Perhaps remembering the dot-com troubles of a few years back, some investors have played it conservatively lately and convinced themselves that international investments are better left to the leather-jacket-and-lasso swashbucklers.

But they're wrong. With its beneficial diversification for U.S. investors, international investing can actually be less risky for your portfolio -- and that's not factoring in the huge profit potential in recent years.

Why should the risk-takers have all the fun?
Foreign markets outperformed domestic markets in 2005 and again in 2006. Most other countries in the world easily beat the U.S. market -- and that's with the Dow reaching new highs.

Investing in foreign equities is no longer an exotic expedition, however. While those markets were rapidly growing, many Americans were catching on. According to Financial Research Corp., billions of U.S. investor dollars flowed into international/global funds each month during the past year. Perhaps they're heeding the advice of Wharton professor Jeremy Siegel, who is so bullish about international opportunities that he recommends a 40% focus in your portfolio.

The question to ask, then, is this: Do you have enough exposure to foreign equities?

Get started now
Going global energizes your portfolio because it gives you access to rapidly expanding economies, all while diversifying your portfolio and ultimately providing a hedge in case of trouble with domestic holdings.

A popular route to gain international exposure is via mutual funds. One solid fund -- which has the blessing of Fool fund guru Shannon Zimmerman -- is Dodge & Cox International Stock (DODFX), which boasts a 21.5% five-year return. Its top holdings include GlaxoSmithKline (NYSE:GSK) and Sony (NYSE:SNE). Dodge & Cox focuses on large-cap value stocks located abroad, and the fund charges a reasonable expense ratio of 0.7%.

The Vanguard International Value Fund (VTRIX) invests in Europe, the Pacific, and several emerging markets. It charges a very cheap 0.45% in expenses and gives you access to AstraZeneca (NYSE:AZN), Vodafone (NYSE:VOD), and Canon (NYSE:CAJ) -- three of its bigger stakes. VTRIX is heavily invested -- nearly 60% -- in Europe; another roughly 30% is in Asia, with a concentration on Japan.

Core and explore
Those funds are a great start. But if you'd like to avoid paying fund fees or just want the chance to supercharge your returns, individual stocks are the answer.

International companies should exhibit all of the traits you'd want to find in any U.S.-based investment:

  • A dominant player in industry/sector.
  • Sound management.
  • A reasonable price.

But without the safety of U.S. laws and regulations, you'll need to be extra-careful during your due diligence.

The team behind Motley Fool Global Gains, led by advisor Bill Mann, recommends that you build your own library of references, such as company press releases and filings, in an ever-growing Word document. Don't just copy and paste; read the filings and review the biographies in the proxy statements to know the people behind the company.

With the right mix of patience and prudent research, international investing can bring you S&P-beating gains.

Don't go it alone
You can view our favorite international companies for right now, as well as our country-by-country reports, with a free 30-day trial to Global Gains. It's our aim to find the most compelling undervalued companies from around the world. Come and see our current lineup of picks for free.

Rob Runett does not own shares of any company mentioned. Dodge & Cox International is a Champion Funds recommendation. Glaxo is an Income Investor pick. Vodafone is an Inside Value recommendation. The Motley Fool's disclosure policy appears on best-seller lists worldwide.