Why Invest in International ETFs?
International ETFs hold stocks of companies headquartered outside the United States, giving you exposure to economies and markets around the world. While U.S. stocks have dominated recent performance, the global equity market is roughly split between U.S. and non-U.S. companies. Ignoring half the world's investable opportunities means concentrating your portfolio in a single country's fortunes.
The case for international diversification is straightforward: U.S. outperformance is not guaranteed to continue. From 2000 to 2009, international stocks significantly outperformed U.S. stocks. In the 2010s, the pattern reversed. No one knows which decade will favor which market, so owning both reduces the risk of betting wrong.
International ETFs also provide exposure to companies and industries underrepresented in the U.S. market — European luxury goods, Japanese robotics, Korean electronics, Australian mining. These are world-class businesses you cannot access through a U.S.-only portfolio. Explore options on our international ETF page.
Developed Markets vs. Emerging Markets
International ETFs are divided into two main categories:
Developed markets include countries with mature, stable economies and well-regulated financial markets: Japan, the United Kingdom, Germany, France, Australia, Canada, and others. These markets behave similarly to the U.S. — lower volatility, established companies, strong property rights. VEA is the most popular developed market ETF.
Emerging markets include developing economies with higher growth potential but greater risk: China, India, Taiwan, South Korea, Brazil, and others. These markets offer faster GDP growth and younger populations but come with political risk, weaker governance, and currency volatility. VWO covers emerging markets. Read our dedicated emerging market ETFs guide for more.
Total international ETFs like VXUS combine both categories in a single fund, holding over 8,000 stocks across 40+ countries. This is the simplest way to get comprehensive international exposure. About 75% of VXUS is in developed markets and 25% in emerging markets.
Top International ETFs
VXUS (Vanguard Total International Stock ETF): The broadest option, holding over 8,000 stocks across developed and emerging markets. Expense ratio: 0.07%. Ideal for investors who want comprehensive international exposure in one fund.
VEA (Vanguard FTSE Developed Markets ETF): Developed markets only — Japan, UK, Europe, Australia, Canada. About 4,000 holdings at 0.06% expense ratio. Choose this if you want to control your emerging market allocation separately.
IXUS (iShares Core MSCI Total International Stock ETF): iShares' answer to VXUS, tracking the MSCI ACWI ex-U.S. Index. Similar broad exposure at 0.07%. The main difference is the underlying index provider (MSCI vs. FTSE).
EFA (iShares MSCI EAFE ETF): The oldest international developed market ETF, tracking Europe, Australasia, and Far East markets. Higher expense ratio at 0.32% but very liquid. Being replaced by VEA and IXUS for most buy-and-hold investors.
Compare these options side by side in our VXUS vs VEA comparison.
Understanding Currency Risk
When you buy an international ETF, you are implicitly investing in foreign currencies. If you own Japanese stocks through VEA, your returns depend on both the performance of those stocks and the exchange rate between the yen and the dollar.
If the U.S. dollar strengthens against foreign currencies, your international returns are reduced when converted back to dollars. If the dollar weakens, your international returns are boosted. Over the past decade, a strong dollar has been a headwind for U.S. investors in international stocks.
Some ETFs offer currency-hedged versions that eliminate exchange rate impact. HEDJ (Europe) and DXJ (Japan) are examples. These funds use forward contracts to neutralize currency movements, letting you capture only the local stock market return. However, hedging adds cost and removes a source of diversification, since currency movements can buffer losses during market downturns.
For most long-term investors, unhedged exposure is fine. Currency effects tend to average out over long periods, and the diversification benefit of holding different currencies has value in itself.
How Much International Exposure Do You Need?
This is one of the most debated questions in portfolio construction. Views range widely:
Market-cap weighted (40%): Non-U.S. stocks represent roughly 40% of global equity market capitalization. Vanguard's target-date funds allocate about 40% of equities internationally, following this logic.
Moderate allocation (20-30%): Many advisors recommend this range as a balance between diversification and the practical observation that U.S. multinationals already provide some international revenue exposure.
Minimal or zero (0-10%): Some investors argue that U.S. companies derive significant revenue from overseas, providing indirect international exposure. Warren Buffett famously holds very little international exposure.
A reasonable starting point for most investors is 20-30% of equity allocation in international stocks. This provides meaningful diversification without overcomplicating your portfolio. The three-fund portfolio approach uses a total international fund alongside a U.S. total market fund, making this allocation simple to implement.
Building International Exposure Into Your Portfolio
The simplest approach: hold VTI (U.S.) and VXUS (international) in your desired ratio, plus a bond ETF like BND. This three-fund combination covers the entire global stock and bond market at nearly zero cost.
For more control, split international into developed (VEA) and emerging (VWO) and set separate allocations. This lets you adjust your emerging market exposure without changing your developed market position. A common split is 70% developed, 30% emerging within the international allocation.
You can also add country-specific ETFs for targeted bets — EWJ (Japan), FXI (China), EWG (Germany) — though these increase complexity and concentration risk. For most investors, broad international ETFs provide sufficient diversification. Learn more about global portfolio construction in our international diversification guide, and use the comparison tool to evaluate international funds.
