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International Sparklers for Foreign Stock First-Timers

Enjoying the fireworks and patriotic marching-band tunes? When there's a break in the action, check out the spread on your picnic table. Chances are that somewhere between the apple pie and potato puffs, there's a smattering of foreign-inspired flavors. (Fondue, pasta salad, or soy burgers, anyone?)

That's also the way your portfolio should look. It's a big world, and if your main investments are all domestic, well, that can get a bit boring and leave you with bland returns. Consider that the U.S. stock market hasn't topped the global markets' performance since 1993.

A sprinkling of investments allocated to foreign fare -- say 5% to 20% of your holdings -- can give you an edge over an all-domestic portfolio. If you've steered clear from foreign investing for fear of the risk or complexity involved, let us help you see through the smoke. 

Does your portfolio have an accent?
You may already own foreign fare. As borders become blurred and big businesses expand overseas operations and sales, investments in humongo American companies such as PepsiCo and Wal-Mart deliver a dash of international exposure to shareholders. But don't dismiss the profits the rest of the world's stocks have to offer.

ETFs -- exchange-traded funds -- make it easy to sprinkle international flavor into your portfolio. They are like bite-sized mutual funds, giving shareholders a slice of dozens, hundreds, or thousands of companies held by a fund. The most popular are based on established stock market indexes such as the S&P 500-tracking SPDR Trust (AMEX: SPY  ) , the Powershares QQQ Trust (Nasdaq: QQQQ  ) that tracks the Nasdaq 100, or the Dow-following Diamonds Trust (AMEX: DIA  ) .

But ETFs aren't limited to the big-name indexes. They also come in a multitude of categories based on an industry, sector, or -- to get back to the topic at hand -- geographic region.

The 411 on foreign ETFs
You can purchase shares in country-specific indexes around the world. The iShares MSCI Taiwan Index (NYSE: EWT  ) is one example. If you prefer, you can pick up a blend of large-cap foreign companies through shares of the iShares MSCI EAFE Index ETF (NYSE: EFA  ) .

The minimal starting investment requirements and expense ratio of most ETFs (what you pay to the management) is a fraction of what actively managed mutual funds tack on. Translation: You don't need a mountain of money to invest, and your dough is free to grow in the investment, instead of lining the pockets of some Wall Street broker.

While some foreign mutual funds have low-ish minimums (say $1,000 or less, particularly if you open an IRA with the institution), ETFs have no minimums. There's still a price to pay, though -- the commission to buy the stock. Be sure to use a low-cost discount broker to keep trading costs minimal.

More ways to go global
You can invest directly in foreign companies via American depositary receipts (ADRs), which are securities that represent shares of foreign firms. (Check out The ABCs of ADRs for more information.) Companies like Nokia (NYSE: NOK  ) and BP (NYSE: BP  ) , for instance, trade as ADRs.

For a little more guidance, consider that the Fool's own international investing guru Bill Mann -- chief advisor at our Global Gains newsletter -- likes the looks of the Taiwanese market, which he says has been undersold for years. And check out the top 10 performing countries for an interesting take on the countries that experienced the most market growth last year.

Despite years of practice, Dayana Yochim's French, Italian, and British accents still elicit laughter. Zees eez not an eeshoe at The Motley Fool Green Light, where Dayana dishes straight-shootin', action-oriented money and investing advice in plain English. She owns none of the companies mentioned in this article. The Fool has a disclosure policy.


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