Investing in International Stocks (2024)

FAQs

Investing in International Stocks? ›

Buying foreign stocks allows investors to diversify their portfolio's risk, in addition to giving them exposure to the growth of other economies. Financial advisors recommend a 5% to 10% exposure to foreign stocks for conservative investors, and up to 25% for aggressive investors.

Markets outside the United States don't always rise and fall at the same time as the domestic market, so owning pieces of both international and domestic securities can level out some of the volatility in your portfolio. This can spread out your portfolio's risk more than if you owned just domestic securities.

Owning international stocks—the shares of companies located outside your home country—can help diversify your portfolios, hedge against risk and tap into growth in economies beyond your own.

The easiest way to add international stocks to your portfolio is by investing in U.S.-registered mutual funds or exchange-traded funds that track foreign markets. Why U.S.-registered? To avoid potential risks and costs associated with investing in foreign markets (more on that below).

Reason 1: International stocks tend to be much cheaper than U.S. ones. The U.S. stock market is well below its highs but is considered expensive compared to most of its foreign counterparts. When we say "expensive," we are not talking about the market price at which you can buy or sell a share of stock.

In fact, in part due to those valuations, Fidelity's Asset Allocation Research Team forecasts that international stocks will outperform US stocks over the next 20 years (read more about our international economic outlook).

The average stock market return is about 10% per year, as measured by the S&P 500 index. In some years, the market returns more than that, and in other years, it returns less.

Key Takeaways. Expenses on foreign transactions tend to be substantially higher. Currency volatility is an additional layer of risk in making foreign transactions. Liquidity can be a problem, especially when investing in emerging economies.

Investment giant Vanguard suggests allocating at least 20% of your entire portfolio to international stocks and bonds, while Cox adds that this allocation should also depend on your age, risk tolerance and other investments.

Which international fund is best? ›

Robinhood Financial currently supports the following assets:

U.S. exchange-listed stocks and ETFs. Options contracts for U.S. Exchange-Listed Stocks and ETFs. ADRs for over 650 globally-listed companies.

What you can do. Trade in 25 countries with the flexibility to settle in either U.S. dollars or the local currency. Exchange between 16 different currencies, offering you the potential to capitalize on foreign exchange fluctuations. Trade domestic and international stocks in a single account.

Buying foreign stocks allows investors to diversify their portfolio's risk, in addition to giving them exposure to the growth of other economies. Financial advisors recommend a 5% to 10% exposure to foreign stocks for conservative investors, and up to 25% for aggressive investors.

Diversification. Investing in the US markets helps you diversify your portfolio as the market offers extensive avenues to invest in top sectors of Technology, Finance, Automobile and Gold. Investing a part of your assets in such markets also makes you independent of the Indian stock markets and the Indian economy.

History suggests that international stocks may continue to outperform. Since 1975, the outperformance cycle for US vs. international stocks has lasted an average of eight years. We're currently 12.1 years into the current cycle of US outperformance based on 5-year monthly rolling returns.

U.S. stocks are represented by the S&P 500 Index. International stocks are represented by the MSCI EAFE NR Index.

One of the main benefits of a long-term investment approach is money. Keeping your stocks in your portfolio longer is more cost-effective than regular buying and selling because the longer you hold your investments, the fewer fees you have to pay.

We do not think now is a good time to invest heavily in the S&P 500 if you have a short- to medium-term horizon. We underweight equities in our broader Asset Allocation framework because inflation is still high, and we do not think the Federal Reserve has finished hiking despite market expectations of cuts in 2023.

The best performing Country in the last 5 years is Denmark, that granded a +11.54% annualized return.

What is the S&P 500 return for the last 30 years? ›

Average Market Return for the Last 30 Years

Looking at the S&P 500 for the years 1992 to 2021, the average stock market return for the last 30 years is 9.89% (7.31% when adjusted for inflation).

Stock Market Average Yearly Return for the Last 10 Years

The historical average yearly return of the S&P 500 is 12.173% over the last 10 years, as of the end of April 2023. This assumes dividends are reinvested. Adjusted for inflation, the 10-year average stock market return (including dividends) is 9.245%.

A weaker dollar, however, can be good for exporters, making their products relatively less expensive for buyers abroad. Investors can also try to profit from a falling dollar by owning foreign-currency ETFs or investing in U.S. exporting companies.

Generally speaking, many sources say 20 to 30 stocks is an ideal range for most portfolios. It's important to strike a balance between investing in a diverse array of assets and ensuring that you have the time and resources to manage these investments.

Assuming you do go down the road of picking individual stocks, you'll also want to make sure you hold enough of them so as not to concentrate too much of your wealth in any one company or industry. Usually this means holding somewhere between 20 and 30 stocks unless your portfolio is very small.

There is no set definition for what makes a concentrated position. When an investment in a single stock represents more than 5% of a portfolio, T. Rowe Price advisors consider it to be worth addressing. Once a holding exceeds 10%, however, it represents a greater risk that requires more immediate planning.

"Vanguard's recently released 2023 Economic and Market Outlook expects international equities to outperform U.S. stocks over the next decade, largely driven by lower valuations, higher dividend yields and a favorable currency outlook," says Christine Franquin, principal and senior portfolio manager at Vanguard.

