International Investing Guide
The US represents about 60% of global market cap. Here's how to access the other 40%—and whether you should.
Why Invest Internationally?
Diversification
US and international markets don't always move together. International stocks can zig when US stocks zag.
Access Growth
Emerging markets have faster GDP growth. While this doesn't guarantee stock returns, it creates opportunities.
Valuation
International stocks often trade at lower valuations than US stocks. Lower P/E ratios can mean higher expected returns.
Ways to Invest Internationally
1. International ETFs (Easiest)
Buy a single ETF for broad international exposure:
| ETF | Focus | Expense |
|---|---|---|
| VXUS | Total International (ex-US) | 0.07% |
| IXUS | Total International (ex-US) | 0.07% |
| VEA | Developed Markets (ex-US) | 0.05% |
| VWO | Emerging Markets | 0.08% |
| EFA | Developed Markets (EAFE) | 0.32% |
| EEM | Emerging Markets | 0.69% |
2. ADRs (American Depositary Receipts)
Foreign stocks that trade on US exchanges in US dollars. Examples: Toyota (TM), Alibaba (BABA), TSMC (TSM), Nestle (NSRGY).
Trade like US stocks—no special account needed. But selection is limited to companies with ADR programs.
3. Direct Foreign Market Access
Buy stocks directly on foreign exchanges (Tokyo, London, Frankfurt). Requires a broker with international access.
Interactive Brokers is the best for this—access to 150+ markets in 33 countries. Most other US brokers offer limited or no direct foreign access.
Developed vs. Emerging Markets
Developed Markets
Japan, UK, Germany, France, Australia, Canada. Stable economies, established companies, lower risk.
Emerging Markets
China, India, Brazil, Taiwan, South Korea. Higher growth potential, higher risk, more volatility.
Tax Considerations
Foreign Tax Credit
Many foreign countries withhold taxes on dividends (15-30%). You can claim a foreign tax credit on your US return to avoid double taxation.
Tax-Advantaged Accounts
In IRAs, you can't claim the foreign tax credit, so foreign withholding is effectively lost. Some argue international stocks are better in taxable accounts for this reason.
Currency Risk
When you invest internationally, you're also betting on currencies. If the dollar strengthens, your international returns suffer (and vice versa). Currency-hedged ETFs exist but add cost and complexity.
How Much International?
Recommendations vary:
- Market weight: ~40% international (matches global market)
- Vanguard target-date funds: ~40% international
- Jack Bogle (Vanguard founder): 0-20% (US companies already have global exposure)
There's no "right" answer. 20-40% international is a reasonable range for most investors.
Which Brokers Are Best for International?
- Interactive Brokers: Best for direct foreign market access (150+ markets)
- Fidelity: Good ADR selection, international ETFs, some foreign ordinary shares
- Schwab: ADRs and international ETFs, limited direct foreign access
The Bottom Line
International diversification makes sense for most investors. The simplest approach: add VXUS or IXUS to your portfolio alongside VTI or VOO.
For direct foreign stock access, Interactive Brokers is the clear winner. For most investors, international ETFs provide sufficient global exposure without the complexity.
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