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Investing in international ETFs has become an essential strategy for investors seeking to build truly diversified portfolios that extend beyond domestic markets. As global economies become increasingly interconnected and opportunities emerge across different regions, understanding how to effectively purchase and integrate international exchange-traded funds into your investment strategy can significantly enhance your portfolio’s risk-adjusted returns while providing exposure to growth opportunities that may not be available in your home market.
What Are International ETFs and Why They Matter
International ETFs invest only in foreign markets, excluding the United States, offering investors a streamlined way to gain exposure to companies and economies around the world without the complexity of directly purchasing foreign securities. These investment vehicles have grown tremendously in popularity as investors recognize the limitations of concentrating their portfolios exclusively in domestic markets.
International ETFs offer simple global investment exposure with lower costs compared to individual stocks, making them an accessible option for both novice and experienced investors. Rather than researching individual foreign companies, navigating different regulatory environments, and managing currency conversions, investors can purchase shares of an international ETF just as easily as they would buy any domestic stock.
The fundamental appeal of international ETFs lies in their ability to provide diversification benefits that can help smooth out portfolio volatility over time. Holding stocks from around the world reduces your exposure to a single economy or currency. When U.S. markets struggle, international equities from regions like Europe or Asia can offset some of that weakness, while also giving you access to different sectors, consumer trends, and economic cycles.
Understanding Different Types of International ETFs
Not all international ETFs are created equal, and understanding the distinctions between different categories is crucial for making informed investment decisions that align with your financial goals and risk tolerance.
Broad International vs. Global ETFs
One of the first distinctions investors need to understand is the difference between international and global ETFs. Global or world ETFs provide exposure to both foreign and U.S. markets, essentially offering a complete worldwide portfolio in a single fund. In contrast, international ETFs specifically exclude the United States, allowing investors who already have domestic exposure to add complementary foreign holdings.
Vanguard Total World Stock ETF, VT, holds nearly 10,000 stocks across more than two dozen countries, charging investors just 6 basis points annually to do so. This type of fund can serve as a complete equity allocation for investors who want maximum simplification, though many prefer to separate their domestic and international holdings for more precise portfolio management.
Developed Markets ETFs
Developed markets ETFs focus on foreign countries with proven economies, like Japan, France, and the United Kingdom. These markets typically feature mature economies, stable political systems, well-established regulatory frameworks, and deep, liquid capital markets that make them relatively less risky than emerging market alternatives.
The iShares Core MSCI EAFE ETF (IEFA) covers this segment by tracking the MSCI EAFE IMI Index, which holds more than 2,600 stocks from developed markets across Europe, Australasia, and the Far East. That includes countries like Japan, the United Kingdom, France, Germany, and Australia. These funds provide stability and established market exposure while still offering diversification away from U.S. equities.
Emerging Markets ETFs
Emerging markets ETFs combine investments in countries that are considered to have “developing” economies, like India, Brazil, and China. These markets represent some of the fastest-growing economies in the world, though they come with higher volatility and additional risks compared to developed markets.
Emerging markets tend to be more volatile, but because they’re in the earlier stages of expansion, there are generally more growth opportunities. There are exceptions, of course, but that’s the broad trade-off. The potential for higher returns comes with increased exposure to political instability, less developed regulatory systems, and greater currency fluctuations.
The SPDR Portfolio Emerging Markets ETF (SPEM) tracks more than 3,000 holdings through the S&P® Emerging BMI index. This includes major emerging economies such as China, India, Brazil, South Africa, and Mexico. Despite their recent underperformance relative to developed markets, just a small position in emerging markets can offer strong diversification benefits.
Regional and Country-Specific ETFs
Regional ETFs invest primarily in a specific part of the world, like Europe or the Pacific region. These funds allow investors to make more targeted bets on specific geographic areas they believe will outperform, or to fill gaps in their existing international exposure.
In the first eight weeks of 2026, investors added $32 billion to U.S.-listed emerging market equity ETFs with single-country ETFs recording exceptional demand, led by South Korea and Brazil. Notably, year-to-date flows into single-country ETFs have already exceeded the total inflows for all of 2025, underscoring the intensity and conviction behind the trade. This trend reflects growing investor sophistication and the desire for more precise international exposure.
International Dividend ETFs
One thing income investors will appreciate about international equities is their tendency to offer higher dividend yields compared to U.S. stocks. International dividend ETFs specifically target companies with strong dividend payment histories, providing both income and international diversification.
