Add Some International Sparkle to Your Portfolio

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 tater tots, 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 not only get a bit boring, but also 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.

Does your portfolio have an accent?

As borders become blurred and big businesses expand overseas operations and sales, investments in humongo companies like PepsiCo and Wal-Mart deliver a dash of international exposure to shareholders. Factor the foreign fare you already own as you venture out into the world.

A purer foreign play can easily be had with ETFs -- exchange-traded funds. If you don't speak the language, ETFs make it easy to sprinkle some international flavor into your portfolio.

ETFs 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 (SNP:^GSPC), the Nasdaq 100 (AMEX:NAS), or the Dow Jones Industrial Average (DJI:^DJI).

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

You can purchase shares in indexes like iShares MSCI Taiwan Index (AMEX: EWT), iShares MSCI Singapore (AMEX: EWS), iShares MSCI Malaysia (AMEX: EWM), or a blend of large-cap foreign companies in iShares MSCI EAFE Index (EFA).

The 411 on ETFs

Why go with an ETF? 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.

Despite years of practice, Dayana Yochim's French, Italian, and British accents still elicit laughter. Zees eez not an eeshoe at www.GreenLight.Fool.com, where Dayana dishes straight-shootin', action-oriented money and investing advice in plain English.