International stocks are an excellent way for investors to diversify away from a portfolio of only U.S. based companies. There are several investment channels an investor can use to add international stocks to his investment portfolio. The ways to buy international stocks range from options which are simple to execute to those possibly requiring a tax attorney.
American Depository Receipt
American depository receipts -- ADRs -- are shares trading on the U.S. stock exchanges representing the shares of foreign companies. Each ADR is backed by a foreign stock share or shares held in trust by a U.S. bank. ADR shares are purchased like any U.S. stock shares using a regular brokerage account. Foreign stocks listed as ADRs in the U.S. must meet specific financial reporting requirements. Also, the share values and all earned dividends are converted to U.S. dollars from the home currency of an international stock.
U.S. Broker - International Stock
Several U.S. brokerage firms allow investors to add international stock trading privileges to their brokerage accounts. With these trading authorizations, investors can buy stocks trading in the major markets such as London, Germany, France, Canada, Australia and Japan. An investor's U.S. dollars will be converted to the foreign currency and the shares will be held in the home country currency. Account fees and commissions will be significantly higher buying international stocks in this manner when compared to buying U.S. shares or ADR shares.
International Brokerage Account
It may be possible to open a brokerage account in a foreign country to buy and sell the stock shares traded in that country. An investor should have a very high level of knowledge about the country's stock market and security laws before attempting to buy international stocks through this method. Investments held in a foreign brokerage account have no protections from the U.S. securities laws. The Internal Revenue Service requires anyone with a foreign brokerage account yearly to the IRS.
Investors can access pools of international stocks by investing in international mutual funds or exchange traded funds -- ETFs. There are numerous funds of either type that own only international stocks. Using a fund gives an investor an investment in a diversified portfolio of stocks. Some funds hold stocks from all over the world and others focus on specific regions or even single countries.
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