Buying foreign stocks directly can be done, but isn't easy

ByUSA Today

— -- Q: I want to invest directly in European stocks, not through ADRs. Is there a way to do that?

A: European stocks have been strong performers of late. The Vanguard European ETF vgk, which tracks the performance of European stocks, has gained roughly 15% this year, easily topping the USA-focused Standard & Poor's 500 index. The unexpected outperformance of European stocks is a good reminder why owning some international stocks is a good idea for nearly all investors. And if nothing else, it spreads your risk over a wider array of companies and economies.

The easiest way to invest in European stocks is through American depositary receipts (ADRs) or exchange-traded funds (ETFs). These investment vehicles handle all the currency conversions and buy the foreign stocks. You can buy ADRs or exchange-traded funds in dollars and can leave the currency headaches to someone else for a relatively small fee.

However, some investors don't want ADRs because they still leave you exposed to currency risk, namely the decline in the value of the dollar. To avoid that, you will have to buy the securities directly on foreign exchanges.

Buying stocks on foreign exchanges is more difficult than buying ADRs, but doable. Several online brokerages have special offerings that allow you to buy and sell securities directly on select overseas markets. E-Trade and Interactive Brokers are the two that promote this capability the most. But if you're not with either of those firms, you'll want to ask your broker if it offers direct access.

Matt Krantz is a financial markets reporter at USA TODAY. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.

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