The Schwab International Dividend Equity ETF (SCHY) is worth a look. It tracks the Dow Jones International Dividend 100 index, which screens for companies with at least 10 consecutive years of dividend payments. This should make it particularly palatable to income-oriented investors looking for international exposure, as it combines the stability of dividend-paying companies with geographic diversification.
The Case for International Diversification in 2026
While U.S. stocks have dominated global returns for much of the past decade, the investment landscape is constantly evolving, and there are compelling reasons to consider international exposure as part of a balanced portfolio strategy.
Recent Performance Trends
Vanguard S&P 500 ETF (VOO) is down 3.54% year-to-date in Q1 2026 after gaining 29% in 2025, while international ETFs like Vanguard Total International Stock Index Fund (VXUS), which returned 39.91% over the past year, offer diversification benefits. This performance reversal illustrates how market leadership can shift, sometimes dramatically, between domestic and international equities.
International equities outperformed US stocks by their largest margin in over 30 years in 2025, and the gap has widened further into 2026. According to Seymour Asset Management, international equities have beaten US equities by roughly 15% since the inflection point in November 2024. While past performance doesn’t guarantee future results, these trends highlight the cyclical nature of market leadership and the importance of maintaining global exposure.
Valuation Advantages
Valuation is another consideration. Many international markets currently trade at lower price-to-earnings ratios than U.S. equities, meaning investors may be getting more earnings per dollar invested. This valuation gap has persisted for several years as U.S. technology stocks, in particular, have commanded premium valuations.
The concentration of U.S. market returns in a handful of mega-cap technology companies has created a situation where investors paying current market prices for U.S. equities may be accepting lower expected returns relative to more attractively valued international alternatives. While valuation alone shouldn’t drive investment decisions, it represents an important consideration for long-term investors focused on maximizing risk-adjusted returns.
Currency Considerations
A weaker U.S. dollar could further support returns over time. Currency movements can significantly impact the returns international investors experience, and international stocks have done quite well, benefiting from a softer US dollar and a lower exposure to the volatile US tech sector.
When the dollar weakens against foreign currencies, U.S. investors holding international assets benefit from a currency tailwind that boosts returns when converted back to dollars. Conversely, a strengthening dollar can dampen international returns. This currency exposure adds another dimension of diversification, as dollar strength and weakness often correlate with different economic conditions and policy environments.
Access to Different Economic Cycles and Sectors
Different countries and regions experience economic cycles at different times, influenced by their unique monetary policies, fiscal situations, demographic trends, and industrial compositions. By holding international equities, investors gain exposure to these varied economic cycles, which can help smooth portfolio returns over time.
Additionally, certain sectors and industries are more heavily represented in international markets than in the U.S. For example, European markets have significant exposure to luxury goods, pharmaceuticals, and industrial companies, while Asian markets offer substantial representation in electronics manufacturing, automotive production, and emerging technology sectors. This sectoral diversity provides another layer of diversification beyond simple geographic exposure.
How to Buy International ETFs: A Step-by-Step Guide
Purchasing international ETFs is remarkably straightforward, requiring no special permissions or complex procedures beyond what’s needed for buying domestic stocks or ETFs.
Step 1: Choose and Open a Brokerage Account
Major brokers like Vanguard, Schwab, and Fidelity offer commission-free ETF trading with zero account minimums. Pick any reputable broker that fits your needs. The brokerage landscape has become increasingly competitive, with most major platforms now offering commission-free trading on ETFs and stocks, making it easier than ever to build a diversified portfolio without worrying about transaction costs eating into returns.
Account opening takes about 10 minutes online. You’ll need basic information and identification. Funding occurs through electronic bank transfer in 3-7 business days. The process has been streamlined significantly in recent years, with most brokers offering mobile apps that allow you to complete the entire account opening process from your smartphone.
When selecting a brokerage, consider factors beyond just commission rates. Look for platforms with robust research tools, educational resources, user-friendly interfaces, and strong customer service. Some brokers also offer additional benefits like access to professional research reports, advanced charting tools, or integration with financial planning software that can help you make more informed investment decisions.
Step 2: Research and Select Your International ETF
The research phase is critical to finding the right international ETF for your specific situation. Choosing international ETFs should consider costs, liquidity, and how they fit within broader investment goals. Several key factors deserve careful consideration during your research process.
