Is it worth investing in foreign stocks?

As an American investor, it’s easy to live in a “stock market bubble.”

We are home to the largest, most dynamic, and most famous stock market in the world. The S&P 500 and the NASDAQ are packed with global giants like Apple, Google, Amazon, and Microsoft. With so much success right here, it’s tempting to ask: Why would I ever need to invest my money anywhere else?

This line of thinking is so common it has a name: “home country bias.” It’s the natural human tendency to invest in what you know and what’s close to you.

But here’s a fact that might surprise you: The U.S. stock market, as massive as it is, only represents about 50-60% of the entire world’s stock market value.

If your portfolio is 100% in U.S. stocks, you are ignoring nearly half of the world’s opportunities.

So, is it worth the effort to invest in foreign stocks? The answer for any serious, long-term investor is a resounding yes. It’s not just a “nice to have”—it is a critical component of a smart, resilient, and truly diversified portfolio. This guide will break down why it’s so important and how you can do it easily, even if you’re a total beginner.

What Do We Mean by “Foreign Stocks”?

Before we dive in, let’s get our terms straight. “Foreign stocks” (or “international stocks”) are simply shares of companies that are based and operated outside of the United States.

This includes:

• Developed Markets: Companies in stable, mature, wealthy economies like Japan, the United Kingdom, Germany, France, Canada, and Australia.
• Emerging Markets: Companies in developing, high-growth economies like China, India, Brazil, South Korea, and Taiwan.

When you buy a share of Toyota (Japan), Samsung (South Korea), or LVMH (the French luxury group behind Louis Vuitton and Dior), you are investing in foreign stocks.

The #1 Reason: True, Powerful Diversification

If you take only one thing away from this article, let it be this. The core benefit of international investing is diversification.

You’ve heard the old saying, “Don’t put all your eggs in one basket.”

Most Americans have 90-100% of their investments in the same basket: the U.S. economy.

This feels safe when the U.S. is booming. But no single country’s economy can outperform all others, all the time. Economies move in cycles. While one is struggling, another might be soaring.

A Powerful Lesson: The “Lost Decade”

Investors who started in the late 1990s learned this lesson the hard way.

From 2000 to 2009, the U.S. stock market (as measured by the S&P 500) had a negative total return. It was a “lost decade” for U.S. stocks. If you had 100% of your money in the S&P 500, you made nothing for ten years.

But what about international stocks?

• During that same period (2000-2009), international stocks in developed markets gained over 30%.
• Stocks in emerging markets gained over 150%.

By holding a mix of U.S. and international stocks, an investor would have not only survived the “lost decade” but actually turned a healthy profit. International stocks act as a ballast, helping to smooth out your returns and protect your portfolio when the U.S. market inevitably hits a rough patch.

The “U.S. Companies Are Already Global” Myth

This is the most common argument against international investing, and it’s a flawed one.

The argument is: “I don’t need to buy foreign stocks because I own Coca-Cola, Apple, and Procter & Gamble. They make most of their money overseas. Therefore, I’m already globally diversified.”

This is only half-true. While these companies have global revenue, they are still American companies.

This means their performance is still fundamentally tied to:

• The U.S. Dollar: A strong dollar can hurt their profits when they convert foreign sales back to dollars.
• The U.S. Economy: A U.S. recession will hit them hard, regardless of their sales in Europe.
• U.S. Politics & Regulation: They are subject to U.S. laws and geopolitical tensions.

True diversification isn’t just about where a company sells its products. It’s about owning companies that are based in different economies, subject to different economic cycles, and priced in different currencies.

Unlocking New Growth: The Case for Emerging Markets

The United States is a mature, stable economy. That’s great for safety, but it also means its days of explosive, double-digit GDP growth are likely over.

If you are looking for high-growth potential, you must look to emerging markets (EMs).

These are countries with:

• Faster Economic Growth: Their economies are growing 2x or 3x faster than the U.S.
• A Rising Middle Class: Billions of people are moving from poverty to the middle class, creating a massive new wave of consumer spending.
• Technological Leaps: Many of these countries “leapfrogged” old technology (like landlines) and went straight to new tech (like 5G and mobile payments), creating huge new industries.

Investing in emerging markets is a high-risk, high-reward proposition. But by allocating a small part of your portfolio to them, you get a “growth kicker” that you simply can’t find in developed markets anymore.

Accessing Entire Industries and Global Giants

The U.S. stock market is fantastic, but it’s heavily dominated by a few sectors—especially technology.

International investing is your only way to get direct access to other world-class industries and the “best-in-class” companies that lead them.

• Luxury Goods: The U.S. has no real equivalent to the European luxury powerhouses like LVMH (France) or Hermès (France).
• Semiconductors: While the U.S. designs chips (NVIDIA, AMD), the world’s most important manufacturer is TSMC (Taiwan).
• Automotive: Want to invest in global leaders like Toyota (Japan) or Volkswagen (Germany)? You have to go international.
• Green Energy: Some of the world’s largest wind and solar companies are based in Europe, like Orsted (Denmark).
• Healthcare: Giants like Novo Nordisk (Denmark)—the company behind Ozempic and Wegovy—or Roche (Switzerland) are global health leaders.

If you only invest in the U.S., you are excluding many of the best, most dominant companies on the planet.

The Hidden Dangers: Understanding the Risks of Foreign Investing

Of course, it’s not all upside. To be a smart investor, you must understand the risks. Investing abroad carries a few extra layers of complexity.

