Going abroad: How to pick international funds

A couple of years ago, in an outburst of nationalism, I decided that I wanted to invest in Israeli stocks. As you can imagine, there are pretty limited options for Americans wanting to buy an all-Israel mutual fund, but I eventually did find one: it was called the Amidex.

Reading the prospectus reveals some disturbing information: the total expense ratio for the company is 3.39%! And according to the website, the fund "invests in the 35 largest Israeli companies traded on Wall Street or in Tel Aviv." So it's an index fund with an expense ratio of 3.39%, hmm ...

Morningstar published an informative piece about investing in international funds today and, not surprisingly, most of the same rules that apply to investing in American funds apply to global investing as well. The first line of the article is telling: "Investors who overlook high costs as they shop for international funds do so at their own peril." Although higher research costs may in some cases require you to put up with a higher expense ratio for your international investments, it is still the major factor to consider when picking a fund.

Be sure to read Morningstar's report if you own or are considering buying international mutual funds.