Expense Ratios: International ETFs help correct this imbalance by providing instant diversification across dozens of countries and thousands of companies, often at ultra-low costs, with the best funds charging annual fees below 0.10%. Even small differences in expense ratios can compound significantly over decades of investing, making cost efficiency a crucial consideration.
Holdings and Diversification: Examine what the ETF actually holds. It tracks the FTSE Global All Cap ex-US Index, covering more than 8,600 stocks across small-, mid-, and large-cap companies from both developed and emerging markets. Some ETFs offer broad exposure across many countries and sectors, while others concentrate on specific regions or market segments.
Liquidity and Assets Under Management: Favor ETFs with at least $1 billion in assets under management, which generally means tighter bid-ask spreads, better liquidity, and lower tracking error. Larger, more established ETFs typically offer better trading conditions and are less likely to be closed or merged with other funds.
Index Methodology: Not all emerging-market ETFs define their universes the same way. MSCI and FTSE differ on country classifications. South Korea, for example, may be treated as developed in one index and emerging in another. Understanding these differences helps ensure you’re getting the exposure you actually want.
Step 3: Determine Your Allocation Strategy
Before purchasing, decide how much of your portfolio should be allocated to international equities. Generally, we suggest that you choose international investments for about 30% of the bond portion and 40% of the stock portion of your portfolio. This recommendation from Vanguard reflects a balanced approach that provides meaningful international exposure without over-concentrating in foreign markets.
However, the right allocation depends on various personal factors including your age, risk tolerance, investment timeline, and existing portfolio composition. Younger investors with longer time horizons might be comfortable with higher international allocations, while those nearing retirement might prefer more conservative positioning. Some investors choose to match global market capitalization weights, which would suggest roughly 40-45% international exposure, while others prefer home-country bias and maintain lower international allocations.
Consider whether you want a single broad international fund or prefer to combine developed and emerging market funds for more control over your exposure. VXUS (total ex-US stock market) is roughly a 3:1 ratio of Developed Markets to Emerging Markets. Specifically, VXUS is about 75% VEA and about 25% VWO. Understanding this composition helps you decide whether a single fund meets your needs or if you prefer to adjust the developed-to-emerging ratio.
Step 4: Place Your Order
Once you’ve completed your research and determined your allocation, placing the actual order is straightforward. Investing in international ETFs works like buying any U.S. stock. The process takes minutes and requires no special permissions.
Log into your brokerage account and navigate to the trading interface. Enter the ticker symbol of your chosen international ETF (for example, VXUS for Vanguard Total International Stock ETF). You’ll need to specify the number of shares you want to purchase or, on some platforms, the dollar amount you wish to invest.
Most investors should use a market order during regular trading hours for liquid, established ETFs, as the bid-ask spread will typically be minimal. However, for less liquid ETFs or when trading outside regular market hours, consider using a limit order to ensure you don’t pay more than you intend. A limit order specifies the maximum price you’re willing to pay, protecting you from unexpected price movements.
Review your order carefully before submitting, ensuring you’ve entered the correct ticker symbol, share quantity, and order type. Once submitted, most orders execute within seconds during regular trading hours, and you’ll receive a confirmation showing the exact price and number of shares purchased.
Step 5: Monitor and Rebalance
After purchasing your international ETFs, establish a monitoring and rebalancing routine. Consider how the ETF fits your broader portfolio. Decide how much of your total allocation you want in international equities, what role the fund plays in diversification, and how often you plan to rebalance.
Market movements will cause your portfolio allocations to drift over time. If international stocks significantly outperform or underperform domestic holdings, your actual allocation may deviate substantially from your target. Many investors rebalance annually or semi-annually, selling portions of outperforming assets and buying underperforming ones to return to target allocations. This disciplined approach enforces a “buy low, sell high” mentality and helps maintain your desired risk profile.
Top International ETFs to Consider in 2026
While dozens of international ETFs are available, several have distinguished themselves through their combination of low costs, broad diversification, strong liquidity, and solid track records.
Vanguard Total International Stock ETF (VXUS)
For most American investors seeking international exposure, the Vanguard Total International Stock ETF (VXUS) represents the best choice. It offers exceptional diversification across 8,000+ stocks, an ultra-low 0.05% expense ratio, and includes both developed and emerging markets. This comprehensive approach makes VXUS an excellent one-fund solution for international equity exposure.
