Some of the greatest investors in history have famously favored a substantial home-country bias for U.S. investors, meaning a portfolio overwhelmingly weighted toward American stocks.
Perhaps the most famous example is Warren Buffett. Beyond his long-running optimism ("never bet against America"), the Berkshire Hathaway chairman emeritus has left remarkably simple instructions for how money left for his wife should be invested after his death: 90% in a low-cost S&P 500 index fund and the remaining 10% in short-term Treasury bonds.
Vanguard founder John Bogle expressed a similar preference. Despite Vanguard becoming one of the world's largest providers of international mutual funds and exchange-traded funds (ETFs), Bogle argued that foreign stocks weren't necessary for a well-diversified U.S. investor. He generally favored a heavy U.S. allocation and suggested that investors who wanted global diversification limit it to no more than 20% of their equity portfolio.
Today, however, international exposure remains a standard component of many professionally constructed portfolios. Owning stocks outside the U.S. can reduce dependence on a single country's economy, market valuations, sector composition and currency while providing exposure to companies and industries that aren't well represented domestically.
If you're a do-it-yourself investor, that leaves a practical question: How much international exposure, if any, should an ETF portfolio actually have?
Below, we'll examine the case for and against investing abroad, look at how some of the largest global equity ETFs divide their portfolios between U.S. and international stocks and highlight low-cost ETFs that can help you build an international allocation.
Why allocate to international stocks?
Despite the U.S. stock market's stellar performance over the past decade and its outsized influence on global markets, it's still just one basket.
Diversification can mean spreading investments across large-, mid- and small-cap stocks, value and growth styles, and all 11 stock market sectors.
It can also mean investing across different countries. One of the most instructive ways to visualize is with an asset return map spanning 2017 through 2026 from the BlackRock Investment Institute.
Sometimes called an "asset-class quilt," this type of chart ranks the annual returns of different asset classes, geographies and market segments:
Even during a period when U.S. equities performed exceptionally well overall, they didn't lead every year.
Chinese equities outperformed U.S. stocks in 2017, 2019 and 2020, while European equities took the lead in 2025. Emerging-market equities also delivered superior returns during several periods.
There is no readily discernible pattern an investor could have reliably used beforehand to move between these markets at exactly the right time.
Indeed, that's one of the arguments for owning the broader basket and allowing market dynamics to determine which regions contribute most to returns over time.
History also offers a more painful example of why geographic diversification can matter. The U.S. stock market experienced what is commonly called the "lost decade," generally referring to the period encompassing the aftermath of the dot-com bubble and the 2007-09 global financial crisis.
From January 1999 through December 2009, U.S. stocks produced an annualized total return of just 1.7%, according to Portfolio Visualizer. Adjusted for inflation, the annualized return was actually negative at -0.8%.
International developed markets did better at 4.1% annually, or 1.6% after inflation. Emerging markets were the standout, returning 13.7% annually and 10.9% after inflation:
Metric | U.S. stocks | International developed stocks | Emerging market stocks |
Starting balance | $10,000 | $10,000 | $10,000 |
Ending balance | $12,050 | $15,600 | $41,234 |
Annualized return (CAGR) | 1.7% | 4.1% | 13.7% |
Standard deviation | 16.4% | 17.9% | 25.3% |
Best year | 31.4% | 38.7% | 76.0% |
Worst year | -37.0% | -41.3% | -52.8% |
Maximum drawdown | -50.9% | -57.1% | -62.7% |
Sharpe ratio | 0.01 | 0.15 | 0.52 |
Sortino ratio | 0.01 | 0.21 | 0.78 |
With hindsight, it's easy to say that a young investor should simply have kept dollar-cost averaging into U.S. stocks at depressed valuations. Living through the experience is different.
Few investors have unlimited tolerance for watching a portfolio effectively go nowhere for a decade and actually lose purchasing power after inflation.
And there's no rule saying a future period of underperformance must last only 10 years. Japan provides a particularly sobering example.
The Nikkei 225 peaked at 38,915 at the end of 1989 following an enormous asset bubble. Japanese equities subsequently collapsed, and the country's economic difficulties became known first as the "lost decade" and eventually the "lost decades."
The Nikkei didn't surpass its 1989 record until February 2024, more than 34 years later.
That history provides a useful thought experiment for U.S. investors. How much of today's preference for U.S. stocks reflects their genuinely attractive characteristics, and how much reflects recency bias after an unusually strong period of relative performance?
If you'd been a Japanese investor near the end of 1989, after years of exceptional domestic returns and with Japan representing an enormous share of global equity markets, how comfortable would you have been putting virtually your entire stock allocation into Japan for the next three decades?
There are legitimate advantages to a U.S. home-country bias. Holding domestic stocks avoids the direct currency fluctuations that come with owning foreign assets denominated in euros, yen, pounds and other currencies.
U.S. stocks can also be simpler from a tax perspective. Foreign investments may involve withholding taxes on dividends and other complications, while qualified dividends from eligible U.S. companies can receive preferential federal tax treatment.
Those are worth considering, but they are generally secondary portfolio-construction considerations rather than the starting point. Asset allocation determines how much you hold in stocks vs bonds and, within equities, how broadly you diversify across countries and regions.
Those decisions should primarily reflect your objectives, risk tolerance and time horizon. Tax treatment, currency exposure and the particular ETFs used to implement the allocation come afterward.
What the leading global equity ETFs do
If you believe adding international stocks makes sense, the next question is the one that tends to cause analysis paralysis: How much should you allocate outside the U.S.?
There are two practical approaches. The first is to let market capitalization determine the allocation automatically. The second is to choose your own target allocation and periodically rebalance the portfolio back toward it.
