Some basic strategies for (safely) sending your money overseas

James Stack, who publishes InvesTech, a market commentary in Whitefish, Mont., is known as a cautious investor. But careful as he is about stashing his money, Mr. Stack is not averse to looking abroad. His model portfolio, as of early March, has a small position – about 4 percent – in international mutual funds.

The reason: diversification. International investing, according to experts such as Stack, allows a person to hedge their positions in the giant US market by buying quality companies from abroad.

Roughly half the world market capitalization is now found outside the US. And for small investors, experts say, there have never been as many painless ways to invest in overseas markets as there are now. Nor have the costs linked with international investing ever been so low.

Here's how a person can legitimately invest in overseas firms without losing too much sleep at night.

ADRs. Technically known as American Depositary Receipts, these are holdings in global firms, such as Sony, Nokia, British Petroleum, Shell Oil, British Telecom, that are listed on US exchanges. Many of the firms are "self-sponsored": The companies pick up administrative costs. "Unsponsored" companies, usually smaller firms, can also be obtained through brokers, but have higher commission charges.

Buying shares in an ADR is easy: Any stockbroker can get you in. You will have to pay a brokerage commission and fill out a few forms. That's about it.

International mutual funds. These are "pure play" funds that invest in overseas companies and can be obtained through most fund groups. Some prominent firms – such as Templeton, now part of Franklin-Templeton – specialize in the funds. International funds invest only in companies headquartered outside the United States. "Global," or "world" funds," in contrast, carry both international and US companies.

"If you already own a US mutual fund, you will want to get an international fund for genuine diversification," says Bridget Hughes, who tracks international funds for information firm Morningstar Inc., in Chicago. Ms. Hughes believes small investors should have between 10 percent and 30 percent of their assets in international companies.

Emerging-market funds. Along with gold funds, these are the go-go funds of 2002. According to Lipper, Inc., emerging-market funds are up 11 percent since Dec. 31, 2001. (Gold funds, which are widely considered to be more volatile, are up 18 percent.)

US multinational companies. Consider buying firms that derive a substantial part of their earnings from abroad. Example: IBM, McDonald's, Boeing, Gillette, General Motors, are all firms with sizable sales abroad. One can buy such companies either as individual stocks, through a broker, or mutual funds that specialize in such companies. Examples: The Papp-America Abroad Fund, and Papp-America-Pacific Rim Fund, which invest in US firms with a strong overseas presence, as well as overseas firms operating in the US.

Finally, most experts stress that small investors are probably best off not directly investing abroad – such as through currency-trading ventures or overseas bank accounts. Such trading is highly sophisticated, subject to fraud, costly, and requires day-to-day monitoring.

If you want to buy international stocks or bonds, the easiest way, says Ms. Hughes, is just to invest in a well-known international mutual fund.