The Vanguard Total International Stock ETF holds over 8,700 stocks from developed and emerging markets. This fund has outperformed the S&P 500, Nasdaq Composite, and Dow Jones so far in 2026. While past performance doesn’t guarantee future results, this recent outperformance demonstrates the potential benefits of international diversification during periods when U.S. markets face headwinds.
The fund’s market-cap weighting methodology means it automatically adjusts to reflect the relative size of different markets and companies, requiring minimal turnover and keeping costs low. With a low 0.05% expense ratio, it has few structural headwinds for long-term investors looking for global diversification.
iShares Core MSCI EAFE ETF (IEFA)
IShares Core MSCI EAFA ETF, ticker IEFA, earns a Silver Medalist Rating and is not explicitly a dividend fund. It charges 7 basis points in lands in the foreign large-blend Morningstar Category. IEFA holds nearly all stocks within 21 developed overseas markets and encompasses 99% of the investable market in those countries.
IEFA focuses exclusively on developed international markets, excluding emerging markets entirely. This makes it an appropriate choice for investors who want international developed market exposure but prefer to handle emerging markets separately or avoid them altogether. The fund’s extremely low expense ratio of just 0.07% makes it one of the most cost-effective ways to access developed international equities.
Most stocks in its portfolio pay dividends, and its broad international exposure makes it a well-diversified total return play. The fund yielded 3.2% over the 12 months through February 2026, somewhat above its usual range between SCHY and VIGI. This dividend yield provides an income component while investors wait for potential capital appreciation.
Vanguard FTSE Developed Markets ETF (VEA)
Similar to IEFA, VEA provides broad developed market exposure but tracks a different index. The fund holds over 4,000 stocks from developed markets outside the United States, offering comprehensive coverage of established international economies. With an expense ratio of just 0.05%, it matches VXUS for cost efficiency while focusing exclusively on developed markets.
The choice between IEFA and VEA often comes down to personal preference regarding index provider (MSCI vs. FTSE) and minor differences in country and sector weightings. Both offer excellent developed market exposure at minimal cost, and the performance differences between them have been negligible over time.
Vanguard FTSE Emerging Markets ETF (VWO)
One key difference between this fund and the iShares Core MSCI Emerging Markets ETF is that it excludes South Korea. This is because FTSE classifies it as a developed market, whereas MSCI classifies it as an emerging market. With more than 5,900 holdings, the Vanguard FTSE Emerging Markets ETF is even more diversified than the iShares Core MSCI Emerging Markets ETF, making it a broad-based, cost-effective way to access emerging markets.
VWO charges an expense ratio of 0.08%, making it one of the least expensive ways to gain emerging market exposure. The fund’s broad diversification across thousands of holdings helps mitigate the single-stock risk that can be particularly pronounced in emerging markets, where individual companies may face greater volatility and uncertainty than their developed market counterparts.
Schwab International Dividend Equity ETF (SCHY)
First up is Schwab International Dividend Equity ETF, ticker SCHY. It charges just 8 basis points and earns a Silver Medalist Rating. This fund specifically targets international dividend-paying companies with strong track records, making it particularly appealing for income-focused investors.
The index holds largely high-quality companies from over 20 countries and limits sector weights to 15% and individual holdings to 4%. This ETF’s yield focus places it in the foreign large value Morningstar Category, so it is poised to do well when international value stocks do well. The fund’s defensive positioning and focus on established dividend payers may provide more stability during market downturns, though it might lag during strong bull markets dominated by growth stocks.
iShares Core MSCI Emerging Markets ETF (IEMG)
IEMG tracks the MSCI Emerging Markets Investable Market Index, covering large, mid, and small-cap stocks across developing economies. At $148.6 billion in assets, IEMG is one of the largest and cheapest ways to access emerging markets, with an expense ratio of just 0.09%. That low-cost structure has not come at the expense of returns — the fund is up 7.2% year-to-date, and 33% over the past year, reflecting the broad tailwind behind developing economies in 2026.
IEMG’s massive asset base ensures excellent liquidity and tight bid-ask spreads, making it easy to trade even in large quantities without significantly impacting the price. The fund’s comprehensive approach to emerging markets provides exposure to the full spectrum of developing economies, from the largest like China and India to smaller markets that may offer unique growth opportunities.
