As the United States markets continue to struggle and the dollar continues to flounder around multi-year lows, foreign investing is becoming more and more popular.  Add in the fact that many commodities, such as gold and oil, are valued in United States dollars, and inflation also becomes a concern.  Unfortunately, it is very difficult for domestic stocks to keep up with inflation if the dollar is falling.  Domestic stocks that have a multi national presence are the exception, as the weak dollar leads to increased purchases by foreign consumers that are able to buy more goods at a cheaper price.  Similarly, a falling dollar can be beneficial if your are holding a foreign stock.  The most common and probably easiest way to purchase a foreign stock is by purchasing an ADR (American Depository Receipt) on the NYSE (New York Stock Exchange).

Let's use CPFL Energia (CFL) as an example.  CPFL Energia is a large electricity generator and supplier of electricity in Brazil.  When the dollar decreases in value versus the Real, the Brazilian currency, the earnings of CPFL will increase when converted back to American dollars.  The reason being is that it takes less Reals to convert to a U.S. dollar.  Another advantage is the dividend yield.  The same reasoning applies to dividends; the converted dividend will equal more U.S. dollars when the dollar is weak.  As a result, CPFL Energia is currently paying a dividend of 8%.  For the record, the Own Every Stock Portfolio does own CPFL Energia stock and the stock has had a total return of nearly 29% since being added to the portfolio on January 3, 2008.

So until the United States economy recovers from the housing mess, it may be a good time to look outside our borders for investment alternatives.  Of course, foreign investing also carries additional risks such as exchange rate fluctuations and geopolitical problems.  However, as with any portfolio, diversification is a great way to improve returns while minimizing risk.  Does this mean a well diversified portfolio will avoid losses?  Of course not, but it should help reduce losses.  Finally, foreign investing may not be for everyone, check with your investment professional or conduct your own due diligence before investing.