why invest in international stocks: Practical Guide

Why invest in international stocks

Investors often ask: why invest in international stocks? In plain terms, this question asks whether and how to add equity exposure to companies domiciled outside an investor’s home country (for example, non‑U.S. equities for a U.S. investor). This guide explains what international stocks include, the main benefits and risks, how to implement exposure using practical instruments (ETFs, mutual funds, ADRs, or direct market access), and up‑to‑date institutional context that informs allocation decisions. By the end you will have clear options to consider, a framework for portfolio allocation, and concrete next steps — including how Bitget products and Bitget Wallet can support parts of implementation.

Definition and scope

"International stocks" refers to equity securities of companies domiciled outside the investor’s home country. For a U.S. investor this typically means:

• Developed ex‑U.S. markets: economies such as Japan, the UK, Germany, Australia, France and others. A commonly used benchmark for these markets is the MSCI EAFE Index, which covers developed markets in Europe, Australasia and the Far East (MSCI EAFE represents roughly 20+ developed markets).
• Emerging markets: higher‑growth, higher‑volatility economies such as China, India, Brazil, South Korea and others, commonly represented by the MSCI Emerging Markets Index (MSCI EM covers two dozen or so markets and a broad set of constituents).
• Cross‑listed shares and ADRs: many foreign companies list American Depositary Receipts (ADRs) on U.S. exchanges for convenient access.

Indices and benchmarks you will see cited: MSCI EAFE (developed ex‑U.S.), MSCI Emerging Markets (EM), FTSE All‑World ex‑US, and various regional or country indices. International stocks can be held directly on local exchanges, through ADR programs, or via pooled funds (international mutual funds and ETFs).

Historical context and market cycles

Historically, global equity leadership rotates. There have been multi‑decade stretches when U.S. large‑cap stocks meaningfully outperformed many non‑U.S. markets — notably during periods where large U.S. technology firms became dominant components of the global market‑cap weighted indices. Conversely, there have been periods when international equities, particularly emerging markets or certain regional pockets, outperformed the U.S.

Institutional research documents these cycles and the drivers behind them: differences in sector composition, corporate earnings growth, capital‑allocation patterns, currency movement, and macroeconomic cycles. For example, rising commodity prices can favor exporters and resource‑heavy markets; weak domestic demand in the U.S. but strong external demand in other regions can create non‑U.S. leadership windows; and valuation dispersion between markets can set the stage for relative outperformance by cheaper markets.

As of January 2025, according to Morningstar reporting on market dynamics, market‑cycle divergence and valuation dispersion were cited as part of a tactical case for increasing non‑U.S. allocations for some investors. Institutional asset managers (Lazard, Dodge & Cox) have similarly pointed to cyclical earnings improvements and more attractive relative valuations outside the U.S. as reasons investors might shift allocations tactically. These observations reflect multi‑year patterns rather than guarantees: past cycles inform probable drivers but do not predict exact outcomes.

Key reasons investors consider international stocks

Diversification benefits

One of the most commonly stated reasons to ask why invest in international stocks is diversification. Holding equities across countries spreads exposure to distinct economic cycles, policy regimes, and idiosyncratic risks. For example, a portfolio concentrated in one country can be exposed to domestic policy shocks or sector concentration; adding international stocks typically reduces single‑country concentration risk and can improve risk‑adjusted returns over long horizons.

Diversification benefits arise because correlation between domestic and foreign equities is less than one. Correlations can increase in global stress periods, but over full market cycles international exposure tends to smooth portfolio returns and reduce reliance on a single market narrative.

Access to different growth opportunities

International markets provide exposure to companies and sectors that may be under‑represented in a domestic index. Examples:

• Consumer brands with large domestic market share in Asia or Latin America.
• Resource and commodity companies headquartered outside the home country.
• Rapidly growing technology and fintech firms in emerging economies.

These companies can offer growth drivers that are not available domestically — in some cases because the domestic index tilts toward capital‑intensive tech firms rather than domestic consumer or industrial champions.

Sector and style diversification

Indices vary by sector weightings. For instance, U.S. large‑cap indices have become heavily weighted to information technology and communication services in recent years. By contrast, many international indices have higher weights in financials, industrials, materials, and consumer staples. That sector spread provides style diversification (value vs growth) and reduces sensitivity to sector‑specific shocks.

Investors who want exposure to value‑oriented sectors, dividend payers, or industrial exporters frequently look outside the home market to achieve a different mix of sector exposures.

Valuation and income potential

Valuation differentials between U.S. and non‑U.S. stocks can be meaningful. Over time, ex‑U.S. markets have often traded at lower price‑to‑earnings ratios and offered higher dividend yields than U.S. large caps. For long‑term investors, buying markets with cheaper valuations can increase expected long‑term returns, assuming mean reversion in valuation spreads.