Key Considerations and Risks When Investing in International ETFs
While international ETFs offer compelling diversification benefits, they also come with unique risks and considerations that investors must understand before committing capital.
Currency Risk
The main trade-offs are currency risk, as foreign currencies fluctuate against the dollar, and slower growth in many developed markets outside North America. Currency movements can significantly amplify or dampen returns from international investments, adding a layer of volatility that doesn’t exist with purely domestic holdings.
Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk, which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issued by companies in foreign countries or regions; and currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.
Most emerging market ETFs are unhedged, meaning returns are affected by local currencies relative to the U.S. dollar. Currency swings can either boost or hurt returns. Hedging can reduce volatility, but it adds cost and may limit upside. The right choice depends on your time horizon and tolerance for currency risk. Currency-hedged versions of some international ETFs are available for investors who want to eliminate currency exposure, though these typically come with higher expense ratios.
Political and Regulatory Risks
International investments expose you to the political and regulatory environments of foreign countries, which may be less stable or predictable than what you’re accustomed to in your home market. Changes in government, shifts in regulatory policy, expropriation of assets, or restrictions on capital flows can all negatively impact international investments.
These risks are especially high in emerging markets, where political institutions may be less established, rule of law less certain, and property rights less secure. Even developed markets can experience political upheaval or policy changes that affect investment returns, though typically with less severity than in emerging economies.
Market Concentration and Country Risk
Avoid funds overly concentrated in one country (like China) or a single sector, unless that is your goal. Look for ETFs spanning multiple regions and industries to reduce risks. Some international ETFs, particularly those focused on emerging markets, can have significant concentration in a single country or sector, which increases risk if that particular market encounters difficulties.
For example, many emerging market ETFs have substantial exposure to China, which means their performance can be heavily influenced by Chinese economic conditions, regulatory changes, and geopolitical developments. Understanding these concentrations helps you make informed decisions about whether a particular fund’s risk profile aligns with your comfort level.
Tax Implications
International investments can create additional tax complexity. Many foreign countries impose withholding taxes on dividends paid to foreign investors, which can reduce your after-tax returns. While U.S. investors can often claim a foreign tax credit for these withholding taxes, doing so requires additional paperwork and may not fully offset the taxes paid.
Additionally, international ETFs may generate more frequent capital gains distributions than comparable domestic funds due to higher portfolio turnover or the need to rebalance across multiple markets. Holding international ETFs in tax-advantaged accounts like IRAs or 401(k)s can help minimize these tax complications, though you’ll lose the ability to claim foreign tax credits in such accounts.
Liquidity and Trading Considerations
While major international ETFs trade with excellent liquidity during U.S. market hours, the underlying securities they hold may trade in different time zones. This can create situations where the ETF price doesn’t perfectly reflect the current value of its holdings, particularly at the open and close of U.S. trading when foreign markets may be closed.
For most long-term investors buying and holding broad international ETFs, this timing mismatch is irrelevant. However, those trading frequently or in large quantities should be aware of potential tracking differences and consider using limit orders to avoid paying more than intended.
Building a Complete International Portfolio Strategy
Successfully integrating international ETFs into your portfolio requires more than just purchasing a fund—it demands a thoughtful strategy that considers your overall financial situation and goals.
The Core-Satellite Approach
Many investors find success with a core-satellite approach to international investing. The “core” consists of a broad, low-cost international ETF like VXUS that provides comprehensive global exposure. “Satellites” are more targeted funds that allow you to overweight specific regions, countries, or investment styles you believe will outperform.
For example, you might hold VXUS as your core international position representing 80% of your international allocation, then add satellite positions in emerging markets, European dividend stocks, or Asian small-caps representing the remaining 20%. This approach provides broad diversification while allowing you to express specific investment views.
Combining Developed and Emerging Markets
Rather than using a single total international fund, some investors prefer to separately allocate to developed and emerging markets. This approach provides more control over your exposure to each segment and allows you to adjust the ratio based on your risk tolerance and market outlook.
A conservative approach might allocate 80-90% of international holdings to developed markets (through VEA or IEFA) and 10-20% to emerging markets (through VWO or IEMG). More aggressive investors comfortable with higher volatility might increase emerging market exposure to 30-40% of their international allocation, potentially capturing higher growth rates in developing economies.
