At a time when everyone seems to be worried about risk, you'd think that investors would be clamoring to stay in ultra-conservative investments like bonds and cash. But instead, they've flocked to the stock market, pushing up shares of U.S. companies in a huge multi-month rally.

But as strong as stocks have performed here at home, you can only find the real action by going beyond our borders. Many foreign markets are trouncing American stocks -- and if you've missed out, then you need to know what to do to get your money moving in the global economy.

What's up?
Let's face it -- the recent multi-month rally that's approaching a 50% gain for the S&P 500 has reinvigorated investors' appetite for U.S. stocks. But even with that big rally off March's lows, the index is up less than 10% for the year. Meanwhile, many foreign markets are up quite a bit more:


Stock Market Return

















Source: Returns are in U.S. dollar terms as of July 29.

So how can you invest in these economies? Investors have three main choices available to them.

1. Go with a mutual fund.
To get a diversified portfolio of international stocks with minimal effort, a foreign stock mutual fund is the easiest way to go. You can pick general foreign stock funds that include investments from around the world, or more specialized funds that focus on particular areas or industries.

For instance, the Tweedy Browne Global Value Fund (TBGVX) has given investors a solid return of 3.8% annually over the past 10 years, with a portfolio that includes worldwide investments like Philip Morris International (NYSE:PM), Total (NYSE:TOT), and Femsa.

In contrast, a more specialized fund, the Matthews Pacific Tiger Fund (MAPTX), has put together an even more impressive five-year return of 16.7% per year by focusing on Asian stocks, including (NASDAQ:CTRP) and Infosys Technologies (NASDAQ:INFY).

2. Jump into ETFs.
For those looking for a more cost-effective choice than actively managed mutual funds, ETFs can provide some cost savings. Broad-based selections like iShares MSCI EAFE ETF and Vanguard Emerging Markets Stock ETF come with relatively low costs but track well-established, diversified indexes that include stocks from across the globe.

With ETFs, it's also easy to drill down to specific countries. For instance, those interested in Brazil can buy shares of iShares MSCI Brazil Index, which has more than 30% of its assets in Petroleo Brasileiro (NYSE:PBR) and Vale (NYSE:VALE).

3. Let them come to you.
Some foreign stocks only trade on foreign exchanges. But in many cases, you can invest in foreign companies through the use of ADRs that are listed on U.S. exchanges. For instance, through ADRs, you can buy shares of companies like Vodafone to Teva Pharmaceutical (NASDAQ:TEVA).

How ADRs, or American depositary receipts, work is relatively simple. A financial institution buys shares of stock on a foreign exchange. It then issues receipts for those shares, and those receipts trade in the U.S. stock market. In essence, the receipt is equivalent to a certain number of shares of stock, though different levels of ADRs have different rules and regulations regarding transparency and financial reporting. However, holders are entitled to all the financial benefits of share ownership -- though without voting rights.

Go west -- or some other direction
Of course, some would argue that the worst time to invest in foreign markets is after they've already recovered substantially. Yet while foreign markets can fall hard -- many fell further than the U.S. in 2008 -- they've also enjoyed some long runs of strong returns in the past. Moreover, with the global economy continuing to be increasingly integrated, it's more important than ever to have part of your money invested abroad.

Whether you're interested in Taiwan or Turkey, Mexico or Malaysia, you'll find many different ways to invest in foreign stocks. Take advantage of one or more of them, and you'll open the door to brand-new profit potential for your portfolio.

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Fool contributor Dan Caplinger has been investing abroad since almost before he invested in U.S. stocks. He owns shares of Philip Morris International. Tweedy Browne Global Value and Matthews Pacific Tiger are Motley Fool Champion Funds picks. Petroleo Brasileiro and Total are Motley Fool Income Investor selections. Philip Morris International is a Motley Fool Global Gains pick. is a Motley Fool Hidden Gems recommendation. The Fool owns shares of Vanguard Emerging Markets Stock ETF. Try any of our Foolish newsletters today, free for 30 days.

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