International Stocks--The Pros and Cons of Investing in Foreign Companies

Should a well diversified portfolio include international stock funds? That's the question I'm covering in this video. I'll first walk through several reasons an international stock fund is NOT necessary. Then I'll explain why I nevertheless invest in international stocks. Finally, I'll cover what I think is the most important factor as you decide what is best for your investment portfolio.

Video Outline

- U.S. vs. International
- Performance (Portfolio Visualizer)
- Current Valuations (VTI vs VXUS--Morningstar)
- Reasons NOT to own international stocks
1. Warren Buffett & Jack Bogle
- Bogle on Investing
2. International stocks may have lower valuations for a reason
3. The U.S. is the best place to invest
- entrepreneurial
- Soundest institutions
- Excellent governance
- Well diversified economy
4. U.S. companies do business around the world (so we already have int'l exposure)
- About 50% of revenue and earnings come from abroad
5. Diversification may not be that great
- U.S. Small Cap Value may provide more diversification
6. Many countries are unstable politically, economically or both
- Why I own international stocks (and how much)
1. The U.S. dominance won't last forever
- Not a single company on the 1989 list made the 2021 list
- Valuations have soared
2. I prefer the added diversification
3. Valuations are lower than U.S. stocks
4. 20% to 30% is reasonable
5. I'm comfortable I can stick with the allocation long term

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ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

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[dcmike]

Another great video Rob. Thank you. This is a topic that I've thought about a lot over the last few years. I'm generally more comfortable without international funds in my portfolio, but I really appreciate your presentation of the merits of having some exposure to the international marketplace. Your reasoning is very compelling.

[bocarlson]

So excited about this video! I was searching the other day to see if you had made one on international investing. Couldn't have come at a better time.

[ljrockstar]

I think it's good to have a small position of International ETF such as VXUS maybe at a 10-20% role in a portfolio. It's good to have diversification .

[jimwilhelm]

One rule I have is no international funds. Sorry, but I have a shorter time-frame (I am currently retired) and it just does not help adding volatility and lower performance, so there is no real reason to add this sector. I am adding a small contribution to my wife's Roth (she will also be retiring soon) in S&P 500, and VDIGX. The dividend growth fund while not a big performance fund, does add some stability to our accounts. Love your work and looking forward to the next newsletter.

[nickdoyle-achievefinancial]

Good video. There are strong arguments on both sides. I just don't think it makes sense to make a 100% bet on the risks of a single economy, currency, political and economic system. You take that risk in the hope the next 30 years repeats the last and you squeeze an extra 1%? The world will change a lot in 30 years. What if something happens to US currency, political system, etc? You may underperform 5%+. In my opinion, its asymmetric and comparable to idiosyncratic risk. I'm at global market cap, matching VTWAX, but using individual indexes like 58% VTSAX / 42% VTIAX.

[leonelcarvalho]

Ray Dalio invest in international ETFs. I think that if you invest part of portfolio in international ETFs is a manner to make a good diversification. Maybe 20-30%.

[andredutoit]

Very informative video. Thank you, Rob! Keep up the good work xxx

[Jaylion]

Hi Rob. I’ve noticed that both Vanguard’s and Fidelity’s Index Target Retirement date funds begin with around 55% Total US and 35% Total International funds. And we do see and ebb and flow when viewing decade v decade.

[zx]

Thank you for your clear and concise well supported point of view. Your examples were spot on.

[curiouswords]

Thanks Rob for the insights. I took a look at my individual portfolio, apart from my 401ks, and apparently it encompasses about 3% of the overall set of positions. Doesn't seem like a lot, and it isn't, but you are right, they are generally less expensive. With the preponderance of my individual portfolio in US-based indexes, stocks, and bonds, many of those cross borders. I do agree that the diversification play with the internationals is a key component, not to mention the enjoyment of watching them continue to grow and provide dividends in most cases. Keep up the great videos! Really enjoy the way you present each of the topics and the "diversity" of content.

[aridm]

Great video! 👍 I just started with 50% US, 30% DM, 10% EM, 10% bonds as main portfolio... but I have another small portfolio, like 20% of the main, with an S&P500 ETF. Guess I believe in international but I'm still afraid, so this video helps a lot. Thanks!

[janethunt]

Thank you Rob. This was incredibly helpful.

[Doso]

Home bias is a thing. If you want to know why this could be a problem look at charts of the stock market in japan in the last couple of decades. Remember, you are investing for the long term . A lot of things can happen in a couple of decades.

[auricgoldfinger]

Good video. Schwab advisors are very adamant about international over the next 10 years. Jeff Kleinfelt thinks 9-10% vs 4-5% return for the US

[Hoblin]

I'm currently 60/40 US/international. I hold the world market roughly by market weight. I also think that international will outperform over the next 10 - 20 years.

[colecarpenter]

Excellent Presentation I agree I own VXUS

[mrrscta]

I have started a 3 fund portfolio with VTI (60%), IJR (20%) and VXUS (20%).

[junzhang]

Totally agree. I am 70% total US 30% total international

[jerrystpierreofficial]

Rob, VTWAX Total World Stock index launched in 2019. What are your thoughts on it? Rebalance automatically...low cost. Would like your thoughts. Thanks

[Sylvan_dB]

I used to use VXUS but a year or two claimed tax losses and currently hold VEU. I wonder about shorting a particular country or two with business governance I do not trust. I'd must rather have a fund x-country, but those are expensive if they can be found. The other option is a handful of country specific funds. None of those options seem great so I'm still in VEU. 🤔My allocation to VEU is slight. I live in the U.S. and own shares in the few outside of the U.S. companies in addition to my "local" positions. I've calculated that 35% to 50% of my portfolio revenues come from outside the U.S. My final option for x-US investing is to drop VEU and maybe pick up a few more individual companies.