Factor-Based International Investing
Beyond simple market-cap-weighted exposure, investors can access international markets through factor-based ETFs that target specific characteristics associated with higher expected returns. Value, momentum, quality, and small-cap factors have all demonstrated the potential to outperform market-cap-weighted benchmarks over long periods, though with varying degrees of success and additional volatility.
International value ETFs, for instance, focus on stocks trading at lower valuations relative to their fundamentals, potentially offering higher expected returns than broad market exposure. Small-cap international ETFs target smaller companies that may offer greater growth potential than large, established multinationals. These factor-based approaches add complexity but may enhance returns for investors willing to accept additional tracking error relative to standard benchmarks.
Rebalancing Discipline
Maintaining your target international allocation requires periodic rebalancing as market movements cause your actual allocation to drift from your targets. Establish a clear rebalancing policy before you begin investing—whether that’s calendar-based (annually or semi-annually) or threshold-based (rebalancing when allocations drift more than 5% from targets).
Rebalancing forces you to sell assets that have performed well and buy those that have underperformed, which can feel counterintuitive but enforces disciplined “buy low, sell high” behavior. It also helps maintain your desired risk profile, preventing your portfolio from becoming too concentrated in whatever asset class has recently performed best.
Common Mistakes to Avoid
Even experienced investors can make errors when venturing into international markets. Being aware of common pitfalls can help you avoid costly mistakes.
Chasing Recent Performance
One of the most common mistakes is allocating to international markets only after they’ve significantly outperformed, then abandoning them after a period of underperformance. Past data shows periods where international stocks outperform U.S. markets, justifying diversified portfolios. Market leadership rotates over time, and the best time to establish international exposure is before outperformance begins, not after.
Investors who only add international exposure after strong recent returns often end up buying high and selling low, the opposite of successful investing. Instead, establish a strategic allocation to international markets based on your long-term goals and maintain it through both periods of outperformance and underperformance.
Overlooking Expense Ratios
While international ETFs have become increasingly inexpensive, significant cost differences still exist between funds. Low costs are crucial for long-term returns. Passive ETFs often charge under 0.10%, while some active funds stay competitive under 0.50%. Over decades of investing, even seemingly small differences in expense ratios can compound into substantial differences in wealth.
Before selecting an international ETF, compare expense ratios among similar funds. Unless an actively managed fund has a compelling track record of outperformance that justifies its higher fees, stick with low-cost index-based options that provide broad market exposure at minimal cost.
Ignoring Home Country Bias
Despite this, many U.S. investors continue to exhibit a strong home-country bias, allocating a disproportionately large share of their portfolios to domestic stocks, even though international markets account for a substantial portion of global economic activity. While some home bias may be rational due to familiarity and lower costs, excessive concentration in domestic markets leaves significant diversification benefits on the table.
International markets represent roughly half of global market capitalization, yet many U.S. investors hold less than 20% of their equity allocation in international stocks. While you don’t necessarily need to match global market weights exactly, maintaining meaningful international exposure helps ensure you’re not overly dependent on the performance of a single country’s economy and markets.
Failing to Consider Total Portfolio Context
When adding international ETFs, consider your complete financial picture, not just your brokerage account. Many U.S. investors already have significant international exposure through their domestic holdings, as large U.S. companies derive substantial revenues from foreign markets. Additionally, if you hold individual international stocks or actively managed international funds elsewhere, you’ll need to account for that exposure when determining how much to allocate to international ETFs.
Similarly, consider how international equity exposure fits with your bond holdings, real estate investments, and other assets. The goal is a well-diversified total portfolio, not just a well-diversified equity portfolio in isolation.
Advanced Strategies for International ETF Investing
Once you’ve mastered the basics of international ETF investing, several advanced strategies can potentially enhance returns or better align your portfolio with specific goals.
Currency Hedging Decisions
While most international ETFs are unhedged, currency-hedged versions are available for investors who want international equity exposure without currency risk. These funds use derivatives to neutralize the impact of currency fluctuations, providing returns that more closely track the local-currency performance of foreign stocks.
Currency hedging adds cost and complexity, typically increasing expense ratios by 0.20-0.50% annually. It also eliminates the potential for currency gains when the dollar weakens. For long-term investors, the academic evidence suggests that currency exposure adds diversification benefits and shouldn’t be hedged away. However, investors with shorter time horizons or specific concerns about dollar strength might find hedged international ETFs appropriate.