1. Currency Risk (The Exchange Rate Headache)

This is the most important risk to understand. When you buy a foreign stock, you are making two bets at once:

1. A bet that the company will do well.
2. A bet that the company’s local currency will do well against the U.S. Dollar.

Simple Example:

• You invest $1,000 in a German company. Your $1,000 is converted to Euros to buy the stock.
• The stock does great! It goes up 10% in one year.
• However, during that same year, the Euro’s value falls 10% against the U.S. Dollar.
• When you sell your stock and convert your Euros back to Dollars, your 10% gain is completely wiped out by the 10% currency loss. Your net return is $0.

This “currency risk” can work for you or against you, but it’s an extra layer of volatility you don’t have when buying U.S. stocks.

2. Geopolitical and Political Risk

A company can be fantastic, but if the country it’s in becomes unstable, your investment is in danger.

• War: A prime example is the war in Ukraine, which made Russian stocks virtually worthless to outside investors overnight.
• Sanctions: A government can be hit with sanctions that make it illegal for you to hold investments there.
• Unstable Governments: A new regime could seize private assets or change laws in a way that destroys a company’s business model.

3. Economic and Regulatory Risk

The U.S. has some of the highest standards for corporate transparency in the world. This isn’t true everywhere.

• Accounting Standards: Some countries have looser, more opaque accounting rules, making it harder to know if a company’s profits are real.
• Regulatory Crackdowns: A government (like China in recent years) can suddenly crack down on an entire industry (like tech or education), causing stocks to plummet.
• Less Liquidity: In smaller markets, some stocks are “thinly traded,” meaning there aren’t many buyers or sellers. This can make it hard to sell your shares at a fair price.

How to Easily Invest in Foreign Stocks (The Practical Guide)

Reading about these risks might sound scary. But here’s the good news: you don’t have to become an expert in geopolitics or currency trading to invest internationally.

For 99% of American investors, there are two simple, brilliant ways to do it.

Method 1: International ETFs and Mutual Funds (The Easiest Way)

This is the best solution for almost everyone. An ETF (Exchange-Traded Fund) is a basket that holds hundreds or even thousands of stocks at once. You buy one share of the ETF, and you instantly own a tiny piece of all the companies inside it.

This gives you perfect diversification without having to pick individual stocks or worry about a single company failing.

Here are the key “flavors” of international ETFs:

• Total International Stock ETFs: These are the gold standard. They invest in all developed and emerging markets outside the U.S. This is the perfect “all-in-one” diversifier.
  • Popular Examples: VXUS (Vanguard Total International Stock ETF), IXUS (iShares Core MSCI Total International Stock ETF)
• Total World Stock ETFs: These funds invest in everything, including the U.S. (e.g., 60% U.S. stocks, 40% international stocks). If you want a single fund that does it all, this is it.
  • Popular Example: VT (Vanguard Total World Stock ETF)
• Developed Markets ETFs: These buy stocks only in stable, developed countries (Europe, Japan, etc.) and skip the riskier emerging markets.
  • Popular Example: VEA (Vanguard FTSE Developed Markets ETF)
• Emerging Markets ETFs: These buy stocks only in high-growth emerging markets (China, India, etc.).
  • Popular Example: VWO (Vanguard FTSE Emerging Markets ETF)

Method 2: American Depositary Receipts (ADRs)

What if you do want to buy an individual foreign company, like Toyota or Sony?

You can do it easily by buying an ADR, or American Depositary Receipt.

An ADR is a certificate created by a U.S. bank that represents shares of a foreign stock. The ADR trades on a U.S. stock exchange (like the NYSE or NASDAQ), is priced in U.S. Dollars, and you can buy and sell it just like a share of Apple.

It’s a simple “wrapper” that makes a foreign stock look and feel just like a domestic one.

• Popular Examples: TM (Toyota Motor), SONY (Sony Group), BABA (Alibaba Group), NVO (Novo Nordisk)

Method 3: Direct Investing (The “Hard Mode”)

It is possible to open a special international brokerage account, convert your U.S. Dollars to foreign currency, and buy stocks directly on the London Stock Exchange or Tokyo Stock Exchange.

Don’t do this. This is for high-net-worth professionals. It involves complex tax implications, high fees, and is completely unnecessary for a layperson.

How Much of Your Portfolio Should Be International?

This is the big question. There is no single “right” answer, but most financial experts agree on a healthy range:

Most experts recommend that 20% to 40% of your total stock portfolio be in international stocks.

Don’t just take our word for it. Look at the “pros.”

Vanguard’s popular Target Date Retirement Funds (the “set it and forget it” funds that millions of Americans use) are a great benchmark. By default, they automatically hold 40% of their stocks in international markets and 60% in the U.S.

If your portfolio is 100% U.S. stocks, you are making a significant bet that the U.S. will continue to outperform the entire rest of the world—a bet that has failed for entire decades.

A Quick Note on Taxes

Yes, taxes are slightly more complicated. When you receive dividends from a foreign company, that company’s home country will likely “withhold” a small amount for taxes.

The good news? The U.S. has tax treaties with many countries, and your brokerage will provide you with a form (Form 1099-DIV). You can often claim a Foreign Tax Credit on your U.S. tax return, which essentially reimburses you for the taxes you already paid.

This is yet another reason why ETFs are so great—they handle much of this complexity for you.

So, Is It Worth It?

Yes. Absolutely.

Investing in foreign stocks is not a trendy or “risky” strategy. It is the very definition of a smart, disciplined, and balanced investing approach.

By staying 100% in the US., you are taking on more risk, not less. You are tying your entire financial future to the fortunes of a single country.

The world is full of incredible, innovative, and growing companies. By diversifying, you capture more of that global growth, protect yourself from a U.S. downturn, and build a more resilient portfolio that can stand the test of time.

You don’t need to be an expert. You don’t need to read Japanese financial statements.

All you have to do is buy a single, low-cost international ETF. It’s the simplest, most powerful step you can take to upgrade your portfolio from “good” to “great.”