Relying solely on domestic equities leaves a portfolio exposed to concentrated risk. Economic slowdowns, currency devaluation, or political instability within a single country—particularly the investor’s home market—can rapidly erode wealth. That’s why experienced investors increasingly turn to international stocks as a strategic hedge.
By investing in companies based outside their home country, investors tap into alternative growth cycles, benefit from currency diversification, and gain exposure to regions with different economic drivers.
For example, while U.S. equities dominated global returns for over a decade, emerging markets and European value stocks have recently shown signs of relative strength—offering a compelling counterbalance.
In 2024 alone, more than 40% of global equity opportunities came from markets outside the U.S., including significant contributions from Japan, India, and the Eurozone. Ignoring international equities isn’t just a missed opportunity—it increases correlation risk and leaves investors vulnerable to domestic economic shocks.
Table of Contents
What Are International Stocks
International stocks are shares of companies headquartered and operating outside of an investor’s home country. These equities allow investors to access foreign economies, industries, and currencies that may be underrepresented or entirely absent in domestic markets.
For a U.S.-based investor, international stocks typically include:
- Developed markets such as Germany, Japan, the UK, France, and Australia
- Emerging markets like India, Brazil, South Korea, and Indonesia
- Frontier markets such as Vietnam, Nigeria, or Kazakhstan
International stocks can be purchased directly on foreign exchanges or through American Depositary Receipts (ADRs), global mutual funds, and exchange-traded funds (ETFs). These vehicles offer exposure to thousands of non-U.S. companies across a range of sectors, from European industrials to Asian tech firms.
What sets international stocks apart isn’t just geography—it’s economic exposure. A company based in South Korea may experience growth tailwinds entirely unrelated to U.S. market conditions. Similarly, international companies often face different interest rates, inflation environments, and regulatory frameworks, creating divergent performance patterns.
Critically, investing internationally allows for access to dividend-rich sectors often lacking in U.S. indexes. For instance, European utility and telecom firms frequently offer yields exceeding 5%, compared to the sub-2% average in the S&P 500.
International stocks expand your investment universe from a single-country focus to a global opportunity set, enabling broader diversification, currency exposure, and access to different market cycles.
Pros & Cons of International Stocks
Historical ROI Performance of Different International Stock Markets (2024–2025)
Understanding how international equities perform in different macroeconomic environments is critical for long-term portfolio construction. The years 2024 and 2025 have demonstrated that global markets—especially in Europe, Asia, and select emerging economies—are not just viable alternatives to U.S. equities, but necessary components of a modern, resilient investment strategy.
Yearly Market Returns Snapshot
Key Observations:
- Japanese equities led developed markets in 2024, driven by aggressive monetary stimulus and export growth.
- Emerging markets posted strong back-to-back returns, supported by stable inflation and improving consumer demand in countries like India and Mexico.
- European markets showed signs of recovery in early 2025 as energy prices stabilized and manufacturing picked up.
Valuation & Yield Comparison (as of 2025)
These numbers point to a clear valuation gap. Investors seeking income, value, and long-term upside will find more attractive entry points overseas—particularly in European and Asia-Pacific markets where multiples are significantly compressed.
Sector Trends Across Global Markets
The global technology sector, particularly in Taiwan and South Korea, continues to thrive with surging demand for semiconductors and AI infrastructure. Meanwhile, Europe’s financial sector has staged a quiet comeback amid rising interest margins. Healthcare and consumer staples remain reliable defensive plays across regions, adding balance to global allocations.
Why This Matters to Investors
Investing in international stocks is no longer just about broadening geographic exposure—it’s a tactical necessity in the current market environment.
First, U.S. equity valuations are stretched. The S&P 500 trades at a forward P/E ratio above 20, largely inflated by a handful of mega-cap tech stocks. In contrast, developed international markets are still trading at a discount, offering better risk-adjusted entry points. If history is any guide, valuation reversion tends to favor international equities after prolonged periods of U.S. outperformance—just as it did in the early 2000s and post-2008 recovery cycle.
Second, currency exposure adds a layer of diversification that many investors overlook. For example, a weakening U.S. dollar has historically boosted the dollar-denominated returns of international assets. In 2024, this effect contributed significantly to positive gains in portfolios that included Japan, the Eurozone, and select emerging markets. International exposure doesn’t just reduce correlation—it offers asymmetric return potential tied to global monetary policy differentials.
Third, sector leadership rotates. The global market is not synchronized. Tech might be booming in the U.S., but industrials, financials, and energy stocks often lead in Europe and Asia. By owning international stocks, investors gain access to these non-U.S. sector cycles that may not exist in domestic portfolios.
This is especially valuable in times of inflation, where resource-based economies and dividend-heavy sectors tend to outperform.