Dividend income is another driver: several developed‑market and emerging‑market indices have historically offered higher trailing yields than the S&P 500, which can matter for income‑oriented investors.

Currency effects

Currency movements can amplify or reduce returns measured in the investor’s home currency. For a U.S. investor, a weakening U.S. dollar can boost dollar‑denominated returns on foreign equities; conversely, a strengthening dollar can reduce foreign returns. Currency exposure is therefore an explicit source of return and volatility when you ask why invest in international stocks.

Risks and challenges of international investing

Understanding risks is essential to decide why invest in international stocks for your portfolio. Key risk categories include:

Currency risk and exchange‑rate volatility

Foreign currency translation affects returns. If a local currency depreciates versus the investor’s reporting currency, the translated equity return declines. Currency volatility can either magnify gains or exacerbate losses relative to domestic equities.

Some investors accept this volatility for potential upside (e.g., a falling dollar), while others use currency‑hedged products to moderate translation effects.

Political, regulatory, and geopolitical risk

Countries differ in policy stability, regulatory regimes, and geopolitical risk. Examples include sudden regulatory changes affecting specific sectors, capital controls, or sanctions. These are real considerations when you weigh why invest in international stocks, especially in emerging markets or politically sensitive jurisdictions.

Corporate governance, accounting, and disclosure differences

Accounting standards, disclosure norms, and minority‑shareholder protections are not uniform across jurisdictions. Investors may face higher information risk in markets with weaker reporting or governance standards, which can affect valuations and downside protection.

Market structure, liquidity, and trading hours

Some foreign markets have lower liquidity, wider bid/ask spreads, and different settlement cycles. These differences can increase execution costs and complicate large or time‑sensitive trades. Trading windows that do not overlap with the investor’s time zone can also present practical challenges.

Taxation and legal remedies

Cross‑border holdings can be subject to withholding taxes on dividends, differing rules for capital gains, and more complex tax reporting. Legal recourse for minority investors in foreign jurisdictions can be limited or slower compared to domestic remedies. These are important considerations when evaluating why invest in international stocks.

How to get exposure to international stocks

There are multiple practical ways to gain exposure. The method you choose affects costs, tax treatment, convenience, and the precision of your exposure.

Mutual funds and international ETFs

Pooled vehicles are the most common route for retail investors. Benefits include instant diversification, professional management, and convenient trading (for ETFs). Options include:

• Broad ex‑US index funds or ETFs (e.g., FTSE/ MSCI ex‑US trackers).
• Developed ex‑US funds and emerging‑market funds as separate sleeves.
• Actively managed international funds seeking stock selection or regional tilts.

ETFs often have lower expense ratios and intraday liquidity; mutual funds may suit long‑term investors using automatic investments. When choosing pooled funds, compare expense ratios, tracking error, turnover, and the fund’s benchmark methodology.

American Depositary Receipts (ADRs) and cross‑listed shares

ADRs allow U.S. investors to buy shares of foreign companies listed on U.S. exchanges in U.S. dollars. They provide company‑level exposure without direct foreign market trading friction. ADRs can be useful for selective single‑stock exposure to foreign firms.

Direct foreign market investing

Investors can use brokers that support direct trading on non‑U.S. exchanges to buy local listings. This approach provides precise exposure but requires understanding settlement rules, currency conversion, foreign brokerage relationships, and tax filing complexities.

Bitget supports international markets access for eligible products and, for crypto‑native holdings and related tokenized assets, Bitget Wallet offers custody and transfer functionality. For equities, many investors prefer ETFs or ADRs for simplicity.

Active vs passive approaches and factor/strategic‑beta options

Beyond plain‑vanilla index tracking, investors can choose active managers targeting alpha or factor‑based strategies such as value, dividend, quality, or low‑volatility international funds. Smart‑beta funds offer systematic tilts that may capture style premia in international markets.

Portfolio construction and allocation guidance

Determining an allocation to international equities

There are different frameworks to decide how much to allocate to international stocks:

• Market‑cap weighted global allocation: allocate according to global market capitalization (for many investors, this implies a significant foreign allocation because non‑U.S. markets make up a majority of global market cap).
• Home‑bias adjusted: many investors intentionally underweight foreign equities compared with global market cap to reflect familiarity and domestic income needs.
• Goal‑oriented: allocations tailored to objectives (income, growth, diversification). Conservative investors may hold a smaller foreign slice focused on developed markets; growth investors may add an emerging‑market sleeve.