Tactical Tilts Based on Valuations
While maintaining a strategic long-term allocation to international markets, some investors make tactical adjustments based on relative valuations. When international markets trade at particularly attractive valuations relative to U.S. markets, you might modestly overweight international exposure, then reduce back to strategic weights as valuations normalize.
This approach requires discipline and a systematic framework to avoid emotional decision-making. Establish clear rules for when and how much to adjust allocations, and be prepared to maintain positions even when they feel uncomfortable. Tactical tilting is not appropriate for all investors and should represent modest adjustments around a core strategic allocation rather than dramatic shifts.
Tax-Loss Harvesting with International ETFs
International ETFs provide excellent opportunities for tax-loss harvesting—selling positions at a loss to offset capital gains while maintaining similar market exposure through a substantially different but correlated fund. For example, if you hold VXUS at a loss, you could sell it and immediately purchase IXUS (iShares Core MSCI Total International Stock ETF), maintaining international exposure while harvesting the tax loss.
The IRS wash sale rule prohibits claiming a loss if you purchase a “substantially identical” security within 30 days before or after the sale. However, ETFs tracking different indexes are generally not considered substantially identical, even if they provide similar exposure. This allows you to harvest losses without being out of the market and risking missing a recovery.
Combining International Stocks and Bonds
While this article focuses primarily on international equity ETFs, don’t overlook international bond funds as part of a complete global portfolio. International bonds provide diversification benefits similar to international stocks, with the added benefit of typically lower volatility and correlation to equities.
International bond ETFs come in various flavors, including developed market bonds, emerging market bonds, currency-hedged versions, and funds focusing on different maturity ranges. Adding international fixed income alongside international equities creates a more completely diversified global portfolio that can weather various market environments.
The Future of International Investing
As we look ahead, several trends are likely to shape the international investing landscape and influence how investors approach global diversification.
Increasing Accessibility and Lower Costs
The trend toward lower costs and greater accessibility shows no signs of reversing. Competition among ETF providers continues to drive expense ratios lower, with several major providers recently cutting fees on international funds. The fund sits in the foreign large-growth Morningstar Category and charges just 7 basis points after Vanguard cut its fee in early 2025 and again in early 2026.
This fee compression benefits investors directly, as every basis point saved in expenses flows directly to returns. As costs continue to decline, the barriers to building a globally diversified portfolio become increasingly minimal, making international investing accessible to investors of all sizes.
Growing Sophistication in Emerging Markets
Emerging markets continue to develop more sophisticated financial infrastructure, improving corporate governance, and integrating more fully into global capital markets. These improvements reduce some of the risks traditionally associated with emerging market investing while maintaining the growth potential that makes these markets attractive.
As emerging economies mature and their capital markets deepen, the distinction between “developed” and “emerging” markets may become less meaningful. Countries currently classified as emerging may graduate to developed status, while the next generation of frontier markets becomes more accessible to international investors.
ESG Integration in International Investing
Environmental, social, and governance (ESG) considerations are increasingly influencing investment decisions globally. ESG investing offers a way for you to invest in funds that consider environmental, social, and governance issues. We offer a lineup of ESG investments that can help you achieve your financial goals and match your dollars with what matters to you.
International ESG ETFs allow investors to maintain global diversification while aligning their portfolios with their values. As ESG data quality improves and standardization increases globally, these funds are likely to become an increasingly important part of the international ETF landscape.
Technological Innovation and Market Access
Technology continues to break down barriers to international investing. Improved trading platforms, better research tools, and enhanced transparency make it easier than ever for individual investors to access global markets. Mobile apps allow investors to research, purchase, and monitor international ETFs from anywhere, democratizing access to sophisticated investment strategies once available only to institutional investors.
Artificial intelligence and machine learning are also being applied to international investing, potentially improving index construction, factor identification, and risk management. While these technologies are still evolving, they promise to make international investing more efficient and effective over time.
Practical Tips for Long-Term Success
Building wealth through international ETF investing requires patience, discipline, and a long-term perspective. Here are practical tips to help you succeed over the decades ahead.
Start Early and Invest Consistently
The power of compound returns means that starting early, even with small amounts, can lead to substantial wealth over time. Rather than waiting until you have a large sum to invest, begin building your international exposure immediately with whatever you can afford. Many brokers allow you to purchase fractional shares, meaning you can invest even small amounts efficiently.
