The rise of globalized markets has forced everyone to become a global investor. If you're nervous about putting your money to work overseas, though, there are several ways you can ease yourself into international stock markets without feeling like you're getting in over your head.
Reaching out for higher profits
Lately, the U.S. economy has fallen on hard times. Unemployment is pushing double-digit levels, and jobs are still being lost each month. The biggest contributors to growth in the country's gross domestic product last quarter were various government stimulus programs, including Cash for Clunkers and the tax credit for first-time homebuyers.
The impact of the problems the U.S. has faced recently has been felt around the world. But many countries, including emerging-market economies like China and Brazil, have managed to sustain strong economic growth despite the headwinds created by the global recession. Moreover, their stock markets have seen huge successes recently. China's Baidu (Nasdaq: BIDU ) and Netease.com have both seen explosive growth from March's lows, as have Brazilian giants Petroleo Brasileiro and Vale (NYSE: VALE ) .
Fear of flying
With the U.S. economy facing a questionable future while other countries around the world continue to leap ahead, you can't afford to keep your money close to home. But many investors are understandably nervous about investing abroad. Unlike investing in the U.S., foreign stocks don't automatically give you the same protection that entities like the SEC provide you here at home.
Moreover, many countries around the world don't have the same well-established commitment to capitalism that you find among developed countries. That can raise concerns of extraordinary events like nationalization of key industries and government confiscation of assets, which can cost you your entire investment.
That's why you might not want to jump into international stocks all at once. To give you a sense of what it takes to be a global investor, try out these three pieces of advice.
1. Let your stocks travel for you.
To be part of the global economy, you don't have to take a penny of your own money overseas. Plenty of well-established U.S. companies earn a huge portion of their overall revenue from abroad. Here are some examples:
|
Company
|
Share of Revenue From Overseas
|
|
PepsiCo (NYSE: PEP )
|
48%
|
|
Yum! Brands (NYSE: YUM )
|
55%
|
|
Baker Hughes
|
62%
|
|
Monsanto (NYSE: MON )
|
45%
|
|
Cisco Systems (Nasdaq: CSCO )
|
46%*
|
|
Sun Microsystems
|
63%
|
|
Coca-Cola (NYSE: KO )
|
52%*
|
Source: Capital IQ, a division of Standard and Poor's. *Does not include Canadian revenue. Coca-Cola overseas revenue also excludes corporate division.
Moreover, many of these companies have a substantial presence specifically in emerging markets. Yum! Brands got nearly 28% of its revenue from China in 2008. Sun Microsystems attributed almost 16% of its 2008 revenue to emerging markets.
2. Invest in who you know.
Conversely, plenty of foreign companies do a huge amount of their business within the U.S., and the odds are that you're familiar with many of their products. Whether it's the car in your garage from Toyota Motor or scarfing down Crunch bars from Nestle, looking for names you already know well can make it easier to gain confidence with international investing.
3. Find a good fund.
It's easy to do research on U.S. stocks by yourself. But given the barriers of language, accounting systems, and other unfamiliar complexities, you might prefer some help investing in international companies.
Plenty of mutual funds, including both passive indexes and actively managed funds, can steer you in the right direction. Be prepared to pay somewhat higher expenses than you'll see with domestic funds because of the increased costs for the fund of trading and maintaining global operations. But over time, many funds have put together market-beating track records in the global markets.
Whichever way you do it, you need to become a global investor. By looking beyond the nation's borders, you'll bring your portfolio into the 21st century -- and you'll pave the way to enjoy the benefits of the best investments the world has to offer.
International investing expert and Motley Fool Global Gains co-advisor Tim Hanson recently answered questions from readers like you. Find out what he had to say right here.
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