What are the disadvantages of foreign portfolio investment? ›

FPI disadvantages

Investors can gain substantially from exchange rate differences. Markets in any country are inherently volatile. Despite the fluid nature of FPIs, losses may pile up if funds are not withdrawn hastily.

Based on 10-year annualized returns, the best-performing Fidelity mutual fund as of March 31 is the Fidelity OTC Portfolio (FOCPX), which has returned 17.18% over the last 10 years. FOCPX has returned an annualized 13.75% since its inception on Dec. 31, 1984.

International investing can be an effective way to diversify your equity holdings. While returns have lagged behind US markets, international ETFs provide diversification benefits as they tend to be less correlated to US equities.

The S&P International 700 measures the non-U.S. component of the global equity market through an index that is designed to be highly liquid and efficient to replicate. The index covers all regions included in the S&P Global 1200 except for the U.S., which is represented by the S&P 500®.

Sign up for a Robinhood brokerage account to buy or sell Korea Fund stock and options commission-free. Other fees may apply. See Robinhood Financial's fee schedule to learn more.

Robinhood (HOOD) is a popular financial services company with more than 12.2 million monthly active users (MAU) as of September 2022. 1 It's considered a safe option for investors' securities and cash for various reasons: Robinhood is a member of the Securities Investor Protection Corp. (SIPC).

Your securities and cash are protected by SIPC

Robinhood Financial LLC and Robinhood Securities, LLC are both members of SIPC, which protects securities for customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.

Interactive Brokers (IBKR) is hands down our top choice for the Best Online Broker for International Trading.

Please note there may be a foreign transaction fee of 1% included in the amount charged to your account.

From Accounts & Trade, select Update Accounts/Features and then International Trading. Scroll to the bottom of the page and select Sign up for international stock trading, then choose the brokerage account you'd like to use for your trades.

Are international stocks worth it? ›

International stocks can give a lift to your stock portfolio when U.S. stocks are stuck in the mud. Over the long term, this should smooth out volatility in your stock market returns, investing experts say.

Reason 1: International stocks tend to be much cheaper than U.S. ones. The U.S. stock market is well below its highs but is considered expensive compared to most of its foreign counterparts. When we say "expensive," we are not talking about the market price at which you can buy or sell a share of stock.

Here's how: Buy individual stocks directly on international exchanges. To do this, however, your brokerage account must give you access to these exchanges—and not all brokerages do. If yours does, you can simply purchase shares using U.S. dollars, like you would any other investment.

Investing just $100 a month over a period of years can be a lucrative strategy to grow your wealth over time. Doing so allows for the benefit of compounding returns, where gains build off of previous gains.

The main argument advanced by proponents of a 100% equities strategy is simple and straightforward: In the long run, equities outperform bonds and cash; therefore, allocating your entire portfolio to stocks will maximize your returns.

Cons of Holding Single Stocks

Going back to portfolio theory, this means more risk with individual stocks unless you own quite a few stocks. Achieving this diversification is harder the less money you have. Especially when you start investing, you are subjecting yourself to more risk due to the lack of diversity.

In general, Vanguard recommends that at least 20% of your overall portfolio should be invested in international stocks and bonds. However, to get the full diversification benefits, consider investing about 40% of your stock allocation in international stocks and about 30% of your bond allocation in international bonds.

The two major U.S. financial securities markets are the New York Stock Exchange and Nasdaq.

Diversification. International investing may help U.S. investors to spread their investment risk among foreign companies and markets in addition to U.S. companies and markets. Growth. International investing takes advantage of the potential for growth in some foreign economies, particularly in emerging markets.

What Are the Benefits of an International Portfolio? International portfolios give you more diversification, let you access liquidity in other markets, and can help you reduce the risks of the market you invest in the most.

Why do companies choose to invest in an international market? ›

Expanding into new, foreign markets can help a business increase its customer base and revenue, leading to overall growth and success. This is because a business can reach a larger group of potential customers interested in its products or services by operating in new markets.

International funds look like an attractive mutual fund category, and many mutual fund advisors and managers recommend these to investors for diversification. Most experts think this is the correct time to invest in them as the developed economies have already corrected.

International investment pays large and important dividends for the U.S. economy and American workers by increasing exports, improving productivity, creating jobs, and raising wages.

International stocks can give a lift to your stock portfolio when U.S. stocks are stuck in the mud. Over the long term, this should smooth out volatility in your stock market returns, investing experts say. “It's hard to justify a position in an asset class that's been underperforming,” says Mayfield.

Over the long run, small caps tend to outperform large-cap stocks, so an individual with a 5 to 10-year investment horizon should be comfortable investing 10% to 20% of their portfolio in small-cap stocks, Chan says. "As a result, having long-term exposure to (small caps) is a good investment decision," he says.

Foreign direct investment can reduce the disparity between revenues and costs. With such, countries will be able to make sure that production costs will be the same and can be sold easier.

Taxation of International funds

This is a real dampener. Funds that invest in stocks abroad do not carry the advantage of equity investing. These are taxed as a debt fund. If you hold them for over three years, long-term capital gains tax at the rate of 20% (with the inflation indexation benefit) is applicable.

The Short Term Capital Gains (STCG) tax is higher than the Long Term Capital Gains (LTCG) tax and so it would be wise to stay till the completion of the short term capital gains period. The period till which STCG is applicable is 3 years for all debt funds, fund of funds and international equity funds.