Consider setting up automatic investments that purchase international ETFs on a regular schedule, such as monthly or with each paycheck. This dollar-cost averaging approach removes emotion from the investment process and ensures you’re consistently building your position regardless of short-term market movements.
Ignore Short-Term Noise
International markets will experience periods of volatility, underperformance, and negative headlines. Political upheavals, currency crises, and economic slowdowns are inevitable parts of the international investing landscape. Successful long-term investors learn to ignore this short-term noise and maintain their strategic allocations through both good times and bad.
Remember that volatility creates opportunity. Periods when international markets are struggling and sentiment is negative often represent the best times to maintain or even increase exposure, as valuations become more attractive and future expected returns improve.
Educate Yourself Continuously
The international investing landscape evolves constantly, with new funds launching, fee structures changing, and market dynamics shifting. Commit to ongoing education about international markets, reading annual reports from your ETF providers, following reputable financial news sources, and periodically reviewing your strategy to ensure it still aligns with your goals.
However, avoid the trap of constantly tinkering with your portfolio in response to every new piece of information. The goal is to stay informed enough to make occasional strategic adjustments while maintaining the discipline to stick with your long-term plan through inevitable periods of doubt.
Keep Costs Low
Every dollar paid in fees is a dollar that can’t compound for your benefit over time. Focus on low-cost index-based international ETFs unless you have compelling evidence that a higher-cost alternative will deliver sufficient outperformance to justify its fees. The evidence overwhelmingly suggests that low-cost passive funds outperform the majority of actively managed alternatives over long periods, particularly after accounting for fees.
Also consider the tax efficiency of your holdings. International ETFs held in taxable accounts may generate foreign tax withholding that reduces returns, while those held in tax-advantaged accounts avoid this issue (though you lose the ability to claim foreign tax credits). Structure your portfolio to minimize total costs, including both explicit fees and implicit tax costs.
Maintain Perspective on Performance
International stocks will sometimes underperform domestic markets for extended periods, as they did for much of the 2010s. During these periods, it’s natural to question whether international exposure is worthwhile. However, past data shows periods where international stocks outperform U.S. markets, justifying diversified portfolios.
Market leadership rotates over time, and no one can consistently predict which markets will outperform in advance. By maintaining diversified exposure to both domestic and international markets, you ensure you’ll participate in whichever market is leading at any given time, while reducing the risk of being overly concentrated in whichever market is lagging.
Conclusion: Building a Globally Diversified Future
International ETFs offer a simple and accessible way to broaden your investments beyond the U.S. By investing globally, you gain exposure to a wider range of economies, industries, and growth opportunities that can help balance risk over time. For many investors, broad international ETFs are an easy starting point. They provide instant diversification across dozens of countries and thousands of companies, often at very low cost.
The process of buying international ETFs is straightforward, requiring no special permissions or complex procedures beyond opening a standard brokerage account. With commission-free trading now standard at major brokers and expense ratios on leading international ETFs below 0.10%, the barriers to building a globally diversified portfolio have never been lower.
Whether you choose a fund that focuses on developed markets, emerging markets, or a mix of both, international ETFs make global investing straightforward. With modern investing platforms offering commission-free trading and easy account setup, adding international exposure has never been more convenient. If you’re building a long-term portfolio, international ETFs can be a valuable complement to U.S. stocks, helping create a more resilient and globally balanced investment strategy.
As you embark on your international investing journey, remember that success comes not from perfect timing or selecting the single best fund, but from establishing a sensible allocation, maintaining it through market cycles, and allowing compound returns to work their magic over decades. The world’s economies and markets will continue to evolve, creating both challenges and opportunities for investors. By maintaining diversified exposure to global markets through low-cost international ETFs, you position yourself to benefit from growth wherever it occurs while managing the risks inherent in concentrating too heavily in any single market.
For additional resources on ETF investing and portfolio construction, consider exploring educational content from Vanguard’s Investor Education Center, Morningstar’s ETF Research, and Bogleheads’ International Investing Guide. These resources provide in-depth analysis, ongoing research, and community discussions that can help you refine your international investing strategy over time.
The decision to invest internationally represents a commitment to true portfolio diversification and a recognition that opportunities exist throughout the global economy. By following the steps outlined in this guide—opening a brokerage account, researching appropriate funds, determining your allocation, and maintaining discipline through market cycles—you can successfully integrate international ETFs into your portfolio and position yourself for long-term financial success in an increasingly interconnected world.