How do I invest in international stocks?

US companies make up roughly 60% of the value of global stock markets. Investing only in the US means ignoring the other 40%: companies such as Toyota, Nestlé, Samsung, ASML or Novo Nordisk. International stocks are a standard part of a diversified portfolio.

Why add them

• Diversification: US and foreign markets do not always lead at the same time. US stocks did much better in the 2010s; international stocks did better in the 2000s. Nobody knows which comes next.
• Exposure to growing economies and industries less represented in the US.
• Valuation differences: non-US stocks have often traded at lower price-to-earnings ratios.

What is different

• Currency: returns depend on exchange rates. A weaker dollar boosts the value of foreign holdings for US investors; a stronger dollar reduces it.
• Political and regulatory risk, particularly in emerging markets (capital controls, sanctions, sudden policy changes, as Russian stocks showed in 2022).
• Accounting and disclosure standards that may differ from US rules.
• Foreign withholding taxes on dividends.

Developed vs emerging markets

• Developed: Europe, Japan, the UK, Canada, Australia and others. More stable, mature companies.
• Emerging: China, India, Taiwan, Brazil and others. Higher growth potential, more volatility, more governance risk.

A “total international” fund holds both, weighted by market size.

Ways to invest

1. Total international index fund or ETF: the simplest, broad and cheap. See index funds and ETFs.
2. Global (total world) fund: US and international in one product.
3. Target-date funds, which already include international stocks (target-date funds).
4. ADRs: certificates for individual foreign companies traded on US exchanges.
5. US multinationals: they earn abroad, but they are not a full substitute.

How much?

There is no single right number. A market-weight approach would mean about 40% of your stock portfolio; many US investors hold 20-40%. Some target-date funds hold around a third or more of their stocks internationally. Pick a share you will stick with when international lags for years, and include it in your asset allocation.

Taxes

In a taxable account, you can often claim the foreign tax credit for taxes withheld abroad (shown on your 1099-DIV). In an IRA, that credit is lost, which is one reason some investors hold international funds in taxable accounts. The IRS page on the foreign tax credit has details.