With thousands of companies listed on the London Stock Exchange (LSE), and the vast amount of media coverage that they generate, it's easy to forget that the UK represents just a tiny part of the investment universe.
By doing so, we limit our ability to get exposure to the world's fastest-growing markets. The FTSE 100 returned more than 7% last year, a decent rise, but one that pales into insignificance compared to the gains made by some emerging markets the Egyptian market returned 104% in 2004, for example, and most remain convinced that the next decade will see Asian markets hugely outperforming the UK.
But buying abroad isn't just about getting exposure to distant lands. It is also about getting exposure to high-quality companies in important global sectors.
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If you want to buy into a blue chip oil firm, look no further than the FTSE 100 both BP and Shell will do. But the story changes when it comes to technology. The only UK blue chip is accounting software-giant Sage.
"We have nothing that can compare with Microsoft or Google," Mark Dampier of Hargreaves Lansdown points out in The Times. Similarly, those banking on gold should look beyond our shores, says Fat Prophet's Greg Smith. America has several blue-chip gold stocks, such as Newmont Mining (a MoneyWeek favourite) and Barrick Gold, but the UK has no such proven firms.
The good news is that the internet has made the job of rooting out information on foreign stocks a lot easier most firms have websites (in English), and financial news sites also carry details of what's been happening on global markets.
But note that buying abroad comes with an extra risk: when you buy, you buy in the local currency, so the exchange rate could see you lose out when you come to sell. Still, that cuts both ways: if the pound keeps falling, you could gain too.
So, once you've decided to buy a stock abroad, what do you do? The answer is almost exactly what you'd do to buy a London-listed share. It used to be difficult and expensive for private investors to venture abroad; the internet has changed all that. Most big name online brokers offer trading in stocks listed in the US and on European markets, as well as more exotic climes, such as South Africa, Japan, Australia and Asia (see below). And prices for deals start from as little as £7 a trade with broker Hoodless Brennan, though most charge a little more for foreign than for domestic deals.
Some brokers may insist on arranging foreign dealings by telephone, but most can deal via the web. Easy. But there's one caveat, says Kathryn Cooper in The Times. When looking for a broker offering foreign trading, "check the type of service offered", she says. Some brokers, including Hoodless Brennan, use LSE's International Retail Service. This is a secondary market trading in sterling and offering access only to foreign giants 300 international stocks, including Coca-Cola and Microsoft. It also only operates during London market hours, which could crimp your trading style.
The best and easiest way to diversify abroad
If you'd like exposure to a broad range of US or European stocks, try Exchange-Traded Funds (ETFs). These are similar to low-cost index trackers in that they give you exposure to an array of stocks across a market or sector.
The difference is in their price (they're often cheaper) and that they can be traded throughout the day in the same way as ordinary shares (unlike tracker funds, which have their price set at the end of each day).
The most popular US-based ETFs, says David Kuo in Motley Fool, include the Nasdaq 100 Trust and the Diamonds Trust, which track the tech-heavy Nasdaq and blue chip Dow Jones indices respectively. Those who want to follow the S&P 500 can buy S&P Depository Receipts (also known as Spiders) while those keen on small caps can go for the S&P Small Cap/600Barra Value Index Fund. Also listed in the US are country-specific ETFS, such as the iShares MSCI Brazil Index, which soared a fantastic 80% last year.
But you can also buy listed ETFs on the London Stock Exchange. The iShares S&P 500 is an alternative way to get exposure to the US index, for example, while the MSCI Japan ETF will give you exposure to a cross section of the Japanese market. There are also several UK-listed ETFs that give access to the European bond and equity markets. For more on UK-listed ETFs, see www.ishares.com.
And of course, you can always buy into a fund specialising in a single country, or region. The best way to buy these is through an online fund supermarket, which will cut initial and annual charges, usually by a substantial amount.
Online brokers that deal in foreign stocks
Squaregain (www.squaregain.com)
Fee: £12.50 flat fee for UK and international trades.
International coverage: 300 international stocks via LSE's International Retail Service.
Barclays Stockbrokers (www.stockbrokers.barclays.com)www.stockbrokers.barclays.com)
Fee: Commission on international trades is 1.75% for first £10,000 and falls as the invested sum rises. Minimum fee is £45 for US and Canada, £100 for all others.
International coverage: All US and Canadian markets, most western European, Australia, New Zealand, South Africa, Hong Kong, Japan, Thailand and Singapore.
Hoodless Brennan (www.hoodlessbrennan.com)
Fee: £7 flat fee on UK and international deals.
International coverage: 300 stocks via International Retail Service.
TD Waterhouse (www.tdwtrader.co.uk)
Fee: From £11.95 for frequent traders. £12.50 flat rate.
International coverage: New York, Toronto, Frankfurt, Paris, Amsterdam, Brussels, Madrid, Zurich, Stockholm, Australia, Hong Kong, Singapore.
Iweb (www.iwebsharedealing.co.uk)
Fee: £10 per UK deal, £15 for US and European deals.
International coverage: Markets include Nasdaq, Amex, Frankfurt, Amsterdam, Brussels and Milan.
