One way you can diversify your international holdings is by investing in mutual funds. Mutual funds are investment products that pool capital from a number of investors and invest in a diversified portfolio of stocks, bonds, money market securities or other investments.
Mutual funds are either open- or closed-ended. Open-ended funds are the most common. With this type of mutual fund, the fund continually sells shares based on consumer demand. If you decide to sell your shares, you sell them back to the fund. These mutual funds trade only once a day at the end-of-day price. In contrast, closed-end funds are more like stocks in that a fixed number of shares are issued, sold and traded over the exchanges and over the counter. Each fund's price fluctuates throughout the day, based on investor demand.
Mutual funds pay investors through income and capital gains distributions, though you have the option of reinvesting your profits to buy more shares in the fund if you own an open-end fund.
There are four types of mutual funds that invest abroad: international funds, global funds, regional funds, and country funds. International funds, which are also known as overseas funds, invest exclusively in stock or bond markets outside of the United States. Investments may be in both well-established and emerging economies or they may be concentrated in one or the other. Global funds, or world funds, invest both domestically and internationally. Despite what the name suggests, global funds typically hold 75% of their investments in the United States. Regional funds focus on a specific geographic area, like Europe or Latin America, and country funds concentrate investments in one overseas country. The majority of country funds are closed-end funds.
As with any investment, the costs and risks associated with mutual funds vary depending on the type of fund in which you're invested.
Investors should consider the investment objectives, risks, charges, and expenses of mutual fund carefully before investing. A prospectus contains this and other information about the fund and is available through www.scottrade.com or through a Scottrade branch office. The prospectus should be read carefully before investing.