying international stocks with global mutual funds
Pax Ellevate Global Women’s Index Fund ($PXWIX) invests in companies with higher gender diversity on boards. Here's how it checked out against NASDAQ, S&P 500, and Dow Jones ETFs. Correlation ≠ causation, but what's the bet this data can't get discussed anywhere. (h/t @dpinsen) pic.twitter.com/JozUu3BvKB
— Riva (@rivatez) October 1, 2018
You can also use mutual funds with global exposure to help you get your international fix.
Mutual and index funds differ from ETFs because they're traded at specific points in the day. Plus, mutual funds trade at a flat dollar amount rather than a fluctuating share price. Here are some examples:
- Pax Ellevate Global Women’s Leadership Fund (PXWIX)
- Fidelity International Index Fund (FSPSX)
- Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
Less common options for trading internationally
Who is investing in #Africa? Foreign Direct Investment (FDI) is mainly from Europe but, increasingly, it is African countries that are investing in the continent #AIF2018 @AfDB_Group pic.twitter.com/OpnGAYVlP9
— Simon Mizrahi (@sbmizrahi) October 28, 2018
If you're bent on getting real experience with trading foreign stocks, you can always opt for direct foreign investing. Open up a global account with a domestic broker or open up an account with a local broker in the country whose market you wish to penetrate.
This works best if you're targeting a specific country or region for your investments. Always stay vigilant and confirm the legitimacy of a broker before diving in.
Multinational corporations may help you if you don't want to trade directly. However, fees will be big—so the investment needs to be sizeable enough to be worth your while.
Are international stocks worth it?
For the average U.S. investor, trading foreign stocks is best done through ETFs and index funds. Big-time investors (and institutional investors) may prefer to take a more direct route, but for most of us, that's unnecessary.
All things considered, it's a smart move to incorporate international stocks as a tool for diversification.