Typical allocation ranges in common investor frameworks often fall between 10% and 40% of equities for international exposure, depending on home‑bias, risk tolerance, and investment horizon. The right allocation for you depends on risk tolerance, time horizon, and the role of equities in an overall financial plan.

Tactical tilts and rebalancing

Tactical tilts are short‑to‑medium‑term adjustments based on valuation spreads, earnings momentum, or macro divergence. For example, an investor might temporarily increase emerging‑market exposure when valuations are depressed relative to U.S. peers.

Maintain disciplined rebalancing to capture diversification benefits: rebalancing forces profit‑taking from outperformers and buying laggards, preserving your strategic risk profile.

Currency hedging strategies

Investors can choose unhedged international funds (exposing them to currency swings) or currency‑hedged ETFs that seek to neutralize translation risk. Hedging generally reduces volatility from exchange‑rate moves but can limit upside if the foreign currency strengthens.

Use hedging selectively: long horizons and investors seeking potential currency diversification benefits may accept unhedged exposure; income investors or those sensitive to short‑term volatility might prefer hedged funds.

Valuation, earnings, and macro drivers (recent evidence)

Recent institutional research has highlighted several contemporaneous reasons some investors asked why invest in international stocks during 2024–2025:

• Valuation spreads: many global asset managers (Lazard, Schwab) noted more attractive starting valuations ex‑U.S. versus U.S. large caps, which increases expected long‑term returns for ex‑U.S. allocations.
• Earnings momentum: several regions showed improving earnings growth trajectories after policy shifts or reopening dynamics—an element emphasized in research from Dodge & Cox and New York Life Investments.
• Policy and cycle divergence: monetary and fiscal policy settings can differ materially across regions; when domestic policy tightens while other regions remain stimulative, earnings trends and currency moves can favor non‑U.S. equities.

As of January 2025, according to Morningstar reporting, tactical arguments for adding international exposure included more attractive earnings revisions outside the U.S. and valuation discounts in selected markets. These institutional perspectives provide context for allocation decisions, but they do not guarantee outcomes.

Practical considerations and costs

Brokerage, fees, and execution costs

Costs vary by implementation method:

• ETFs/mutual funds: expense ratios, trading commissions (if any), and bid/ask spreads.
• ADRs: standard trading commissions and possible custody or ADR fees.
• Direct foreign trading: foreign exchange fees, foreign brokerage commissions, and settlement charges.

Always compare the total cost of ownership: expense ratio + trading costs + tax drag.

Tax considerations and documentation

Foreign dividends may be subject to withholding taxes that reduce net yield; investors can often claim foreign tax credits to offset double taxation depending on their jurisdiction. Fund structures differ in how they handle withholding taxes; for instance, U.S. investors may receive net dividends from a U.S.‑domiciled ETF that aggregates and processes withholdings for them.

Tax reporting can also be more complex with direct foreign holdings; consult a tax advisor for cross‑border holdings.

Regulatory and investor‑protection considerations

The U.S. Securities and Exchange Commission (SEC) and Investor.gov provide guidance on international investing risks and the protections investors should verify in a broker or adviser relationship. If you use a foreign broker or engage directly in overseas markets, understand the applicable investor‑protection regime and dispute mechanisms.

Risk mitigation and due diligence

Best practices to manage the risks associated with international exposure include:

• Use broad funds for diversified exposure rather than concentrated single positions when you seek diversification.
• Vet fund managers on fees, track record, and concentration risks.
• Stress test portfolios under currency shocks and regional economic scenarios.
• Monitor political and macro developments that can affect holdings; select regional exposures to suit your risk tolerance.
• Confirm custody and counterparty protections when using brokers; prefer regulated custodians.

Bitget users can manage parts of their allocation process by using Bitget‑listed products where relevant and keeping security best practices for any crypto or tokenized representations in Bitget Wallet.

Example allocations and implementation scenarios

Below are illustrative allocation examples. These are educational examples and not investment advice.

Conservative investor (income and capital preservation focus):

• 80% domestic equities
• 15% developed ex‑U.S. equities (broad ETF or fund)
• 5% emerging markets (small EM sleeve)

Balanced investor (moderate growth and diversification):

• 60% domestic equities
• 30% developed ex‑U.S. equities
• 10% emerging markets (active or passive)

Growth investor (higher risk, long horizon):

• 40% domestic equities
• 30% developed ex‑U.S. equities
• 30% emerging markets and small‑cap international exposures

Implementation examples by instrument:

• Conservative: large developed ex‑US ETF + hedged option for currency risk.
• Balanced: mix of passive developed ex‑US ETF, EM ETF, and selective ADRs for high‑conviction foreign companies.
• Growth: higher EM ETF allocation, active EM fund for stock selection, and selective country ETFs.