Finally, international equities enhance income. With dividend yields in many international markets more than double those of U.S. counterparts, they become particularly valuable for investors seeking stable cash flow in retirement or during economic uncertainty.
Simply put: Adding international stocks isn’t about chasing foreign returns—it’s about constructing a portfolio that’s truly global, more balanced, and better positioned to weather economic and valuation shocks from any one country, including your own.
Strategies To Invest in International Stocks
Investing in international stocks requires more than selecting a foreign ETF and hoping for the best. To fully capture the benefits of global diversification while managing risk, investors should approach international markets with clear, structured strategies.
1. Use Core-Satellite Allocation: Start with a diversified global equity fund as your core holding, then add targeted regional or thematic exposures as satellites. This reduces concentration risk and allows for tactical tilts.
Example Allocation Strategy:
- 60% Core: Global equity fund with 40% U.S., 60% ex-U.S. exposure (e.g., Vanguard Total International Stock Index)
- 20% Satellite: Asia-Pacific ETF (e.g., iShares Asia 50 or Japan-focused funds)
- 10% Satellite: Emerging markets fund (e.g., MSCI EM ETF)
- 10% Thematic: Dividend-focused or ESG funds targeting Europe or frontier markets
This model allows you to keep a globally diversified foundation while still responding to macro trends, valuation dislocations, or sector leadership changes.
2. Blend Active and Passive Vehicles: Passive funds offer low-cost access to broad market exposure, but in certain regions—especially in emerging markets—active management can add value through security selection, currency hedging, and local expertise.
- Use passive ETFs for developed markets (e.g., Europe, Japan) where information is efficient.
- Use actively managed funds for volatile, less transparent markets like Latin America or Africa, where local insight can protect against political and liquidity risks.
3. Consider Currency Exposure Intentionally: Currency movements significantly impact international stock returns. A weakening domestic currency increases the value of foreign holdings, and vice versa.
- Unhedged funds benefit when the foreign currency strengthens relative to your home currency.
- Hedged funds neutralize currency impact, focusing purely on equity performance.
For example, in 2024, unhedged international ETFs outperformed their hedged counterparts as the U.S. dollar weakened—adding an extra 3–4% return boost in Euro and Yen-denominated assets.
4. Dollar-Cost Average Into International Markets: Trying to time foreign markets—especially emerging ones—can be risky. Instead, dollar-cost averaging (DCA) into international funds smooths volatility and removes emotional decision-making from the process.
How to apply DCA internationally:
- Invest a fixed amount monthly into a diversified ex-U.S. fund (e.g., FTSE All-World ex-U.S. ETF)
- Continue even during downturns to accumulate shares at lower valuations
This disciplined approach is particularly powerful when investing in volatile regions like Southeast Asia, Latin America, or Eastern Europe.
5. Use International Dividend Funds for Income Stability: Many global companies—especially in Europe, Australia, and Canada—maintain higher dividend yields and more conservative payout policies than their U.S. peers.
Top Choices for Dividend Exposure:
- Schwab International Equity ETF (SCHF) – broad, low-cost access with a 3.2% yield
- iShares International Select Dividend ETF (IDV) – focuses on high-yielding, financially stable firms with yields often exceeding 5%
These funds can serve as a defensive core during periods of U.S. market volatility or inflation pressure.
When Do International Stocks Perform Best?
International stocks tend to outperform during specific global and macroeconomic conditions. Understanding when these cycles favor non-U.S. markets allows investors to rebalance more effectively and avoid overconcentration in a single geography—especially the U.S., which has led global performance for over a decade.
What Are the Best International-Stock Funds?
FAQ
Why should I invest in international stocks?
They reduce home-country bias, increase diversification, and offer access to undervalued markets, different growth cycles, and higher dividend yields.
What percentage of my portfolio should be in international stocks?
Most financial advisors suggest 20% to 40% of your equity allocation, depending on your risk tolerance and investment horizon.
Do international stocks pay dividends?
Yes. Many international companies—especially in Europe and Asia—pay higher and more stable dividends than U.S. counterparts.
What is the risk of investing internationally?
Key risks include currency fluctuations, political instability, lower liquidity, and regulatory differences. These risks can be managed through diversification and fund selection.
Is now a good time to invest in international stocks?
With U.S. valuations stretched and global growth improving, international stocks—especially in emerging markets and value-oriented developed markets—are increasingly attractive in 2025.
Are ETFs better than mutual funds for international investing?
ETFs generally offer lower costs and greater liquidity. However, actively managed mutual funds can provide better risk management and security selection in less efficient markets.
How do I reduce currency risk when investing internationally?
Use currency-hedged ETFs or diversify across regions with different currency exposure. Long-term investors often hold unhedged positions for better upside potential.
