Global Investing Made Simple

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If you haven't yet added foreign stocks to your portfolio, you've missed an amazing run. Even as foreign markets have tumbled this year, the MSCI EAFE index has beaten the pants off the S&P 500 over the past five years. And the good news is, this run isn't over. And even better news? You don't need to directly buy foreign stocks to participate.

If, like many investors, you've hesitated to jump in because of concerns about directly owning foreign stocks, I totally understand. I've been in the same boat. But there are ways to avoid those challenges, yet still profit handsomely from this great global bull run.

Funds ... and more funds
For starters, you could buy a mutual fund that specializes in international investing. Actively managed mutual funds do have some drawbacks, but some offer consistently strong performance at a fair price. One of my favorites is Dodge & Cox International Stock. This big-but-nimble no-load fund focuses on large-cap value opportunities, including heavyweights such as Hitachi (NYSE: HIT) and Nokia (NYSE: NOK). It's returned an annualized 20% in each of the last five years. Fees are very competitive, and the fund's management is among the best in the business.

Indexing with ETFs
Exchange-traded funds -- essentially, index funds whose shares are traded on a stock exchange -- offer a very simple way to add international exposure to your portfolio, with less hassle than a traditional mutual fund. There are hundreds of ETFs, with more being launched every week, but Barclays (NYSE: BCS) remains the leader in global index ETF investing -- along with its line of iShares ETFs, it covers the entire spectrum of investment styles.

For a retirement investor looking to diversify with a minimum of fuss, ETFs that track broad-based global indices, such as the iShares MSCI EAFE Index Fund (NYSE: EFA) or the iShares MSCI Emerging Markets Index Fund (NYSE: EEM), are good choices. The first focuses on investments in developed countries, such as BP, Novartis (NYSE: NVS), and Vodafone (NYSE: VOD), while the second gives you exposure to up-and-coming companies in countries like Brazil, India, and China.

Instant portfolio ... just add trades!
If you have a stock portfolio, and you're planning to hold it for more than a few years, you've got to have some international exposure. Half of the world's public companies reside outside the U.S., and they now include some of the world's greatest growth stories. The best mutual funds and ETFs make acquiring this exposure painless, and their recent returns have been stellar.

I've held a small group of international funds and ETFs for a few years now, and I've been very pleased with the returns. If you don't have any global exposure right now, buying the funds I listed above is a great no-fuss way to get rolling immediately.

One more thing
Here's one last idea to ponder. Mutual funds and ETFs are a quick, easy, and effective way to get in on the global stock market. But as you get more comfortable and familiar with international investing, you'll want to consider the potentially higher returns that choosing individual stocks for your portfolio can bring.

Once you become more familiar with the currency and political risks facing countries around the world, as well as the global trends that spell opportunity for investors, you'll feel more confident about choosing companies with the greatest potential for future success. The odds are good that some tiny companies in emerging economies will become tomorrow's megacaps.

But it's better to get started in the shallow end than never to jump in the pool. Adding global exposure to your portfolio is essential to making sure you'll profit from innovations across the world as well as right here at home.