Frequently asked questions (FAQ)

Q: How much should I allocate to international stocks? A: There is no one‑size‑fits‑all answer. Many target allocations range from 10% to 40% of equities, depending on home‑bias, risk tolerance, and goals. Use strategic allocation frameworks and adjust for tactical views if you have conviction.

Q: Should I hedge currency exposure? A: Hedging reduces currency‑driven volatility but can limit upside if the foreign currency strengthens. Long‑term investors often accept unhedged exposure; investors sensitive to short‑term portfolio volatility or income investors may prefer hedged funds.

Q: Are international stocks riskier than U.S. stocks? A: Risk profiles differ. Emerging markets typically offer higher return potential with higher volatility and political/regulatory risk. Developed ex‑U.S. markets often display lower governance concerns than many EM markets but still differ from the investor’s home market in corporate governance and structure. Risk should be assessed relative to objectives.

Q: What is the simplest way to gain international exposure? A: For most investors, broad international ETFs or mutual funds provide the simplest and most cost‑effective route to diversified foreign equity exposure. ADRs are a simple route for single‑company exposure.

Q: How do dividends get taxed on international stocks? A: Many countries withhold tax on dividends paid to foreign investors. Withholding rates vary by country and by tax treaties. Fund structures and investor jurisdiction determine the ability to claim foreign tax credits. Consult a tax professional.

Empirical evidence and references

Sources and institutional perspectives underpinning this guide include research and guidance from major institutions and regulators. Notable sources covering the benefits, risks, implementation options, and tactical context are:

• Charles Schwab (research primer on international investing and valuation drivers)
• Vanguard (investor guidance on why and how to invest internationally)
• Dodge & Cox (institutional perspective on the case for international equities)
• Morningstar (tactical discussions and timing context; e.g., commentary on 2025 opportunities)
• Lazard Asset Management (earnings, valuation and currency arguments)
• Hartford Funds (concise checklist of international investing considerations)
• U.S. Securities and Exchange Commission / Investor.gov (regulatory and investor‑protection guidance)
• New York Life Investments (macro/policy cycle and tactical allocation discussion)

As of January 2025, according to Morningstar reporting, analysts highlighted improving earnings revisions and relative valuation discounts outside the U.S. as parts of the tactical investment case for some investors. As of mid‑2024, Vanguard and Charles Schwab remained focused on the structural diversification and long‑term return potential of ex‑U.S. allocations in investor primers. Institutional manager research from Lazard and Dodge & Cox emphasized region‑specific earnings drivers and valuation spreads that inform allocation decisions.

Indices referenced: MSCI EAFE (developed ex‑US coverage), MSCI Emerging Markets (EM), FTSE All‑World ex‑US and S&P 500 (U.S. benchmark).

See also

• Global diversification
• American Depositary Receipts (ADRs)
• International ETFs and mutual funds
• Currency hedging strategies
• Emerging markets investing

External links and further reading (authoritative pages — no hyperlinks provided)

• Investor.gov — U.S. SEC investor education on international investing (SEC / Investor.gov)
• Vanguard — Why invest internationally? (Vanguard guidance)
• Morningstar — International markets coverage and tactical commentary (Morningstar)
• Charles Schwab — Research on international equities and valuation issues (Charles Schwab)
• Lazard / Dodge & Cox / Hartford Funds / New York Life — institutional research papers on international equities

Final notes and practical next steps

Why invest in international stocks depends on your objectives: diversification, access to unique growth opportunities, sector/style balance, valuation arbitrage, and currency exposure are the primary rationales. Risks include currency swings, political and regulatory uncertainty, and practical execution costs.

If you decide to explore international equity exposure:

1. Start with a clear strategic allocation aligned with your risk tolerance and goals.
2. Consider broad ETFs or mutual funds for diversified, cost‑efficient exposure. Use ADRs for single‑company foreign selections.
3. Evaluate costs (expense ratios, trading costs), tax treatment, and the fund’s benchmark methodology.
4. Decide on hedged vs unhedged currency exposure consistent with your time horizon and volatility tolerance.
5. Use reputable platforms and custodians. For investors using Bitget services, consider Bitget’s available equity access products where applicable and manage crypto or tokenized assets with Bitget Wallet for security and custody.

Further exploration: review the institutional research cited above and consult a licensed financial or tax advisor for personalized guidance. For hands‑on execution, you can open a brokerage account that supports international ETFs and ADRs, verify fund expense details, and test a small allocation before scaling.

Explore more Bitget resources to understand available products and wallet security features that can complement your broader portfolio strategy.