Market cap is simply a company's share price multiplied by its number of shares outstanding. A market-cap-weighted global index extends that concept across countries.
As the collective market value of one country's companies increases relative to the rest of the world, that country receives a larger weight. If it decreases, its weight falls.
There are several advantages to this approach. Turnover tends to be low because you're not constantly trying to decide which country deserves a larger allocation.
If China, India or another market eventually becomes a much larger share of the global stock market, its allocation can increase naturally. If U.S. stocks continue outperforming and maintaining their dominant share of global market cap, you continue to benefit from that, too.
You're not systematically selling winners simply because they've exceeded an arbitrary geographic target. It's about as hands-off as international diversification gets.
For many investors, that's also the difficult part. It requires resisting the temptation to tinker with allocations based on whichever country has recently performed best or worst.
There isn't, however, one universally authoritative definition of the "global stock market." Different index providers define their investable universes differently, and the resulting U.S.-vs-international allocation can vary considerably.
Consider the iShares MSCI World ETF (URTH). It tracks the MSCI World Index, and an investor using URTH as a reference point might therefore arrive at a 70% U.S./30% international equity allocation.
But the MSCI World Index has an important limitation: Despite its name, it covers only developed markets. Emerging markets such as China, India, Taiwan and Brazil are excluded.
Contrast that with the Vanguard Total World Stock ETF (VT), which tracks the FTSE Global All Cap Index. Here, U.S. stocks account for roughly 60% of the portfolio.
One major reason is that VT includes emerging markets, which collectively account for approximately 10% of the fund.
The alternative is to choose an international allocation yourself. You might decide on 10%, 20%, 30%, 40% or even 50% of equities outside the U.S.
The exact percentage is arguably less important than selecting an allocation that you understand and can realistically stick with through periods when either U.S. or international stocks are lagging.
You can backtest different combinations indefinitely and fit the data to find the U.S.-international split that would have produced the best historical result. But that optimization is inherently backward-looking.
The winning allocation over the previous decade tells you what worked during that particular decade, not what will work during the next one.
If you set your own target, the more important decision is establishing a systematic rebalancing policy.
One approach is calendar-based, such as reviewing the portfolio quarterly or annually and restoring the target weights. Another is threshold-based, where you rebalance only after the U.S. or international allocation moves a predetermined amount away from its target.
Rebalancing doesn't necessarily require selling, either. Investors who are still accumulating can direct new contributions toward whichever allocation has fallen below its target.
That can be particularly useful in taxable accounts, where selling appreciated ETFs may realize short- or long-term capital gains and create an immediate tax bill.
Ultimately, a lot of the debate over international stock allocation amounts to splitting hairs. If you've already decided that geographic diversification belongs in your portfolio, much of the important work is done.
Choose an allocation you can maintain, establish rules for rebalancing it and avoid repeatedly changing the plan based on whichever market happens to be leading at the time.
Currency hedging adds another wrinkle
Another thing investors should understand before dismissing the historical performance of international stocks is that returns haven't always been driven solely by the underlying companies. Currency movements can either help or hurt a U.S. investor's return, sometimes substantially.
Consider the iShares Core MSCI EAFE ETF (IEFA). It invests across developed markets outside the U.S. and Canada, meaning its underlying stocks trade in currencies such as the euro, Japanese yen, British pound and Swiss franc. But IEFA itself trades in U.S. dollars, which creates an additional source of return and risk.
If the U.S. dollar strengthens against those foreign currencies, the value of the foreign investments translates into fewer dollars, creating a headwind for a U.S. investor. If the dollar weakens, the opposite occurs: Those foreign assets translate into more dollars, providing a tailwind even if the underlying stocks themselves haven't performed any better.
ETF issuers are well aware of this, which is why many offer currency-hedged versions of their international funds. IEFA's counterpart is the iShares Currency Hedged MSCI EAFE ETF (HEFA).
HEFA provides similar developed-market equity exposure. But this fund seeks to hedge its foreign currency exposure back to the U.S. dollar, reducing the effect of exchange-rate movements on returns.
Over the 12.6-year period through September 24, this distinction made a substantial difference. According to Testfolio, HEFA produced a 10.7% annualized return, compared with 7% for IEFA. Cumulatively, that worked out to approximately 260.7% vs 135.1%.
Assuming distributions were reinvested and ignoring taxes and trading costs, a $10,000 investment would have grown to approximately $36,069.62 in HEFA vs $23,509.48 in IEFA.
Does that mean HEFA is inherently the better international ETF? No. It means currency hedging was beneficial over this particular period, during which the U.S. dollar strengthened substantially against several developed-market currencies. The hedge insulated HEFA from much of that currency headwind.
If the U.S. dollar instead weakens against those currencies, the relationship can reverse. An unhedged international ETF such as IEFA can benefit from the currency translation, while a hedged ETF such as HEFA largely gives up that tailwind.
All else being equal, the same mechanism that helped HEFA during a strong-dollar environment can work against it during a sustained period of dollar weakness.
If you have a shorter time horizon or a particular desire to isolate the performance of foreign stocks, you may prefer to hedge some or all of your currency exposure. Over a multi-decade horizon, however, predicting currency movements becomes extremely difficult, and exchange rates can move through lengthy cycles in either direction.
If you don't have a strong view, there's nothing wrong with splitting the difference. A 50/50 allocation between hedged and unhedged international exposure, periodically rebalanced, reduces the need to make an all-or-nothing bet on the future direction of the U.S. dollar.
As with the international allocation itself, having an investment policy you can follow may be more useful than continually trying to predict which currency regime comes next.