Many U.S. investors load up their portfolios with U.S. stocks, but a properly diversified portfolio will contain at least some exposure to global equities. Whether that exposure is to stocks from developed nations or emerging markets, international holdings can prove beneficial when risk appetite is high and global economies are growing. Fortunately, investors have options for mitigating the costs of global investing.
As is the case with some U.S. companies, some foreign firms allow investors to purchase shares direct from the company. In some cases there are minimal or no transaction costs, though investors will have to purchase a minimum number of shares, usually one. Some companies require a minimum dollar investment. Another similarity direct purchases of foreign stocks shares with U.S. stocks is that investors will likely be getting involved with a large-cap, dividend-paying company. Most foreign stocks with direct purchase plans are developed market companies.
As the allure of investing abroad has increased, many U.S.-based brokers have made international markets more accessible to their clients. Investors that have significant liquid capital or those that plan to actively trade foreign stocks can shop around, approach various brokers and inquire about lower-than-advertised commissions. Well-known brokers such as Charles Schwab and TD Ameritrade do offer access to foreign markets, but it is usually to developed markets such as Canada, Germany and the U.K.
One way to avoid brokerage costs altogether with dividend stocks, foreign or domestic, is to use a dividend reinvestment plan, or DRIP. Shares purchased with reinvested dividends are not subject to brokerage costs, though not all foreign companies offer DRIPs to U.S. investors. Investors that want to reinvest dividends in foreign companies that do not offer DRIPs can do so by purchasing shares the traditional way and asking their brokers to automatically reinvest the dividends. Most brokers do this for free.
Exchange Traded Funds
Exchange traded funds, or ETFs, are another way for investors to cut commissions out of the equation when it comes to foreign stocks. ETFs offer investors an avenue for accessing scores of developed and emerging markets without the burden of having to stock-pick among unfamiliar foreign equities because these funds often hold dozens of stocks from multiple sectors. TD Ameritrade, Charles Schwab, Fidelity, Interactive Brokers and Vanguard are among the firms that offer commission-free ETF trading and those offerings include free commissions on select international ETFs.
Todd Shriber is a financial writer who started covering financial markets in 2000. He worked for three years with Bloomberg News and specializes in analysis of stocks, sectors and exchange-traded funds. Shriber has a Bachelor of Science in broadcast journalism from Texas Christian University.