3 easy ways to tap into global stock market profits

High-quality foreign stocks are a great way to diversify your portfolio. Moreover, many emerging markets, like China and India, have strong growth prospects. That’s because their people are generally younger than North Americans, and more of them have the potential to advance into the middle class.

Even so, global stock market investing remains riskier than investing in North America. That’s because many emerging countries have language barriers, weak investor-protection laws, less commitment to openness, fairness and so on.

Here are 3 simple ways to tap into global stock market profits at lower risk:

1. International exchange-traded funds (ETFs): Exchange-traded funds offer investors more benefits than ever before, mainly because of increased competition. That can make them good choices for certain parts of your portfolio — such as the portion you devote to global stock market investing. A good example of an international exchange-traded fund is iShares MSCI Brazil Index Fund (symbol EWZ on New York), which we cover in our Canadian Wealth Advisor newsletter.

Exchange-traded funds mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that are chosen to represent the holdings that go into the calculation of the index or sub-index.

Exchange-traded funds trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. The best exchange-traded funds offer well-diversified, tax-efficient portfolios with exceptionally low management fees. They are also very liquid.

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2. Blue-chip U.S. companies: A simple way to gain international exposure at lower risk is to invest in U.S. stocks. We advise keeping around 25% of your portfolio in U.S. stocks, or mutual funds that hold them. That’s because many blue-chip U.S. stocks have operations in many countries. This will let them benefit from a rebounding global economy, as well as a return to prosperity in the U.S.

3. New York American Depositary Receipts (ADRs): An American Depositary Receipt is an investment unit for foreign companies that trade on a U.S. stock market. These units can represent fractions of shares, whole shares, or multiple shares in the foreign company. ADRs can help you simplify your global stock market investing by letting you buy foreign shares on U.S. exchanges without the complications of buying or selling on a foreign exchange, in a foreign currency.

These investments also help you cut risk, because American Depositary Receipts have to follow some U.S. Securities and Exchange Commission and New York Stock Exchange rules. Toyota (symbol TM on New York) and Sony (symbol SNE on New York), are two examples of foreign firms that trade as American Depositary Receipts on the New York Stock Exchange. We cover both stocks in our Wall Street Stock Forecaster newsletter.

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