The Wisdom Of Owning Foreign Stocks

The Wisdom Of Owning Foreign Stocksneed for doing currency conversions when you buy or
The title may have caught your eye; if you have neversell as these conversions happen behind the scenes.
considered owning foreign stocks, now might be aThe price of the stock usually follows the price in its
good to start thinking about it. While some investorsoriginal country. Because of this, there are times when
may consider owning foreign stocks a little too exoticthe US stock prices and the originating prices dont
for their blood, successful traders should view this as amatch up well. When this happens, the US bank holding
speculative opportunity to reap some handsomethe shares may actually bundle shares together and
profits. Many investors are attracted to foreign stocksone ADR share might equal two or more of the
by the chance to participate in growing economiesoriginal shares. Learning how to invest in foreign stocks
outside of the United States. In addition, when the USis actually quite easy.
economy is less than attractive or other economies,Benefits of Owning Foreign Stocks
especially some of the emerging economies, showOwning foreign stocks has several attractive benefits.
investment potential, an investor can find goodThese benefits include:
opportunities.Global Economy Investing in companies occurs all over
Do you have room for foreign stocks?the world and opportunities have followed. There are
Before you consider purchasing any foreign stock, youmany emerging markets such as Eastern Europe, the
need to take inventory of your stock portfolio. This is aPacific Rim, and Latin America.
good practice to perform periodically, reviewing yourPortfolio Diversification In times when the US markets
portfolio and looking for holes; areas where yourand economy dont offer the best investment
portfolio doesnt align with you stock trading plan. If youalternatives, looking to other countries can give you
have a conservative plan you will need to make suremore opportunities.
you dont already have too many growth stocks. IfUncommon Returns While there can be significant risk
your plan is more aggressive, look to see if you areinvolved, foreign stocks offer risk reward ratios that
ready to add more speculative holdings. Even if youare very attractive because of the potential for
are ready, most investment professionals recommendincredible returns.
holding 10% or less of your portfolio in foreign stock; ifRisks of Owning Foreign Stocks
your trading plan is conservative, you should haveIn spite of the efforts to include foreign stocks in the
even less than 10%. This is consistent with holding ofUS stock market, there are still some very significant
speculative stocks in the US as well.risks. The currency exchange is a tricky problem
Problems with Foreign Stocksbecause currencies in other countries change much
The biggest problems with foreign stocks are thefaster than in the US; this can create wrinkles in buying
difficulties in finding, evaluating and buying themand selling foreign stocks that may work against you.
confidently. There are a growing number of stocksEconomic turmoil is another concerning factor since
that trade on the US stock exchanges. In addition, thefew countries have the structure to protect
stock market community formed the Americaninvestments from inflation; inflation can have a
Depository Receipts, or ADR, more than 75 years agodevastating effect on your return on investment, even
to help in the trading of foreign stock. The ADR workswhen the profits are high.
like this; a US bank will buy a large block of stock in aConclusion
foreign company and package them for reissue in theOwning foreign stocks can be very attractive to most
US stock market. You will be able to identify them asinvestors and they should consider it an option at some
foreign stock, because they always have ADR afterpoint, in spite of the risks. Taking a conservative
the name.approach and using your portfolio as a shield can
Foreign Stocks in the US Marketspotentially make foreign stocks a very good
One piece of good news for you; foreign stocks in theinvestment.
US markets trade in American dollars so there is no