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Ease Yourself Into Overseas Stocks

Exchange-traded funds provide a cheap way to diversify your portoflio into international investments.

If you're like many investors, you shy away from foreign stocks despite healthy economic growth abroad and the stability that diversification adds to your portfolio. Our suggestion for getting in the game: Start small and start wide. Several exchange-traded funds that cover a broad swath of countries and stocks are well diversified and cheap to own.

Begin with iShares MSCI EAFE Index fund (symbol EFA, recent price $80). This fund tracks the results of the largest stocks on the exchanges of Australia and developed nations in Europe and the Far East. It levies a modest 0.35% annual fee.


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See, that wasn't so bad. As you build tolerance for foreign stocks, consider buying ETFs that follow emerging markets. They're more volatile, but the growth is even greater. Vanguard Emerging Markets Stock ETF (VWO, $88, 0.30% expense ratio) and iShares MSCI Emerging Markets Index fund (EEM, $126, 0.75%) have exposure to stocks in countries such as South Korea, China and Brazil. The iShares fund comes with a stiffer fee but has a much longer record and tracks a broader index.

For another high-risk, high-reward opportunity, consider international small-company ETFs. Your choices here are SPDR S&P International Small Cap (GWX, $36, 0.60%) and WisdomTree International SmallCap Dividend fund (DLS, $71, 0.58%).


A word of advice about investing in ETFs: Because these stock-like index funds are so cheap and convenient to trade, many people use them to speculate and to enter and exit on impulse. You'd be wise to avoid such behavior. Instead, think of ETFs as buy-and-hold index funds that could help form the core of your portfolio.

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